The Basics
The 6 paths To Financial Advice
From barstool advisers to the Internet to certified professionals, everyone seems eager to point the way. Here's how to pan for gold on the financial information stream.

By Jeff Wuorio

Financial advice is everywhere. Whether investment guidance, budgeting advice, debt management or any other type of money topic, it's all over the place and from any number of sources -- friends, neighbors, the guy across the back fence or bar, Web sites with names like (yes, someone really owns that domain name) or even strangers interrupting your dinner with a phone call to sing the praises of gold and silver doubloons.

Granted, it's everywhere you look, but how do you know to whom you should pay attention and who should get the cold shoulder? To help out, we've identified six main sources of money advice: friends and relatives, the Internet (specifically, message boards and chat rooms), the media, self-teaching, classes and other forms of education, and financial professionals. For the most part, the six are lined up starting with the least reliable and ending with more solid sources, although what you really should do in order to make a truly informed decision is use several of these sources in concert.

We'll briefly address each one, outlining what each source may have to offer on the plus side, but also identifying issues that you should know about to avoid putting sour advice into practice.

Listen, but then study

1. Friends and relatives: Most of us probably have someone close to him or her -- a buddy, an in-law -- who purports to be a financial authority. Moreover, he or she may have the portfolio to prove it, not to mention a lifestyle that, in our deepest, darkest moments, we might well resort to some pretty unscrupulous means to obtain for ourselves.

Does it hurt to listen when your brother-in-law is going on and on about the latest hot stock? Of course not, but remember a few guidelines. For one thing, be sure to check anything out that a friend or relation is touting -- don't take his or her word for it, and do your homework. Moreover, be very wary if what you're hearing sounds a little too volatile or smacks of market timing. Not only does market timing rarely work, risky, time-sensitive investing goes against the principle of well-researched, long-term investing.

Finally, remember that friends or relatives, unless they happen to work in the field, are not trained financial professionals. While a title, in and of itself, doesn't necessarily bestow competence, chances are your buddy or in-law doesn't have any formal education to back up what he or she is saying.

2. The Internet: This category includes online chat groups, stock recommendation sites and other investment-related Web sites that are not connected with formal news organizations (we've grouped those under category No. 3, media). For all their proliferation and seemingly endless supply of views and opinion, take heed when using this information. Yes, you can gain an incredible wealth of knowledge from message boards like the ones on MSN Money, but in many cases, you don't know who's providing the information -- or what their ultimate agenda is for sharing their purported insight. The Internet has taken the investing term "pump and dump" to new heights, in which a stock is promoted heavily so that the promoter can take a quick profit by selling as others buy into the promotion. So, keep the shaker handy for the proverbial grain of salt when you need it.

Check credentials

3. Media: Thanks to the Internet, this group is no longer limited to newspapers, magazines and television. Now, we can include established, well-known online media sites like the Wall Street Journal, Smart Money or Business Week with a host of well-backed Internet sites like MSN Money or MSNBC. But, no matter if the information comes in print, broadcast or cyber form, what separates media from other sources is name recognition. Unlike Uncle Gus' Cyber Stock Shack, when you see a well-known name -- be it CNBC, CNNfn, MSN, ABC News, Forbes, or whatever -- there is an underlying premise that what you're hearing or reading has been researched and delivered by competent professionals with a commitment to accuracy and objectivity.

The rub is to approach it with the right frame of mind. For one thing, as you would with online chat groups, treat anything you see in the media as you would any sort of financial advice. If something intrigues you, do some more legwork to find out everything you can. That covers anything from a source as legitimate as Barron's to stock tips from Jim Bob's Online Stock News Emporium and Cyber Rib Joint.

That said, the media can prove an excellent place to receive financial advice and can, in fact, work well with the next three forms of financial advice outlined in this story. It can serve as an educational tool and a resource to begin making your decisions. But doing the research is critical. Keep this in clear perspective: the media is not foolproof. Scalawags can infiltrate even the most respected media outlets. Witness Wall Street Journal writer Foster Winans, who admitted several years ago to selling advance information from his well-known "Heard on The Street" column. For the time being, that placed that respected column on the same integrity plateau as the most fly-by-night investment newsletter.

4. Self-education: This is a critical topic, because it serves you on any number of levels. On the one hand, if you're determined to steer your financial course on your own, it's essential that you know precisely what you're doing. By contrast, if you're working with a financial pro, there's no better client than a smart one. You're easy to work with and, just as important, know how to protect yourself.

The downside to self-education is twofold. First, there are any number of ways to "educate" yourself financially, from the most legitimate books by giants like Peter Lynch to tomes that urge you to stand on your head and chant to choose a mutual fund. If you're interested in learning more, ask a financial pro or knowledgeable friend to recommend a solid Web site (such as this one) or book to get you started. Look into joining an investment club -- they can be great social outlets as well as a fantastic learning experience.

The other issue is to recognize your self-education limitations. Don't expect to know everything. For instance, you may educate yourself until you're an absolute whiz about picking the best growth mutual funds, but you may not know boo about taxes. The easy solution: fire away at the mutual funds, but track down a solid tax pro to handle the IRS. That's the smart way to cover your financial bases.

5. Classes and education: This is still a relatively small but growing segment of financial guidance. An increasing number of colleges and universities are beginning to offer personal finance classes, covering topics such as investing, saving, smart consumer habits and other information. Likewise, community colleges and adult education programs are another source of financial planning and investment instruction.

On the one hand, these can be a great way to learn about money. For one thing, unlike self-instruction, there's a knowledgeable instructor to whom you can turn with questions. Likewise, there's something to be said for the dynamics of group learning, where certain aspects of topics can often be uncovered through discussion and debate.

The downside is there's always the chance that you may get an instructor who doesn't know diddly about money. To protect yourself, ask a friend or relative to recommend a course with which they were satisfied. Additionally, take care if a financial planner or broker teaches the course; while most are aboveboard and there with the best of intentions, others may bend course material in hopes of luring new clients into the fold.

Examine even the pros

6. Professionals: You would think this would be a fairly aboveboard topic -- brokers, financial planners, insurance agents and the like who are trained to serve you in their particular specialized area. Not so. For one thing, some of the titles that financial pros carry can be rather mercurial -- for instance, most anyone can hang up a shingle saying that he or she is a financial planner, no matter what training (if any) they've had. On top of that, insurance agents and planners can wave CLU, ChFC and other abbreviations in your face until you're dizzy, but you still don't have a clue what they mean or, more important, whether that necessarily means they're competent at what they do. (CLU stands for "Chartered Life Underwriter" and ChFC means "Chartered Financial Consultant.")

But that's not to say financial pros aren't a potentially great source of money advice, because many are. The trick is to find those that are genuinely good at what they do and, equally critical, jibe with your personality and philosophy. That said, ask any financial pro with whom you're considering working to describe his or her approach -- are they aggressive or conservative, and does that mesh with your own philosophy? Ask for a list of clients with whom they've worked recently who come close to your situation and goals. Be certain they are crystal clear about how they'll be compensated. In particular, be wary of brokers and planners selling commissioned products, as they may push them just to reap the extra pay. If commissions come up, ask why the planner or broker favors them over non-commission products.


Copyright Information
Title:  The 6 paths to financial advice
Author:  Jeff Wuorio

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