Bloomberg.com: Opinion
(Bloomberg) -- Normally this is the time I recommend a midyear financial tune-up.
While saving more, paying down debt and investing in your retirement plan are my usual chestnuts, this year I'm advising that you start by tuning out bad advice.
This is surprisingly difficult when we are solicited with advertisements from computers, cell phones and supermarkets around the clock. And these messages are tough to resist once salesmen have us ensnared in their office or free seminar.
Sometimes knowing what to avoid is half the battle. The first deceptive lure is the free meal sponsored by an investment firm. I know it's a cliche that there is no free lunch, but many people fall prey to spider-and-fly setups to lure new clients.
Newspapers are loaded with ads for ``free'' pitch fests. Lately I have seen a lot of promotions for making a fortune through buying foreclosures. Almost all of them are at fancy hotels, restaurants or conference centers.
The North American Securities Administrators Association looked into these prospecting sessions and discovered that all of them were sales presentations, even though they were advertised as ``educational workshops'' in which ``nothing would be sold.''
Almost 60 percent of these events were ``poorly supervised, 50 percent featured exaggerated or misleading advertising claims, 23 percent involved possibly unsuitable recommendations and 13 percent appeared to be fraudulent.''
Wrong Adviser
Of course, there is nothing wrong in approaching a financial professional for advice.
Yet to get the kind of service that's in your best interest, you should be willing to pay for it. And you need to check credentials. Keep in mind that ``financial adviser/consultant'' and ``wealth manager'' are largely unregulated designations.
You would be better served to ask if they are fiduciaries. These professionals take full legal responsibility for their advice and can be sued if they are guilty of wrongdoing.
Most advisers are securities and insurance brokers who make you sign an industry-sponsored arbitration agreement. You forfeit your right to go to court in the event of a dispute.
Ideally, you should look for a state- and federally registered investment adviser and fee-only certified financial planner.
The latter professional charges only for his time, has at least three years of financial-planning training and experience and won't sell anything on commission. That's a good start because you won't have a salesman who needs to meet quotas.
Annuity Sales
You can find fee-only planners through the National Association of Personal Financial Advisors and certified planners through the Financial Planning Association.
Another overpowering pitch to tune out involves commissioned variable and equity-indexed annuities.
Most people don't need them because they tend to be overpriced, oversold and can perform poorly when you subtract all commissions and fees. Relentlessly hawked by a $1 trillion industry, they are retirement-income products with mutual funds inside them.
If you need an annuity, consider a low-cost, no-commission, fixed, immediate one. The best type isn't sold by salespeople and will guarantee a retirement income for life.
It's worth a look if you have a lump sum from a 401(k) plan or you want to supplement your retirement income.
Worst Pitch
You can buy no-commission annuities through Vanguard Group and T. Rowe Price, or through Napfa members, who have access to immediate fixed annuities at low institutional pricing.
Among the most awful pitches is something that's being touted as an employee benefit: the 401(k) debit card.
This allows you to treat your retirement fund as a cash account to withdraw money. Don't even think about it.
Debited withdrawals are treated as loans, subject to interest and fees and must be paid back within five years, warns the Financial Industry Regulatory Authority, the securities industry regulator.
What happens if you don't pay back these funds? Unlike a checking account-linked debit card, you will owe income taxes plus a 10 percent penalty if you are younger than 59 1/2.
The stinger is that you have to pay back your account with after-tax dollars within five years. Your initial contributions were free of income taxes, so there's a double and possibly quadruple penalty involved when you add taxes, interest and fees.
If anything, you should contribute fully to a 401(k)-type account, at least enough to get the employer match, if there is one. It nets you a 100 percent return on your initial investment.
Also consider starting a Roth 401(k) account, which is funded with after-tax dollars, although retirement withdrawals aren't subject to income tax.
Boosting basic savings is always a prudent pitch, although one you will rarely hear from a broker. To get that message, listen to your inner saver -- and tune out the noise.
(John F. Wasik, co-author of ``iMoney,'' is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: John F. Wasik in Chicago at jwasik@bloomberg.net.
