(503) 841-5840 [email protected]

Written by: Peggy Haslach

You know the scene; you go to grab a cup of coffee in your breakroom and three coworkers are sitting around the coffee pot talking about things they’re dealing with in their life. And if you are a young doctor, lawyer or other licensed practitioner, the conversation inevitably turns to your school loans. You catch the last bit of the conversation and hear the office know-it-all who is married say that he is going to file “married but filing separately” because it will really lower his payment when he gets on the Public Service Loan Forgiveness (PSLF) program. You go home and Google and sure enough it says it right there, so you mention it to your spouse and decide that this is what you do. You change your status and work towards getting on the program.

I met the above couple two years after they made that decision to change how they filed. It was right about the time that the first of the reduced payments were about to start. At that point the spouse asks me, “Well now that this is starting, should we stop contributing to our Roth IRA?”

I said “Yes” and then, “Wait a minute, when did you change your filing status to married-filing-separately?”

They said, “Two years ago.”

That was a problem. What they were not aware of was the income limitations for Roth IRA contributions. If you are filing taxes married-filing-separately, you are limited to a household income of $10,000 per year. If you earn above that, you cannot contribute to a Roth IRA.

Why they did not catch it when they did their taxes is beyond me, but we ended up calling a CPA who did the work to unwind the contributions and pay the fines.

Financial Advice From a Non-Financial Advisor

In a similar situation, I was meeting with a client and his spouse for the first time. He had just started a job days earlier with one of the small tech companies, so I asked if he planned to enroll in his company’s 401(K) plan. “No, I was talking to some of the folks in the office and they said not to do it because the program sucks and the company does not match.”

Instead, he was contributing $500 per month to an IRA he had. Right around tax time, he gave me a call. “My tax person just told me that I can’t deduct my IRA contributions for the year because I am contributing to my company’s 401(K) plan and I make too much.” Apparently, his company’s 401(K) had auto enrollment and his salary exceeded the income limits for deducting IRA contributions.

I have many more stories of clients who have taken the advice of co-workers and have assumed it was correct and had to deal with the consequences of when it wasn’t. Unfortunately, these situations don’t just happen at work, hence the subtitle about Facebook and Church.

financial advice

One of my friends tagged me on a Facebook post. A mutual connection had posted a question about getting Life Insurance. By the time I looked at the post there were several comments about the best companies, policies and all sorts of suggestions for getting a policy. The person who posted in the first place is very vocal on Facebook about her health issues and finances. I knew that if she tried to follow the advice offered on Facebook, she would be very disappointed and frustrated especially since the people offering the advice were not financial advisors or insurance agents.

You are not going to see financial advisors post on Facebook threads or make comments on specific financial strategies or products. They know their post may be viewed by people they will never meet and may be construed as a recommendation. This may also be in violation of various compliance department rules and government regulations.

Unfortunately, I have also seen situations when a church or community group implicitly trust someone from their congregation. In one case a group of older women each bought life insurance from a young person who was new in the business and trying to build his practice. Even though they were different ages, had different income and health, they all had a Variable Universal Life policy and paid $150/month.

When I met with one of them, I asked her how they all ended up having the same policy as all the others. She said that one friend said she was getting a “Whole Life Policy” and paying only $150/month. The rest of them told the agent they wanted to get exactly what their friend had. I had to break the bad news to her that if she continued to pay only $150/month, her policy would lapse by age 66. The only way she could save the policy was to start paying $486 in premium per month. The agent had underfunded the insurance by reducing the premium payments down so that they would each pay $150/month when most of them should have been paying much more than that. She had purchased a very expensive Term policy and by the time we figured it out, the young man had left the business.

Who Do You Get Advice From?

Now don’t get me wrong, I am not saying that you cannot talk to your coworkers and friends about what they are doing but consider the source and the context of the conversation. The plans and solutions they offered might be good, but there might be some missing pieces, or they may have misinterpreted or misstated some crucial information. It’s like a bad game of Telephone. If you know, like and trust the person leading the conversation, ask them “How are you doing that? Are you working with a financial advisor (or other financial professional)?”

If they say yes, then ask them the following questions:

  1. Are they Independent or do they have to sell a specific product?
  2. Do they offer comprehensive planning, or do they just focus on either insurance or investments?
  3. Does the advisor specialize in working with people like you?
  4. Do you think it would be worth my while to meet with this advisor?

If answer “yes” to these questions and it sounds like this they would be a good fit for you, ask the friend if they could introduce you to the advisor. And, if you think you may have followed some bad advice, that is one of the first things you discuss with that advisor. Chances are, they have seen it before and can tell you what needs to be done to get back on the right track.


Finity Group Blog