Only hire someone to manage your money who you are also willing to fire. Investing is enough of a challenge without adding the complexity of family and friend relationships. If the financial outcome is anything less than ideal, your personal relationship could suffer. Here are some real life examples to help make my point (with the names and some details changed for privacy):

#1: Maggie invested in a multi-level-marketing program with the hopes of building her assets for retirement. She recruited friends by asking them to attend a luncheon at her house. Many of them “signed up” with the promoter. Maggie and her friends never saw any return on (or of) their money. Even after several years, many of Maggie’s friends still will not speak to her.

#2: Back in 2004, an engaged couple asked me to review their investments. The woman had just purchased a long-term annuity from her fiancé’s golfing buddy. Upon inspection, I found the annuity choice to be completely inappropriate. The woman was disabled and it was likely she would need access to her money. I told her to ask for her money back. When she did, the “golf buddy” was very upset. He begged and pestered her to change her mind. The couple asked me what they should do and I advised them to “stick to their guns” and to keep the money more liquid. I distinctly recall the fiancé telling me, “that commission must have been awfully important to my golf buddy . . . more important than doing what was right for a friend.” Not surprisingly, that relationship ended.

#3: A retired couple came to me in 2007. My firm began managing all of their investment accounts − except one. Although they were very unhappy with that account’s performance, they would not change it because their nephew was handling it. While they couldn’t bring themselves to fire the nephew, they didn’t speak to him either. They had lost on both ends.

#4: I recently helped a couple plan ahead for their retirement. Some of their investments were doing okay, while others were performing poorly. I showed them how to improve their finances with better diversification now and more reliable income later. However, one of their accounts was being managed by the woman’s sister. The couple asked me to wait until the sister retired to take over that last account; ironically, it happened to be the one that needed the most improvement.

#5: Bill and Renee have been clients of mine for many years. Renee wanted to invest $100,000 in their son’s new business. Bill was adamantly against it. Because of their disagreement, the couple separated after four decades of marriage. The son has yet to make any payments on his mom’s “loan.”

#6: Because she was conservative, I recommended low risk investments and fixed financial products to Sharon in 2007. Her son, Alex, asked to be involved so he could review our proposals. Despite no formal financial education, Alex disagreed with my recommendations and said that his mother’s money should go into more aggressive investments. Thankfully, Sharon followed my advice. Five years later, she had another lump sum she wanted to invest. Again, I suggested conservative choices. This time, Sharon hesitated to make a decision. She didn’t return phone calls and ignored letters from my office. After a couple of months of odd behavior, I finally figured out what was going on: Alex was back. This time, instead of wanting his mom to simply invest more aggressively, he wanted her to invest in his new tow-truck business. Sharon didn’t know how to handle the situation. After we talked more about her preference for low risk, Sharon decided to invest only a small portion of her money in Alex’s business and kept the rest more secure.

#7: Carol brought her daughter, Megan, to her first meeting with me. Carol was about to retire and wanted advice on what to do with her money and how to get income. Megan was very interested in my client planning process because she was studying to be a financial adviser. Seeing the potential for conflict, I asked Carol the obvious, “Who will be handling your money once your daughter has completed her licensing and training?” Without even a pause, Carol replied, “Every financial adviser has got to start somewhere, but not with my life savings.” I couldn’t have agreed more with Carol and her wise words.

I’m not suggesting that you can’t have a good working relationship with your adviser, but just remember he works for you. If he is also a close friend or family member, you could face a difficult decision if he does a poor job. Fire him and you could lose your personal relationship. Keep him and your finances could suffer. Here’s a better idea that could save you a lot of grief (and maybe a lot of dough): treat your finances and personal relationships like “church” and “state.” Always keep them separated.

 

 

David D. Holland, a CERTIFIED FINANCIAL PLANNER™ practitioner, hosts a weekday radio show at 9AM on AM1380 Ormond Beach, AM1230 New Smyrna Beach and AM1490 Deland. He has also authored two books in his Confessions of a Financial Planner series. Holland offers investment advice through Holland Advisory Services, Inc., a registered investment adviser in Ormond Beach. He can be contacted at (386) 671-7526. Email your financial questions to info@DavidHolland.com.