Former sports stars and celebrities pitch all sorts of financial products, including, most recently, cryptocurrencies.
You’ll also find talking heads on television recommending stocks and other types of investments.
With all that saturation, you may feel you are missing out if you do not jump in. But are these good investments for you? On the whole, probably not.
The reason is that marketing — which these recommendations are based on — is dangerous to your financial health. Celebrities themselves get in financial trouble for investing without conducting due diligence.
A case in point is the latest FTX cryptocurrency debacle around Tom Brady. The Tampa Bay Buccaneers (and former New England Patriots) quarterback, among other famous names, invested and promoted FTX, which had been the world’s third-largest crypto platform.
They are now losing big time and making headlines for a different reason, as the company has declared bankruptcy and its CEO is in the crosshairs of regulators including the Securities and Exchange Commission. (Brady had previously pumped bitcoin
which rose to a high of $64,000 last year. It is now at around $16,500.)
Unfortunately, none of this is new. The dot-com boom of the 1990s brought out big names to support tech investments. Popular writers and politicians reveled that they had money invested with Bernie Madoff’s investment company.
What’s difficult for the average person is that due diligence takes time and concentration. My advice is to do your own investigation before jumping on the bandwagon of a well-known person’s investment choice. Before you entrust your money to someone else, be sure you do your homework and understand the implications.
Above all, check the adviser’s experience, education and objectivity, not celebrity status. Just because a financial company is on television or on social media, that does not necessarily mean the investment is good for you. Their presence simply means the company has a large amount of marketing dollars. Be careful where you get your financial advice. Experience and objectivity matter.
Send your questions to Ms. MoneyPeace: MsMoneyPeaceQuestions@MoneyPeace.com
Due diligence checklist
Here is how you start your due diligence:
1. Are the people pitching financial products or services credentialed and educated in the financial industry?
This is listed in their brochures and on their website. Know what the letters and numbers after a person’s name mean. Most famous celebrities do not have the necessary Series 7 credential to sell investments, for example.
2. How are they getting paid?
Fees are a hot topic and can be confusing. Financial advisers may charge a flat fee, an hourly charge or percentage of assets managed. Some charge a combination. When commissions are involved, remember that the adviser has a self-interest in getting you to buy a specific product. Pay for a second opinion before you sign the papers.
3. Does the investment fit into your your financial and life strategy?
Even the best investment for a thirtysomething with many years to retirement may not be appropriate for their grandparents in retirement. Understand your goals and life situation.
4. Are they a fiduciary?
Under this principle, the adviser must have your best interests in mind.
5. Do you understand the investment?
If you do not, then this is no place to put your money. Finances are complicated. False gurus tend to sell products that are meant to appear complicated to show their wisdom. However, often the investment is to their benefit, not yours.
6. What is their professional history?
Beyond asking them for this information, check with the Financial Industry Regulatory Authority. The body’s database sorts through registered investment professionals’ credentials and history. If they are not listed there, you want to know why. If they have a clear record, that should be worth some peace of mind.
How to find an adviser
If you need to find a new professional, start with a reputable financial association that seeks qualified members. For financial advisers who are credentialed and charge fees, the National Association of Personal Financial Advisors — NAPFA — and Garrett Planning Network are a good place to start. And there are others that vet their members, including the Financial Planning Association and the Association of International Certified Professional Accountants, or AICPA.
Certainly, there are bad apples in the investment industry, but after 30 years in the industry I find that is the exception rather than the rule. This does not mean you shouldn’t seek to protect yourself even if someone has come highly recommended or works for a national firm.
Finally, think of it this way: If someone is selling Fritos, there is a only a small cost and risk if you make a purchase. However, your hard-earned retirement dollars need sound investment knowledge and decision-making. Be sure to vet investment advice before you make a big mistake. And remember that celebrities and sports stars hawking products is a big red flag.
CD Moriarty is a certified financial planner, a columnist for MarketWatch and a personal-finance speaker. She blogs at MoneyPeace.
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