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How To Handle Requests For Financial Advice

I don’t have to remind myself that I’m not an expert when it comes to money. While my choices have improved over the past few years, I still make mistakes at about the same rate I always have. Even recently, I thought I could outsmart the public and take advantage of Toyota’s recent bad news. I bought shares of Toyota Motors (TM) on January 28 with the impression that temporary bad news wouldn’t stick to a strong brand. That purchase hasn’t worked out well so far; the bad news keeps coming.

So I am taken aback when friends and family ask me for financial advice. I am not an expert. The concept of “expertise” is meaningless when it is possible for people to self-brand themselves as experts. Real experts don’t write dust cover autobiographical snippets calling themselves experts. They don’t solicit endorsements from authors they admire or recommendations from their friends on LinkedIn. Expertise can only be observed from the outside.

What if Carl Jung were alive today? Would he be a recurring guest on Oprah with a series of books and seminars to sell? Would Adam Smith, if creating his best work in the early 21st century rather than the 18th century, focus on building an email distribution list for marketing a series of products to his customers?

Since I am not an expert, I don’t offer financial advice to my friends. Even though most do not read shizennougyou on a regular basis, they all know I write about money every day. They may not realize that I do this not because I have all the answers and I need to share my knowledge with the world, but because I always have questions and I use shizennougyou as a resource and sounding board.

Every once in a while, a friend has a question about which they believe I can help. I’ve been asked questions such as whether a Roth IRA is a good investment vehicle, whether I would recommend a bank’s forced savings program, and even asked to analyze someone’s complete retirement portfolio. Some questions are easier for a non-expert to handle than others.

I try to avoid even the easier questions. I want to help, but it’s not my place to tell my friends how to spend their money or how to invest. In the worst case scenario, I might offer suggestions that end up being detrimental down the road, and advice that turns out bad has the potential to disturb the relationship. Another way to lose friends is simply to present ideas someone just doesn’t want to hear.

Regular readers of shizennougyou might be in a similar situation. An interest in smart money management is occasionally seen by outsiders as expertise. So here are some tips for handling friends who turn to you for financial advice.

1. Determine your friend’s true intent. Is he looking for someone only to listen to a complaint or is he willing to accept specific suggestions? This is one key to communication that would be difficult to interpret if you are not speaking in person. Sometimes, a concerned friend is looking for only confirmation that a purchase won’t have a long-term negative effect on their finances and not a detailed spending plan.

A friend’s willingness to talk about money is not an invitation for you to offer your suggestions. Look for specific questions directed to you and try to determine if the friend asking the questions wants truthful answers or just a friendly ear.

2. Redirect your friend’s attention to experts. If the question is simple, feel free to offer a few opinions. When a friend is looking for a quick recommendation for a new savings account, I usually start with ING Direct due to the bank’s simplicity, popularity, and level of service, but I might offer a few options that offer higher interest rates if I feel that my friend is open to more than just the basics. You don’t have to be an expert to handle this kind of request; opinions based on personal experience are generally welcome.

But when it comes to questions whose answers depend more on an individual’s full financial picture, like whether to invest in a Roth or traditional IRA, I stay away from making specific decisions on her behalf. I may offer some generalizations and examples, remind her that I’m not an expert, and suggest some resources that might help or a financial adviser who will take the time to analyze all the relevant numbers.

3. Don’t offer unsolicited advice. If you see a friend in financial trouble, it might be tempting to offer your help. It pains me to see a friend making poor choices and setting himself up for financial failure in the future. It is none of my business, however, so I won’t get involved unless he asks me for thoughts. Even when he does ask, I am very careful to stay as uninvolved as possible. There may be a point at which intervention is necessary, for example, if his financial choices hurt others in addition to himself. That should be saved for extreme circumstances.

I admit that I find it very hard staying silent when I overhear co-workers offer each other bad financial advice — but I stay out of the discussions.

4. Don’t lend money to solve your friend’s financial problems. Adding another obligation is usually a Band-Aid, not a solution. Your friendship will turn sour if your friend cannot pay you back, and you will be bitter when you see her spending money on anything other than repayment. Once you lend money, you don’t want to see your friend taking vacations rather than accelerating his credit card debt payment.

In the rare situation I’ve been approached by a friend needing a loan for any reason, I direct them to peer-to-peer lending services.

5. Remind your friend that your thoughts are only opinions. No one knows for certain what will happen in the future, and even when considering only the present there are few absolute truths. My financial opinions come mostly from my own experiences and somewhat from research. That should be similar to most non-professionals or even someone who considers himself an expert. Any one person’s experience might not fit the model of the mythical “average investor” or “typical American,” and I’m always careful to point this out.

