In this episode, podcast host and author of “Control Your Retirement Destiny”, Dana Anspach, covers part 1 of Chapter 12 of the 2nd edition of the book titled, “Whom To Listen Too.”

If you want to learn even more than what there is time to cover in the podcast series, you can find the book “Control Your Retirement Destiny” on Amazon.

Or, if you are looking for a customized plan for your retirement, visit us at sensiblemoney.com to see how we can help.

Chapter 12 (Part 1) – Podcast Script

Hi, this is Dana Anspach. I’m the founder and CEO of Sensible Money, a fee-only financial planning firm. I’m also the author of Control Your Retirement Destiny, a book that covers the numerous decisions you need to make as you plan for a transition into retirement.

This podcast covers the material in Chapter 12, on “Whom To Listen To”. Meaning, when you need financial advice, who can you turn to?

If you like what you hear today, go to Amazon and search for Control Your Retirement Destiny. And if you are looking for a customized plan, visit sensiblemoney.com to see how we can help.

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Not everyone needs a financial advisor, but certainly everyone needs reliable financial advice. So where do you find it? That’s what I cover in this episode.

There are three main places to find advice – the media, the product manufacturers, and the 250,000 to 350,000 people out there who go by the label “financial advisor.” I’m going to cover all three.

First, the media.

Early in my career in the mid 90’s, I had an experience that made me realize the impact of the media.

A client called up one day, quite excited, and said, “Do you have municipal bonds?”

“Yes,” I replied. “Why do you ask?”

“Well,” she said, “they told me I need municipal bonds.”

I was a bit confused, as I was her financial advisor, so I apprehensively said, “Do you mind telling me who ‘they’ are?”

“Oh,” she said, “you know—the people on TV.”

Municipal bonds provide interest that in most cases is free from federal taxes, and if the bond is issued by the state you live in, it may be free of state taxes too. That means municipal bonds can be a good choice for investors in high tax brackets who have investment money that is not inside retirement accounts.

This client however, was in a low tax bracket and most of her money was inside her IRA. The TV host didn’t provide specifics—only an overview of municipal bonds and the fact that they paid tax-free interest. This woman heard “tax-free” and thought it must be something she should pursue.

The media doesn’t know you. I don’t know you either.

I get inquiries from strangers on a regular basis asking for advice. Most of the journalists and other media personalities I know experience the same thing. Someone emails us a few pieces of data and wants to know what to do. It’s hard, because we want to help. But we don’t want to guess.

To feel comfortable giving financial advice, most of the time I need to do a thorough financial projection. To do it right, I need to know everything about someone’s financial life. Once I see the entire picture, I can answer a question about the particular puzzle piece someone is asking about.

Today, the media encompasses both traditional venues, such as TV, radio and magazines, as well as numerous online mediums, like blogs and podcasts. In all forms of media, there are pay-to-play articles, spotlights and links.

There is nothing wrong with the pay-to-play model, as long as it is disclosed. As a consumer, you just need to be aware that many things you see, such as certain top advisor lists, are put together because someone paid to be on the list. Many product endorsements in blogs are there because the blogger gets affiliate revenue, or advertising revenue.

The other challenge with media advice is that, by nature, it is designed to be mainstream broad content. For eight years, I worked to write articles that fit within a 600-800 word count requirement. For most financial topics, you can’t cover all the rules in 600-800 words. Then I would receive emails from people letting me know which items I missed.

For example, I can write about the topic of Roth IRAs and generically say that most people are better off funding after-tax Roth IRAs or 401ks instead of pre-tax IRAs, and as I write that I can instantly think of numerous exceptions.

Media advice is not personal. That means you should think of it as education – but not as advice. For it to be good advice, it must be personal. By all means, use the media, books, podcasts, articles and shows as a great resource to learn from. But don’t forget that the person producing that content doesn’t know you.

Next, I want to discuss the industry of financial advice. There is a big difference between a product and advice, and as a consumer, you need to be able to identify which is which.

In 1995, at age 23, I started my career as a financial advisor. I studied for 60 days and passed an exam. I was granted a Series 6 securities license. I didn’t know much, and I didn’t know that I didn’t know much—but I was a financial advisor. This Series 6 license granted me the right to sell mutual funds. That meant I could legally collect a commission on sales. I went to work.

I was lucky enough to have a mentor who taught me to make a financial plan for each client and then recommend products based on the results of the plan. But, I worked for a product company. My job was to sell their proprietary mutual funds and insurance products and I was paid based on what I sold.

What if a client wanted advice on their 401(k) plan offered by their employer? I wasn’t supposed to provide that type of advice because it was outside the scope of the company’s offerings and outside the scope of the errors and commissions insurance. What is someone had tax questions? I was supposed to tell them to go talk to their tax advisor.

As I learned more about the industry, I decided I wanted to be independent. I wanted to be able to recommend any product that fit the client’s needs. And I wanted to be able to answer questions on all aspects of their finances.

Today, 25 years later, many financial advisors are still not independent. They carry an insurance license or securities license and are paid primarily to sell the products their company authorizes them to sell.

What do I mean by product? I mean mutual funds, exchange-traded funds, mortgages, annuities and other insurance products. A company must produce it, make sure it complies with current laws, and then have a distribution channel to market the product.

Some companies market directly to the public. Vanguard, who’s flagship product is mutual funds, comes to mind when I think of this type of distribution channel. Other companies market both to the public and through a network of advisors. Fidelity and Charles Schwab are two examples of companies who have their own products, and who distribute their products directly to the retail public as well as through a network of advisors.

Then you have insurance products, which are generally marketed through a network of either captive or independent agents, or through brokers who also carry an insurance license.

As an independent advisor, I receive solicitations almost daily from product manufacturers. I find many of them offensive. For example, although it has been almost 15 years since I have carried an insurance license, I routinely receive email offers explaining how I can make $50,000 or more in commissions next month by putting clients in the latest annuity offering. It is hard for me to believe that that the advisors out there who respond to these offers have their clients’ best interest in mind.

In addition to products such as mutual funds and mortgages, you have service packages to choose from. For example, there are now online firms called RoboAdvisors who offer a platform where the investments are selected and managed for you for a fee. This service package is for investment advice. I like these service packages and I think they are better than product-oriented sales people. Yet, investment advice should not to be confused with holistic financial planning. A service that manages a portfolio for you is not the same as a financial planner who looks at your household finances and gives advice on all aspects of your balance sheet.

Many financial advisors—and the media—place far too much emphasis on product selection and investment advice and far too little emphasis on financial planning.

Think of it this way; you would probably find it odd if you went to the doctor, told them your symptoms, and without any examination they began to write you a prescription. This situation happens regularly with the delivery of financial advice.

I hear war stories from consumers who come in to interview us. They tell me about advisors who began the conversation by touting their investment prowess, or talking about a variable annuity that can somehow both grow and protect your money at the same time. These advisors start off by talking about products instead of starting with a household view of the client’s finances.

Financial planning is about how much you save, what types of accounts you contribute to, how you track your expenses and net worth, and how to set yourself up for success no matter what happens with the economy or the stock market. There is not a product out there that can solve a financial planning problem.

Just as you can’t take a drug that overcomes the effect of a lifestyle of no exercise and unhealthy eating, you can’t find a magic investment an