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Financial Fool’s Gold


It can be easy to get caught up with the “shiny objects” of the financial world. Isaac will look at a few of these “fool’s gold” situations and explain why these items may be less valuable than you may have thought.

Transcript

John Stillman: Welcome once again to Wright Money Tips with Isaac Wright, president of Financial Dynamics & Associates. You can find him online at wrightmoneytips.com. You can reach out by phone at 804-777-9999, and I believe it was Mr. T who so eloquently said, "I pity the fool." Fill in the blank.

John Stillman: Today, we're talking about not the fool, but the fool's gold. Fool's gold in the financial world. I knew you would appreciate a reference to the '80s, Isaac.

Isaac Wright: I just appreciate the creativity of how you lead into these podcasts, man. I'm going to give you an A+ on that one.

John Stillman: A+ for The A-Team. Did you watch a lot of A-Team back in the day?

Isaac Wright: Yeah, we're going back into the, definitely into the grade school years there, but yeah, he had a good run, didn't he? Mr. T. I know he's kind of been in the celebrity in-and-out phase here over the last 10, 15 years. But yeah, he definitely had his run, especially right after Rocky.

John Stillman: Yup. Rocky III, I believe that was, Clubber Lang.

Isaac Wright: Yeah, yeah. Rocky III. Was that '82, '83? Something like that, so. Anyway, man, he's hopefully still wearing his gold and doing good.

John Stillman: I have a feeling he is. So let's talk about those shiny objects in the financial world, the fool's gold, that can easily distract you, but we don't want you to get fooled by. So one of those things, Isaac, is sales brochures.

Isaac Wright: Yeah. Let me just say this real quick. I think today when you listen to the show, I wanted to bring to the attention of what I call a few things that can sometimes lead you down a path of what some, I'm not saying everybody, but some people when it comes to representing a financial product, service, or whatever you want to fill in the blank with, can sometimes, and I'm not saying this is a witch hunt, these are all legitimate things that can be done, but just kind of understanding some of the pros and cons. So sales brochures, for example, especially when you're talking about insurance or a product, a lot of times those brochures, and they've gotten better to be honest with you about disclosing some of the fine print, but obviously those type of introduction materials are going to paint most of the time a very positive picture. Okay. And of course, that's the job of the sales brochure, right?

Isaac Wright: But please know that there's going to be some fine print, and when it comes down to establishing a contract or relationship or you fill in the blank there, please make sure that you are also working with somebody that is a fiduciary, that's also required to cover with you the pros, cons, things that may have been in the fine print, things that will be in the fine print potentially when it comes to an account contract policy.

Isaac Wright: I've seen people make decisions based upon just a sales brochure, and I will tell you where this comes into play. A lot of times people who "do-it-yourself-ers" will go out there and mix-match maybe two or three offers, and we've had people, I'm not going to name names obviously, but obviously we've had our share of people come in that, with all of that being said, realize that they really wanted to work with somebody that was more of a financial planner, a fiduciary, that would cover a lot of the things that sometimes maybe they don't catch because they don't know what they don't know. So sales brochures definitely can be a shiny object.

John Stillman: Yup. So got to be careful with the sales and marketing material there. All right. How about this, Isaac. Well, show me some projections on what this investment would look like or maybe the historical data? So hypothetical projections, why might that be fool's gold?

Isaac Wright: Again, you can kind of extrapolate data from however many years in the past. And obviously, some of that data, especially when it comes on the security side, is compliant. It can go through what's called GIPS compliance and they can double, triple check numbers, but it doesn't mean anything about what's going to happen in the future. Most people sometimes, and not say everybody, but a lot of people know that the market obviously doesn't ... where it's been in the past doesn't mean it's where it's going to go in the future, but again, that's been sometimes an issue with cherry picking data.

Isaac Wright: So hypothetical projections, in my opinion, you need to also be aware that if you have one that it's being disclosed to you that it's hypothetical, the insurance side of the business, interestingly enough, has probably had a lot more heat on it with this type of projection based upon different things that they are using to monitor gains going forward for a contract, whether it's a life insurance contract that's tied to certain indexes and annuity, same situation. People have been unfortunately known to really try to push the extension of how much money it can potentially make to make the projections look really, really good. You know, if you're not having a relationship with somebody, of course if somebody's just going to sell you a product and roll out the door and you don't see them again, they're going to do everything under the sun to make things probably look as great as they can.

Isaac Wright: Well, at our firm, we're always very hypersensitive to try to do things where, if anything, we're trying to be more defensive with any type of projections, because as soon as you put yourself in a place where you're saying that this is a hypothetical likelihood, and if it doesn't come to fruition, you're breaking that trust or you're putting yourself in a place where you may not necessarily keep that client. So we're not looking to do that, and I hope many firms, or if you already have an advisor that you're working with, needs to be in the same mentality. So hypothetical projections definitely need to be an asterisks on, is this a hypothetical, number one. Number two is, what are some of the pros and cons and some of the small or fine print?

John Stillman: Now, this one may not seem like something that would be fool's gold, but hear us out on this because it really can be, and a lot of people ask for this. Can I have some references of clients that you work with, or do you have testimonials from people anywhere? Why might testimonials and references, Isaac, be fool's gold when it comes to making financial decisions?

