Financial advice: Get it in writing

When making investment decisions, believe what your adviser writes, not what he speaks. From "The Mole," Money Magazine's undercover financial planner

By The Mole, Money Magazine's undercover financial planner

(Money Magazine) -- If you're an investment news junkie, you may remember hearing about the SEC and NASD stepping up fines in recent years on financial firms that give false or misleading statements to customers.

The fines worked, to a point. The companies started clamping down on those kinds of statements in written materials that clients get. Statements like:

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The Mole is a certified financial planner and certified public accountant who, in the interest of fairness, thinks you should know what goes on behind the scenes. Have a topic you'd like him to write about? E-mail themole@moneymail.com.
  • "Our annuity gives you the upside of the market without the risk."
  • "Our award-winning research means you don't have to settle for index- fund returns."
  • "You won't pay a fee to invest in this."

But don't feel all safe and cozy just because the watchdogs seem to be on the job. Some financial advisers will still say anything to make a sale.

In fact, all three statements above were given to clients of mine by their previous advisers orally.

All are deceptive: Annuities don't give you all of the market's upside, just some of it, after heavy fees. Most actively managed funds won't beat an index, and no amount of "award winning" research will help your adviser predict which few will. And all investments have fees, even if you don't see them or pay them directly.

Even though my clients relied on these promises when they chose investments, they had nothing in writing to prove it. In fact, within minutes of making those misleading statements, the adviser probably had the client sign a multi-page disclosure document that contained language (buried deep inside) directly contradicting the oral promise. Advisers know no one is actually going to read all the disclosures before signing.

Here's an easy solution. When your adviser makes an extreme-sounding claim, send him a nice, friendly e-mail articulating your understanding of what he said.

Ask him to confirm it in writing. If the statement is accurate, he should have no problem. If he backpedals, dismisses your request by saying "That's in the disclosure document" or just calls you up to repeat his oral promise, get very suspicious. If he won't write, something's not right.  Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.