Be wary of pat answers to tough questions

Your Money


I've had the chance to speak candidly to financial planners. Now allow me to do the same with you.

Last month, at the invitation of the editors of the Journal of Financial Planning, I wrote the "Back Page" essay for the monthly magazine, published by the Financial Planning Association.

Bruce Most, a senior editor at the magazine, told me he wanted something "thought-provoking, inspiring, provocative, lively or controversial." He left the topic up to me and said the essay would be an opportunity to speak directly to 50,000 of the nation's top financial planners. (The association is a membership organization of financial planning professionals.)

I wrote that planners and the financial media have grown to be interdependent, able to join forces for the common good by educating the public about personal finance matters. But I also said the trust we need isn't there, not yet.

"Many planners I know are not totally (if at all) comfortable answering reporters' questions and often dubious of their competence and motives," I wrote. "And a good number of my media colleagues are often mistrustful of planners and feel too many are merely seeking personal gain and interested only in wealthy clients, out of touch with the day-to-day concerns of the middle class."

Although such broad-brush stereotyping is obviously wrong, there are problems on both sides, I said. When journalists go beyond their reporting and explanatory role and recommend mutual funds and stocks to buy, they can do great harm to consumers who might act on this "advice," regardless of how appropriate it might be for their personal circumstances.

Another big problem with the financial media is shallow and incomplete reporting, a problem exacerbated by the media's penchant, particularly in television, for quick sound bites or oversimplified black-and-white answers.

As for the planners, my most earnest suggestion was to lighten up, to drop the jargon and use plain English to explain financial topics, and to offer constructive criticism politely rather than hurl personal insults when they disagree or have other problems with media coverage.

With all these thoughts in mind, let me talk to you as candidly as I did to the planners.

For starters, I owe you my job. If not for your interest in personal finance matters, the editors who choose to run this column would find something else in its place. Your many questions - I read them all, even if I cannot answer them individually - suggest many topics for this column.

But, I must tell you, most of you ask the wrong questions: You want quick fixes and either-or answers, such as: What's the best place to put your money now? Is it better to pay off the mortgage or invest if you have extra money? Are annuities good or bad?

Most decisions in personal finance are not nearly that simple but involve trade-offs and the balancing of pros and cons. Overly simplistic answers are easier to give - too many in the media do so - but they often lead you astray. I can discuss pros and cons, but it's up to you to make the decision.

Many of you also are asking the wrong person when you ask me. I receive questions all the time that should be directed at the person who sold you a product, such as, "What's the expense ratio of the mutual fund I bought?" or "How long is the surrender charge period of the annuity I bought?"

Besides being spelled out in the documents you receive (the fund and annuity prospectuses in these cases), this is information that the person selling you these products should have gone over with you before you bought them. If he or she did not, or avoids your questions, I suggest you never again buy anything from that person.

I am also asked repeatedly to give a "second opinion" on a recommendation that a financial adviser gave you because you don't trust him or her. If you don't trust your adviser, I strongly recommend you have a heart-to-heart talk to try to get at the root of the problem. If that doesn't solve the problem, find another adviser. (Unlike many of my media colleagues, I believe most people would be better off with a trusted adviser than going at it alone.)

Seek somebody who will spend time assessing your current financial situation and listening to your goals and dreams before making recommendations. Be leery of those ready to sell you a product right away, before they can even determine whether it makes sense for you.

Humberto Cruz writes for Tribune Media Services.

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