Isaac Wright: Well, this is really becoming a very muddied situation because with the proliferation of social media, obviously people going on Google and websites and all of the above, and of course there's now websites upon websites that will tell you any particulars about a company, or random people can roll up in and just make a review without even ever stepping into your office. There is no checks and balances. So I would just tell you to be careful about if you go on the internet or anywhere else to research a company. I could, or anybody else for this matter, could have many, many positive reviews or many, many negative reviews. The thing that you got to understand is this, is there's no process to filter good or bad information, and we are, let's call it directly, in the world of being a fiduciary or being an RIA/IRA firm, we can't go out there and ask people to put out testimonials.

Isaac Wright: So anything that's out there from compliments on social media to negative feedback, and of course you always got a unbelievable amount of people that are just negative in general when it comes to any type of online information today, and it's really, in today's world, that's what people like to do is a fast response of, "Hey, let me see how the company's done on the internet," but that is the least reliable thing that you can focus on. And to me, testimonials and references, I'm not telling you what to do, just be aware of it.

John Stillman: Certainly watch out on that stuff. We're talking about financial fool's gold, shiny objects that may seem like something you want or may put something in a different light than maybe the truth would indicate. How about this, Isaac? Advisor awards. You have an advisor who has all these plaques on their desk or awards on the wall and it seems like, oh, well this is a person who has credibility. They've been recognized in their industry. What might be the red flag there?

Isaac Wright: Really, you may want to ask, what are they being recognized for? So if they have 58 trophies in their waiting room, have they simply sold a bunch of investments or insurance products to garner that trophy? I mean, does that really help you at all? So recognition, nothing wrong with recognition as long as it's viable. It may be something that you want to understand if somebody is putting themselves out there with multiple awards or a million dollar round table, all of these. Now, you can go out and really buy credibility with these financial five-star wealth manager awards. These are just nothing more than the opportunity to market yourself with no due diligence. And again, it's very, very much shunned on in today's world when it comes to somebody that's holding themselves out as a fiduciary to put themselves out there without, let's call it being a little bit more credible about how they've won an award to begin with. So please be aware of that. It may look really good to have somebody that has a bunch of trophies, but sometimes that's based on their success and not yours.

John Stillman: This is not unique to the financial realm, by the way. I think a lot of industries do this. Like you have super lawyers, or you might have an attorney that you speak to and you see that they're a super lawyer. Ooh, what does mean? Well, you know, they've basically paid to have that designation, so it doesn't actually mean anything in terms of it helping you.

John Stillman: All right, last one we'll talk about here today on our financial fool's gold discussion, Isaac, and that's professional designations. So let's just talk about yours. You are a chartered financial consultant, a CHFC I believe they call that. What does that even mean? And then, why might some financial designations, professional designations be fool's gold?

Isaac Wright: Well, first of all, I mean, legitimately, designations like myself, CHFC, CFP, RICP and several others are accredited subject matter when it comes to ... And you can obviously be able to adjust some of this based upon what your goals are. Obviously for retirement planning, we can focus on taking subjects, passing tests, exams, and it's a legitimate process to be able to garner that designation.

Isaac Wright: I've said this in the past, I've said this I think previously on a radio show, I consider CHFC, CFP, when it comes to a financial planner, your top level. Of course, CFP's done a great job of marketing, maybe a little bit more than the CHFC, but I personally think that both designations are great. I also think a retirement income certified professional, if you're focused on retirement, is a great designation. And then obviously, just maybe on a smaller scale, just having passed a series six or seven or your insurance, your life health and annuity license, at least shows some legitimacy of where you're at in your field and where you're going, but there's a lot of what I call less than substantial amount of work that's involved in some of these designations. Some of the things that are out there today really don't require anything more than maybe a one day course.

Isaac Wright: So it's, to me, I'm just trying to bring light to where things are at and why you need to have somebody that is holding themselves to a higher standard so you can minimize some of these shiny objects. I mean, some of this stuff still is going to be around, so if you have any concerns, if you're looking for somebody, especially if you are in a place of nearing or at or transitioning to retirement and want help with not just investments, but a financial plan on top of that, that's what we're here to do. But John, again, I hope this has been helpful, and these shiny objects, not to say that they don't maybe have some glitter, but I just don't think it sometimes is always cracked up what it should be.

John Stillman: I had a friend who always included the designation HSG after his name, which looked really impressive. Oh, I didn't know he was an HSG. That's very impressive. You know what HSG stood for?

Isaac Wright: Uh-uh (negative).

John Stillman: High school graduate, so just be careful.

Isaac Wright: Yeah, people just creating credibility is ... I think you summed it up pretty well for the show.

John Stillman: Be careful on those professional designations. Certainly, there are some that are worthwhile. Some that don't mean a whole lot. So that's your financial fool's gold. I pity the fool who gets tricked by any of these. If you'd like to get in touch with Isaac and the team, the number is 804-777-9999. That's 804-777-9999. You can call or text. That is the main office number, so you can call and speak to somebody, or if you're listening to this because you can't sleep at two in the morning and you say, "Well, nobody's in the office right now," you're probably right, so just text. Let us know you'd like some help. We'll get back with you during regular business hours.

John Stillman: And by the way, I hope, now that I think about it, you're not listening to this podcast because it helps you go to sleep, but whatever service we can provide for you, we're happy to be here. Again, 804-777-9999. We'll talk with you again soon right here on the Wright Money Tips.

Announcer: Information is for illustrative purposes only and does not constitute tax, investment, or legal advice. Always consult with a qualified investment, legal, or tax professional before taking any action.

Announcer: Advisory services offered through J. W. Cole Advisors, Inc., JWCA. Financial Dynamics & Associates, Inc. and JWCA are unaffiliated entities.

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