Should I warn a friend about a potentially unscrupulous family member?
September 6, 2013 4:12 PM   Subscribe

An old friend contacted me asking if I would be interested in financial advice from his sibling, who has recently started in the profession. I suspect that this sibling is a commission-based advisor earning money from a high-MER mutual fund provider through kickbacks. Should I confirm that and warn the friend, or let it be?

I declined the offer, but I worry that this friend might accept advice from his sibling or direct mutual friends to his sibling.

I don't want to offend my friend (or worse, cause a rift between us), but I also really don't want my friends' retirement savings to be eaten away by unscrupulous companies that prey on financial ignorance.

In case it's relevant:

1) I have professional experience which might carry some weight with my friend on financial matters.
2) I'm in Canada, where average expense ratios for actively-managed mutual funds really are that bad. The average expense ratio of 2.2%/year is enough to cut my friends' savings in half over 30 years.
3) My friends are all reasonably smart people, but they know very little about the financial industry and basic financial calculations.
posted by ripley_ to Human Relations (10 answers total) 1 user marked this as a favorite
I don't see why not. Phrase it like this, "I was thinking about that, but he just rubbed me the wrong way." If friend knows you are somewhat of an expert on financial matters (and the friend is smart) he or she will pick up the hint quickly. Or at least I hope.

Point is : if you were my friend, FUCK courtesy, SAVE MY MONEY! I will love you more for it.
posted by eq21 at 4:18 PM on September 6, 2013 [6 favorites]

Best answer: I think the way you should mention it is by saying this type of advisor's products have a fee structure that is typical for the industry and here's why you think it's not beneficial to consumers (retail investors) like you and your friend (and believe me, you are ever so right in what you are saying). So you will be criticizing the industry rather than the sibling directly, thereby reducing some of the discomfort you might otherwise cause by speaking up.
posted by Dansaman at 4:22 PM on September 6, 2013 [27 favorites]

I wouldn't really call someone working on commission "unscrupulous," although I certainly do avoid them like the plague, especially in financial services. Your best bet is to tell your friend that you only use fee-based advisors, and why you avoid fee-free providers like this person.
posted by NotMyselfRightNow at 4:30 PM on September 6, 2013 [1 favorite]

Use a generic example of fees and how they affect return. Seeing the difference between a fee based advisor and a commission one when they both pick the same securities or both get the same returns before commissions/fees will really drive home the point.
posted by JohnnyGunn at 4:32 PM on September 6, 2013

Depending on how your previous decline was worded, you could try something like this.

"By the way, I think [sibling] is great/smart/trustworthy and I wish him/her the best of luck in his new career. I just have a personal rule to not put my money in high-fee funds because [brief reason] - I'm just too risk-averse to put my savings in that type of investment vehicle."

If your friend follows up then you can discuss your reasoning in detail.
posted by lalex at 4:34 PM on September 6, 2013 [4 favorites]

You can always say No at the end of the conversation. Ask the questions you really care to ask; then, ask him what he wants to get out of job. A long term client? Let me pay an agreed fee based on work volume.

See what he says. If you suspect and you don't confront the salesman directly, you miss a great opportunity to correct what you consider to be corrupt.
posted by parmanparman at 5:17 PM on September 6, 2013

You can add that you could only recommend the salesman if he could offer agreed fee on volume services but you understood you could expect a similar or larger volume of approaches.
posted by parmanparman at 5:21 PM on September 6, 2013

Response by poster: Thanks for the answers, everyone! I will bring this up with my friend, pending a conversation with my friend's sister.

Dansaman, that's a fantastic suggestion. Framing this as an issue with the industry rather than a personal issue should help a lot, thanks.
posted by ripley_ at 5:50 PM on September 6, 2013

I have a good friend who does exactly that. I don't discuss work with him, and I do think it's borderline unethical. But so are lots of things, I have friends who make cruise missiles. We all just try to find some way to make a living and there aren't enough do-gooder jobs out there.
posted by miyabo at 5:59 PM on September 6, 2013

You can couch this in terms of wanting to protect your friend's reputation: "I worry that you're going to get burned for putting your name behind these sorts of business practices," because [reasons]. Make it about the practices and policies, not the personalities.
posted by duffell at 12:18 PM on September 10, 2013

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