It’s not worth the potential of ruining a relationship with a friend or relative by bringing attention to money-related issues. The best answer for anything other than a simple question is, “That question would be better answered by a financial adviser who can analyze your full financial picture.” Don’t play the part of an expert, just be available as a friend.

Photo: alancleaver_2000

Updated June 16, 2011 and originally published February 23, 2010.

About the author

Luke Landes is the founder of shizennougyou. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar 1 Anonymous

Regarding TM.. don’t worry about it for the short term. In fact, it hasn’t even been a month since you have owned the stock. WAY too short term thinking. In fact, I would double down on Toyota. Long term Toyota is fine, and isn’t going anywhere.

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avatar 2 Anonymous

Exactly. I read this disclaimer in a popular blog written by a doctor: “I’m a doctor, but I’m not YOUR doctor, so I can’t answer your medical questions.” Along the same lines, even if you are a financial “expert” (or accountant or lawyer or certified planner), you’re not your FRIEND’s financial expert.

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avatar 3 Anonymous

Hold on to that Toyota stock. I don’t think the company is dead in the water, yet.

The timing of this post is great, as I’ve just navigated through a request for financial advice this week. Luckily, it was only about ways to save money, and I could safely offer my advice on that subject — who could get mad at you for saving them money by cutting back on expenses? But for more complicated matters, like investing or mortgages, you definitely have to redirect folks to the experts.

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avatar 4 Anonymous

I’ll admit I had the very same thoughts as you on TM – if there was still any cash left in my investing account, I would likely have bought as well.

Over the years I’ve developed a reputation for being very careful with money, and thereby good about it (though they couldn’t prove it) so some friends frequently come to me for advice. While I’m happy to help, it’s usually in the form of research so that they can make their own decisions. I definitely stay away from offering unsolicited advice especially when the answer I’d give is not the advice they asked for.

For example, when last asked about loan options for a new car, my reactive answer was “Don’t” because from what I know about their financial situation, they can’t afford it. But it’s important to understand they’re not asking for help with making that decision, they just want to know the best options they have given that decision has already been made.

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avatar 5 Anonymous

I think the best piece of advice is “Determine your friend’s true intent”

You are a friend first not a money expert…and it might just be the very fact they are looking to someone to bitch and complain to that has some understanding of what they are bitching and complaining about.

Do a lot of your friends know about your blog? All my friends know OF my blog but not a sole knows the domain. As I get braver putting information out there (investments, holdings, etc) like you do in your awesome recap I’d feel weird about putting it out there for friends and family. Would you want you future mom in law or brother in law knowing your business?


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avatar 6 Luke Landes

Most of my friends know where I write and could visit if they’re interested, but I believe most are not interested. As far as future in-laws go, I haven’t really given that much thought. I imagine that I should have nothing to hide from someone who will be family, so I don’t mind it being out there. If I were dating, on the other hand, and a prospective date wanted to perform a Google-check on me… well, I’m glad I write anonymously.

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avatar 7 Anonymous

I write about pre-retirement issues and my friends are readers of my newsletter but we don’t talk about our personal situations but the financial world at large. People know that this is how I make my living so they don’t impose themselves on me with questions about their finances. I do offer resources and tools in conversation every now and then. I feel strongly that personal finance is just that- personal. Everyone’s needs, risk tolerance, and tax situation is different and really can’t be addressed in an article.
Fern Alix LaRocca CFP®

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avatar 8 Anonymous

Number 3 is so important. If you ever feel the need to drive away friends and family within minutes, go ahead and give them unsolicited financial advice. There have been so many times I’ve had to bite my tongue to stop myself, but it’s worth it.

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avatar 9 Anonymous

I think you’re being a bit too sensetive about this issue, and perhaps almost disparaging of yourself and your knowledge. The fact is by many measures, you ARE an “expert” on many aspects of finance and are perfectly qualified to give basic advice when asked for it. Anybody asking you for advice is well aware that you are not Adam Smith or even a licensced financial planner. But that doesn’t mean they don’t want your advice, nor does it mean that your advice is not worth giving.

Surveys have shown that people seek and take financial advice primarily from family and friends. Smart folks will query a number of people – parents, relatives, friends in the industry – and even more responsible people will also read a book or do some extensive internet research on the subject before making a decision. If there’s a lot of money involved you can bet they are going to seek a banker or CPA or attorney for their input as well. There’s nothing wrong with encouraging that further due dilignece, but I don’t think you should hesitate to give your valued opinion when asked for it.

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avatar 10 Luke Landes

The question is what happens if the advice, whether good or bad, ends up being wrong. I don’t want to let my friends and family down, and I don’t want relationships to be ruined because they followed my advice, no matter how thoroughly disclaimered.

But I appreciate the vote of confidence!

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