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How to Help Others with Financial Advice

I write a lot about how to manage one’s finances.  I am not alone in this regard as there are a lot of great writers in the personal finance space.  Each one of them brings great financial advice, insights, and perspectives to the strategy of financial management via their writing.  But how can they bring their same insights to people in their every day lives?  How do you help people you know with their finances?

Legal Hurdles to Providing Individual Financial Advice in Real Life

Providing financial thoughts or advice at the individual level is a tough nut to crack.  For someone like myself, I can’t do this in any type of professional level.  To give direct individual advice for money you need to be a licensed certified financial planner.   Besides being a lot of work, it can also limit what you say and do.   In some ways it would make you more legally liable for your advice than going without.

Now you can always provide advice for free that passes under the requirements of providing advice for a fee.  This is especially true if you avoid discussing investments.    But even that is fraught with peril on any scale.  Legal liabilities for wrong advice provided can be steep.    Quite frankly most personal finance bloggers would be better off not providing one on one advice to strangers of any type.

Providing Free Financial Advice to Friends and Family

But what about free individual advice to friends and family?    You can advise friends and family on how to improve their life in a way that does not open you to legal liabilities or require a license.    I can and I do this today to some extent.  Helping those you care about is always a good thing.  But to do so I have some very strict guidelines on how I go about doing so.

1)  The golden rule, I never provide direct financial advice unless asked.  Providing unsolicited financial advice is a sure way just to tick someone off.  It won’t make them change their behavior, it will most likely just make them defensive.  If a friend or family member wants direct individual investment advice they will ask me directly.

2)  The above does not mean I completely ignore a friend in need of financial advice if they do not ask.  After all, not everyone can see that they need financial advice.      No, instead I find a way to slip into the conversation about a great source of information in a particular area that might be relevant to that person.    Not as advise to that person, but as a topic I have been reading about lately.  

So for example, if I have a friend who is struggling in his career I tell them I enjoy writing about career management on my own website. I then casually mention Full Time Finance.  Then I change the subject.    At worst that one comes off as self-promotion, at best maybe they start to read and learn.  Lest you think it is all about Full Time Finance I also name drop other sources including other blogs and even mainstream sources depending on the particular concern.   

The point is though I’m not telling them to go read these sources for advice unless I am asked.  I am instead opening the door in a non-threatening way and letting them decide whether to walk through.  The reality is every situation is different and experts may or may not be great sources.  But people tend to feel more comfortable taking advice from people labeled as anonymous experts.  It ends up presenting less like your friend is inferior to you and more like you are seeking ideas.

3)  Any conversation on actually helping someone financially has to start with what are their goals.  Every person in this world has different goals.  Those goals can heavily influence the best path for that individual.  You can’t give any advice until you understand where a person wants to go.  

4)  I try to couch my statements.  As noted in prior posts every person’s financial situation is different.  The goals I just mentioned can be different.    What works for one person may not work for another.  As such I am always careful to mention multiple options with examples of what has worked for others or myself.    But I am also careful not to say you should do this.  Kind of like when this site talks about investments or taxes.  In each piece I do my best to provide multiple potential paths forward.   I am also careful to remind you this site is for entertainment purposes only.  

This helps in two ways.  One if it does not work out to the person’s satisfaction then they likely won’t blame me since I didn’t tell them what to do, just provided options.  Two this removes most of my liability.  No financial advice is worth losing a friend over or getting sued.  Especially since the reasons for those adverse events would be the advice didn’t lead to the desired outcome.   A potential double negative outcome raises the stakes too high for me.

5) Finally, even if a person asks for my financial advice I periodically reevaluate through the above steps if I should continue to do so.    It’s a thin line between advice and berating someone over their foibles.    Your friend John may ask for advice today on his debt problem.  That does not mean he wants to talk about his debt problem on every phone call with you.     Let the person you are advising lead the repeat conversation wherever possible.  Whatever you do, don’t say something like “Did you Follow my advice”.

My Experience with Providing Advice to Family and Friends

Combining all 5 steps I have a decent track record of helping friends and family with finances.  I currently have fairly consistent direct advice scenarios with two family members. In addition, two friends occasionally ask advice.    It’s well worth it to help them with their financial lives, so long as I keep in sight that our relationship is not dependent on or tied to finances or financial advice.  After all, there is more to life and a friendship, then finances.  But it still feels good to help from time to time.

Do you help people in your everyday life with finances?  How do you do so without overstepping bounds?

4 Comments

  1. Matt
    Matt May 16, 2019

    Regarding getting registered, Phil Fisher famously never did so, even though he had a successful investment business. What he did was keep his clients below a minimum requirement–I think it was 4. Looking at this as a side hustle, that could be manageable, if the minimum still applies. (I haven’t been able to confirm it, although Kitces’ article does not mention one)

    In terms of personal advice, yes this is really fraught with problems. My mental math is: what relationship am I risking if I am wrong? And the more specific the discussion, the greater likelihood I am wrong, as opposed to general savings rate / invest in index funds-type advice. On the other hand, these are the people I care most about, so I certainly don’t want to see them fail, or go through difficulties that I may be able to help them avoid or steer through.

    I am the oldest of 4 boys; my youngest brother is 14 years younger than me. What I did for a couple of years is to give them some introductory investing books for Christmas–in addition to fun things! The first book I gave them was The Barefoot Investor, by Scott Pape. That has no calculations in it, but was more about goals–as you say in #3 above. One brother devoured it, but another said: “yeah, but it doesn’t tell me what to do,” which became my assignment for the following year.

    I settled on Your Money Ratios, by Charles Farrell, which has become by go-to beginning book for financial discussions. The brothers loved it, and we got to real, personal situations as a springboard from the book’s general discussion. While the book is focused on traditional retirement planning, it covers every major financial decision: earning, debt, buying a house, kids, saving for college, and retirement. It does it in under 300 pages, but it also is formatted in a way that, after the first introductory chapters, you can skip around to what’s important to you. I’ve probably given away two dozen copies, and every single person comes back with a different idea that hooked them on the book.

    In this way, also like you talking about your blog, the discussions aren’t my specific advice, but rather what ideas the reference material has sparked in their minds. In a phrase, I am teaching them to fish, rather than giving them a fish. And that makes me feel a lot better that they will be equipped to handle things themselves, whether or not I am there to help.

    • FullTimeFinance
      FullTimeFinance May 16, 2019

      Honestly, even if you give the correct financial advice it may lead to bad feelings. Perhaps they didn’t follow the advice correctly because of a misunderstanding. Thanks for the specific book ideas, I’ll have to check them out as another potential suggestion.

  2. Xrayvsn
    Xrayvsn May 16, 2019

    It is very tricky to give advice financially to close friends. Every situation is different and what works for you may not work for them. In order for you to fully understand their situation requires a lot of time/research and them opening their financial books to you. On top of that you have to assess their risk tolerance level. So I personally have done what you have done and directed people to websites that they can then peruse at their own leisure and advance their knowledge (I also sometimes recommend books).

    But I never would ever come out and say you should put your money here or there. I say this is what I do if they ask but that’s about it.

    • FullTimeFinance
      FullTimeFinance May 16, 2019

      Very good point about not telling people where to place their money. I rarely give investment advice even from those that ask for help to be honest. In my experience, the specific questions from friends and family tend to be more of the budgeting variety.

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