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I posted the following over on the Financial Planning board, but it looks like there isn't much activity over there of late, so I thought I'd make my inquiry here as well.

So I just finished reading the 3-part interview of financial planner Joel Kantor (interesting and, as it happens for me, timely reading). I was hoping to ask Mr. Kantor a few questions personally, however, his busy schedule makes that unlikely. In lieu of that, the interviewer, TMF Venus, referred me to this board.

A good friend of mine from high school just recently completed training at American Express Financial Planners and is now beginning to build a client base. From a strictly business perspective, what his company offers sounds like an okay deal. There's a one-time planning fee of about $350 and the plan is supposed to cover a time frame of about 2 or 3 years.

My friend gets paid a percentage of the planning fee and ultimately makes his money from the amount of assets under his management. So it seems to me that he has motivation to do well for his clients. He does not make money on things like equity trades and the comissions seem pretty reasonable.

I guess the reason I hesitate to move forward (and herein lies my question) is because he is a good friend. I trust him completely, but I know that emotions can run high especially when money is involved. Have (or do) any of you ever done this kind of business with a friend? My dad has some assets with a long-time family friend and I think it's been pretty much a wash--nothing great, nothing terrible. My first concern is our friendship. Any thoughts and/or experiences you can relate would be much appreciated.

Josh out.
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Hi Josh, You asked I guess the reason I hesitate to move forward (and herein lies my question) is because he is a good friend. I trust him completely, but I know that emotions can run high especially when money is involved. Have (or do) any of you ever done this kind of business with a friend? My dad has some assets with a long-time family friend and I think it's been pretty much a wash--nothing great, nothing terrible. My first concern is our friendship. Any thoughts and/or experiences you can relate would be much appreciated.

I would think that I would not want a "Good Friend" to know my personal finances that closely. I don't even tell my daughters exactly what I have, much less my friends. I don't think you can remain friends with this advisor if you use him.

There are always exceptions but more friends have been lost over money than anything else, including girl friends. ;-)

Jim in New Orleans.
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I guess the reason I hesitate to move forward (and herein lies my question) is because he is a good friend. I trust him
completely, but I know that emotions can run high especially when money is involved. Have (or do) any of you ever
done this kind of business with a friend? My dad has some assets with a long-time family friend and I think it's been
pretty much a wash--nothing great, nothing terrible. My first concern is our friendship. Any thoughts and/or experiences
you can relate would be much appreciated.


I think the answer for both of you is no. You do not want to deal with a life long friend and he does not want to make a bad investment for a life long friend.

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JDWinNOLA, you responded with:

<< I would think that I would not want a "Good Friend" to know my personal finances that closely. I don't even tell my daughters exactly what I have, much less my friends. I don't think you can remain friends with this advisor if you use him.

There are always exceptions but more friends have been lost over money than anything else, including girl friends. ;-)
>>

Hmmmmmm??? . . . . "including girl friends", huh? How about including wives and husbands? Therefore one shouldn't disclose "personal" finances to a spouse, huh? Why or why not? Is it easier to trust a friend or a stranger with one's personal finances . . . ???

I feel it depends on just how good that friendship is AND how good a "friend" one can be. AND . . . .just because one may use a "friend" of personal issues, like finances, doesn't me one should just take things for granted.


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Josh,

I would not entrust my funds to a friend. A substantial loss could occur that would wipe you out and you would lose your friendship, even if it was not his fault. Remember that he has NO control over the market and while he is responsible for managing the assets he is not REALLY responsible for your money making YOU money,, it is only a hope that this will occur.

I would hope that you would explain to your friend that you do not want cash to come between a great friendship because they are hard to find.

Jenn
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Josh posted..

"A good friend of mine from high school just recently completed training at American Express Financial Planners and is now beginning to build a client base. From a strictly business perspective, what his company offers sounds like an okay deal. There's a one-time planning fee of about $350 and the plan is supposed to cover a time frame of about 2 or 3 years."

I have only briefly looked at the AMEX funds and they are usually some of the worst funds available. AMEX FP's tend to recommend their funds which are load funds. I would think twice about dealing with an AMEX FP unless I was willing and understood that any money I invested with him was to help a friend - not expecting much in return other than knowing I was helping a friend.

As far as I know AMEX funds usually fall in the bottom quartile of returns. Go to Money.COM or SMARTMoney.COM and see how the AMEX funds rank.

BGP




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Josh: I have learned the hard way that the old adage "don't do business with friends" is true. I was a planner in the early eighties in CA sold to friends the market crashed and I have never heard the end of it. Also your friend works for Amex, for sure he is strongly encourage to sell Amex funds and probably makes the best commission on them. Their funds are usually hovering somewhere in the bottom half of earnings. Don't think it would be a smart move on your part. ~~~ Good Luck
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Hi, Josh:

I am a financial planner who has been in the unenviable position of managing money for friends and family until I got smart and quit accepting their accounts. I now refer my close friends and family to a trusted collegue.

Why? Because inevitably there comes a day when an investment just doesn't work out. That's just the nature of investing. And the closeness of our relationship is at odds with my need to be objective when I give investment advice. The more detached the relationship, the more objective the advice.

Sooner or later your friend will be in the position of having to break bad news to you and you will likely feel a strain in your relationship. Buy your life insurance from your friend and maybe even the financial plan. But if you value your friendship with this person, implement the plan elsewhere.

