Money Magazine Ask the Mole

Taking financial advice from radio gurus

That financial radio show may very well be a paid infomercial to get your money.

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By the Mole, Money Magazine's undercover financial planner

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Have future topics for the Mole to address? E-mail him at themole@moneymail.com.
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NEW YORK (Money) -- Question: I listen to some weekend radio shows and they confuse me. I'm not sure if I should take their advice or turn my money over to them. What are your thoughts?

The Mole's Answer: I don't blame you for being confused. They all seem to offer different solutions for the same situations. It's no coincidence, however, that all of these solutions are offered by a firm associated with the expert guru on the radio.

Interestingly enough, as a financial planner, I have gotten calls myself from television and radio stations offering to make me the official financial planner of their station. And I'll confess I was feeling pretty flattered at the beginning of the first call I received - that is until we got to the part where I would have to pay to become the official planner. Since then I've noticed that the calls are always from someone in the sales advertising part of the station rather than the news desk.

You have probably figured out by now that I was actually being pitched an "infomercial" spot on their channel. What would I be getting for my money? I would be giving advice, and callers would be calling in, and I'd even be announced as the official financial planner of channel 8 news.

The selling point for us financial experts is the opportunity to build our Wall Street "cred," since most listeners will assume that if we were good enough to become the official planner for the station, we must know our stuff. In reality, it only means that we could write a big enough check.

This gets us back to the reason you keep hearing such different types of advice. Experts who have a practice selling annuities often pitch annuities with safety nets. Those selling mutual funds will pitch, you guessed it, mutual funds.

Naturally, all of the hosts of these infomercials have to be somewhat entertaining and offer some predictions of the stock market. Lucky thing that no one ever seems to hold them accountable.

The Mole's Confession: I once thought these infomercials were garbage but have now come to recognize a certain value in them and recommend my clients listen to some. The reason is that we can all learn from them.

They are an excellent example of how our emotions can be used against us, as the hosts of these shows are often masters in this area. They use our instincts for greed to make us believe that we can get great and consistent market-beating returns. Then they use our sense of fear to make us believe we can get all of this without taking any risks.

So listening to these shows with that in mind helps train us how others will also use our emotions to sell us stuff, and I'm not just talking investments, by the way.

I've followed up on some of these radio shows and here are a couple of my favorites:

  • A show that constantly trashes expensive, low-performing mutual funds only to get the listener to contact a local adviser in their network who recommends expensive, but recently-hot mutual funds.
  • A long-running show where the expert has an uncanny record of giving awful market-timing advice. In fact, he is so bad, I'm even considering a little market timing myself - by doing the exact opposite.

So how do you tell an infomercial from a real show? I admit that I have been on TV and radio but I haven't paid a nickel to appear. You can always spot an infomercial because the host is often giving out their telephone number or web site address. They often invite you to call their office to get more "free educational material" or a "free one hour consultation." Or, if it's a national show, they may give you an 800 number to get connected to a local adviser in your area.

My advice: When you hear a show that gives you the clear warning signs that you are listening to an infomercial, remember that this is a paid advertisement like any other. Remember that what works in investing must have low fees and, if you bite and become a client, it's you that will be paying for those fees.

Use caution when taking any advice from any show, whether a paid advertisement or not. Cramer's Mad Money isn't an infomercial, but I wouldn't bet my nest egg on his stock picks either.

But wherever you get your advice from, make sure you understand it. Check out the advice you are receiving. Find out how much you are really paying for advice. Never take advice from someone who makes short-term predictions as if he had a crystal ball. And finally, always question the motives for anyone giving you advice.

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 in financial planning. Want to make contact? E-mail themole@moneymail.com. To top of page

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