Beware False Prophets in the Financial Industry

Financial Advisor is explaining a contract - young couple
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During your life there will be plenty of people who will offer you advice. Family, friends, co-workers and even people you hardly know.

Some of this advice may prove to be helpful; other times it will be absolute waffle and in some cases downright harmful.

To make progress in life you need to seek advice, words of wisdom, counsel or guidance from people with greater knowledge than you possess. Your formal education (school and university) operates on this very principle. It is simply not possible to be knowledgeable on every topic, so you seek out sources that possess the knowledge you wish to obtain.

The advice from your family, social and professional network should be weighed up against the value you place on that person’s opinion. How do they conduct their life — with honesty and integrity or are they a little bit loose with the truth? How have they achieved their professional success? What are their personal relationships like and what are their life experiences? (It always amazes me that a Catholic priest is called on to give marriage guidance!)

It is up to you to determine whether the advice you receive has merit or not.

The advice I am talking about so far is the free advice you will be offered. The free advice offered by your network of contacts can be very well meaning but erroneous (think of the father in the Telstra ad when he advised his son about ‘keeping the rabbits out of China’) and if you follow the advice it could have embarrassing consequences. This is where you have to have a good filter.

Beware free advice which can also prove to be very costly e.g. a friend saying, ‘You should invest with my mate Bernie Madoff.’

If the free advice sounds reasonable, undertake a more detailed independent investigation to ascertain the merits of the advice. The other type of advice is the stuff you pay for – legal, accounting, financial, medical, psychological, motivational, fitness, life coaching, business coaching etc.

However, paying for advice doesn’t necessarily mean it is sound advice. You must exercise cautious judgment as not everyone you seek a professional opinion from is competent.

A good example is the ‘scalpel-happy’ doctor who always insists on operating before trying other simpler and less invasive methods. If concerned patients accept him at his word and don’t do their research on what other treatments are out there, they’re at risk of suffering an unnecessary and extremely painful operation. Not to mention the cost.

There are some excellent professionals — lawyers, accountants, doctors etc. but it pays to have a questioning mind so you can evaluate their level of competence. If in doubt seek a second and even a third opinion.

Other false prophets are the dreaded and numerous ‘consultants’. I was once told, ‘A consultant is someone who takes your watch and charges you to tell you the time.’ In my experience there is a fair bit of truth in this statement.

I recall we engaged a business coach at a cost of $10,000 and while some value was delivered, I do not believe we received $10,000 worth. The areas they highlighted for improvement were the ones I was already aware of. They just took my concerns and turned them into the basis for their report.

Another trap for the unwary are the self-help gurus (motivational speakers). I have read a number of books on positive thinking and have found them a useful source of inspiration. The difference between buying a book and signing up for an expensive seminar or ongoing motivational training is enormous.

With a book you can at least read a few paragraphs or chapters before you decide whether to invest $30–50 or not.

However the many hundreds or thousands of dollars to attend a seminar, workshop and/or participate in ongoing ‘training’ is deducted upfront. Whether the program is of value or not will not be known until the end.

Seminars are often run as ‘enticers’ and the real sell is to commit you to signing up for a more expensive workshop or some form of ongoing training/information program. This is where the real mother lode is for the promoter.

By all means look, listen and learn from people whose opinion you respect but be very loathe to sign up for expensive programs.

Several years ago a self-proclaimed property ‘guru’ named Henry Kaye (do a Google search) ran some ‘How to get rich in property’ seminars. People paid $15,000 or more to attend and receive the magic formula for success in the property market. Kaye actually used the seminars to sell the attendees over-priced properties he had a vested interest in.

The authorities eventually caught up with him but it was far too late for many investors who were doubly duped (paid $15,000 to be manipulated into buying an over-valued apartment).

The prophets, spruikers and gurus are in all walks of life — motivational, life coaches, business coaches, property investment, share trading, futures trading, health and well being, financial planning and the list goes on.

The benefit the public has today is they can access blog sites that provide some feedback on whether the person conducting the program is credible or not and if the program offers value for money.

The people conducting these programs are usually exceptionally good public speakers with impressive powers of persuasion (after all that is their job) — so before being tempted to sign up, go away and do some research in the cold light of day and make an informed decision on whether or not to put pen to paper.

If you want lasting change in your life it has to come from a genuine desire within to alter your habits. This takes discipline, time and a real commitment to stay the course.

Perhaps a particular program will help equip you with the necessary tools to implement the changes you are looking for in your personal, financial or business life but just make sure you are receiving value for money from a credible source.

Otherwise these false prophets will be making real profits at your expense.

Regards,

Vern Gowdie+
for The Daily Reckoning Australia

Join The Daily Reckoning on Google+

Vern Gowdie

Vern Gowdie

Vern Gowdie has been involved in financial planning in Australia since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning, was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top 5 financial planning firms in Australia. He is a feature contributing editor to The Daily Reckoning and is Founder and Chairman of the Gowdie Family Wealth advisory service and editor of the Gowdie Letter To follow Vern's financial world view more closely you can you can subscribe to The Daily Reckoning for free here.
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