Financial Coaching and Financial Advice… what to watch out for

I was pleased to see that the post I wrote about finances for the new year received a positive response, and a friend of my wife’s actually reached out to see if I could help her set up her stock portfolio. As a licensed attorney and a formerly licensed Investment Advisor Representative, a little alarm bell went off in my head. Of course, as I have done in the past, we are always free to give free advice, but a lot of laws are out there to regulate people who are paid to give investment advice. Since this is a person I have never met, I wondered if I would be able to charge her a fee to help her set up her portfolio. And when I started looking into that, I really went down a rabbit hole.

The basic bottom line I found is that pretty much any advice about the stock market or investments constitutes investment advice. Any form of trade or compensation (ie trading a annual horoscope reading for some stock picks) could trigger laws and regulations that apply to people who are in the business of providing financial advice.

Which means the industry has a lock on the information that is given to clients. It’s the same situation we see in the health industry. Monied interests like big pharma and the medical lobby don’t want to compete with all of the amazingly effective and beneficial herbal remedies, and so you are not allowed to say anything about a natural plants ability to help cure disease. You can only give health advice that channels the profit to the industry.

Same with financial advice. Unless you are associated with a big firm with a huge compliance department, you are locked out of the game. This is always something that irked me when I was in the Industry. We would generate literally hundreds of pages of disclosures which made it clear that the firm was not liable for anything no matter what. Each account document had, I’m not exaggerating, up to twenty or so pages of disclosures in fine print. These disclosures were absolutely incomprehensible to any normal human being. Seriously. I am a trained attorney and I had my series 7 and my series 66 licenses, and I could not understand the disclosures.

Moreover, the disclosures just opened the door for giving bad advice without facing any liability. So what’s the difference between the safety of an illegal coach and a legal financial advisor? Nothing at all. Basically a legal financial advisor is paid by a big firm that papers everything with tons of CYA disclosures so that you can never hold them responsible for their bad advice, while an illegal financial coach giving investment advice for compensation can give the same advice and face huge civil and criminal penalties. What a racket!

But in my research I have learned that giving away advice in a generally available publication, like this one, is protected by the first amendment. So here, I can offer my opinions just like all the pundits, and since I have only readers (even if very few of them) and since I do not charge anyone fees for my advice, I’m free to publish my opinions, and hopefully help some people.

I can also give financial advice incidental to legal advice. So if a client asks me to set up a trust or look at an estate plan, I can advise them to put their assets into an index fund if that’s incidental to the legal advice. Lawyers always find a way to get the upper hand right?

So how does one make good financial decisions in this crazy environment? You either have to seek advice from someone who is working in the grey market, or you have to go to a financial advisor who is going to be selling you products marketed by the firm they work for.

They will simply never tell you to buy a few stocks and hold them for a long time in an account that does not charge fees. And that’s basically it!

Open an inexpensive account, use their self guided research tools, buy some stocks that you like in good companies, and hold them for a long time. That’s it in a nutshell. This is the advice that they are working so hard not to let people give!

No wonder Warren Buffett is the Oracle of Omaha. He has been giving this advice for years.

By the way, BRK-B, Berkshire Hathaway B class shares that Mr. Buffett made available so that regular investors could invest with him, meet that requirement beautifully. Or if you have about $450,000 you can buy a single share of BRK-A, the A class shares which also carry voting rights, then you will get to cast a vote if you go to the shareholders meeting.

So there. In my freely given, publicly available, first amendment protected speech, I can suggest that BRK-B is a great investment for people starting out an investment portfolio. It is itself highly diversified, so you could have up to 20% of your portfolio invested there.

Of course, the stock market goes up and down, and world events shake things up. But I think in this “free” country, you can still tell the truth as you see it without getting sued.