Just my two cents worth.

Gary Hannah ChFC
Chartered Financial Conslutant
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Hi, Josh:

I am a financial planner who has been in the unenviable position of
managing money for friends and family until I got smart and quit accepting
their accounts. I now refer my close friends and family to a trusted
collegue.

Why? Because inevitably there comes a day when an investment just doesn't
work out. That's just the nature of investing. And the closeness of our
relationship is at odds with my need to be objective when I give
investment advice. The more detached the relationship, the more objective
the advice.

Sooner or later your friend will be in the position of having to break bad
news to you and you will likely feel a strain in your relationship. Buy
your life insurance from your friend and maybe even the financial plan.
But if you value your friendship with this person, implement the plan
elsewhere.

Just my two cents worth.

Gary Hannah ChFC
Chartered Financial Conslutant

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Interesting question, one I've thought about a long time and had an interntal conflict over. See, my Dad always cautioned me to be careful about doing business with friends because if the deal goes south you have the obvious problem of jeopardizing your friendship.

Then I grew up and became an attorney. Now my Dad uses me for legal advice. Apparently he has no problem with using family members for business.

Actually, I think that he really does trust me. Which leads me to my response to you. Do you really, really, really, trust your friend? If so, what is the problem. Assuming that you do trust him, then I would say you've not nothing to lose. If he is a great friend you can rest assuered that he will do the best he can for you. If your investments go bad, then I'd imagine that the problem is due to things outside of his control because we are assuming that he is person you can trust.

Now, in what way do you trust him. You may trust him to look after you, tell you the truth, give you a fair shake, and not take advantage of you. Believe me, this is a big advantage over having someone who does not know you that well. As an attorney who occasionally does business for friends, I know I naturally pay extra special attention to their business because I don't want to make even a minute mistake that could effect our friendship.

Now, do you trust his ability to handle your financial matters -- that is the big question. Where a lot of friends make mistakes thinking that trust I described in the preceeding paragraph is the same as trust in ability. This is where bad things happen. You give someof your hard earned money to him to take of, he makes an honest mistake because of lack of experience and you are put in a bad position.

If this is the case, here's what I'd suggest if possible. I would give him a modest amount to take of to begin with. That way if he does goof, you aren't out to much. I would also refer as many people as possible to him. This allows you to stengthen your relationship with him by showing 1) you have given good friend some of your money to take care of (showing you do trust him) and 2) you are out there promoting his business. Believe me, as an attorney who is trying to build up clients, I'd rather have a friend that is out there actively (and I mean actively) referring me, than on who is giving just giving me some of their business.

In sum, I think it is wise to use a friend in a situation like this unless you just can't trust them to do a good job. Personally, I'd rather have someone who I know is knocking themselves dead trying to do a good job over someone who might have a slightly better expertise but who I am just "another client" to.

Hope this has helped.

mcr2
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The Amex "Financial Plan" for $350 has nothing on it you wouldn't find using the Quicken Financial Planner for a lot less. Your "Financial Advisor" plugs numbers provided by you into a computer and voila!
AMEX Financial planners tend to sell AMEX mutual funds, which carry a load and are mediocre funds at best. Those funds aren't transferrable to discount brokerages, either. If you move out of state or your friend discovers he doesn't like the business, they will assign you to a different "financial advisor". You can only fire them by selling out of the funds.
You came to the Fool. We favor understanding your finances, where you are going, and making your own decisions.
I'd suggest the Quicken Financial Planner, a discount broker, and forget employing anybody as your financial planner, never mind risking your friendship if some advice turns out badly. To buy a fund on your friends advice and then discover next year that you could have done so much better putting your money with Vanguard or Janus won't lead to a happy continuing relationship.
Best wishes, Chris
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Here's the deal. Be prepared to buy a lot of American Express or IDS products. IDS is a proprietary company. There is push to have them sell company related investments. Also, IDS is a always hiring firm. HOw can they do this? People are always leaving the firm because they can't hack it. YOur friend may be a great financial advisor, but if he can't get clients (not just friends) but other people to buy, he is going to get washed out of the business and someone else at the firm will take over your account. Just keep it in mind. g
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Hi Josh,
You will no doubt hear from many of our fellow fools that will tell you to trash any broker or planner and take the do it yourself route. Fact is many of our fellow investors build a portfolio with little regard to any type of plan. By the way, I don't work for American Express, but I have dealt with several good friends over the past 20 years and have been well taken care of. If your not averse to hiring a planner,you could do much worse than American Express.It's hard to put a price tag on good service and advice.At least give your pal some referals.
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Whoa!!!! AmEx employees are not independent Financial Planners. First and formost it is there job to steer folks into AmEx products... the incentive is greater commission and residuals on house products.

Watchout for the life insurance as an investment ploy. This is one of the biggest scams known to man. But it reaps (or I should say "rapes the consumer") the biggest commissions and residuals for the agent (your AmEx planner) and the biggest gains for the company (AmEx). And guess who gets the short end of the stick? I trust your AmEx "agent" supplied a large jar of vasoline to make it more comfortable for you.

Then watchout for the annuity used as a funding vehicle for an IRA, Roth or Traditional. If you're a school teacher don't let your "friend" sell you a 403(b), with an annuity as the funding vehicle. Use mutual funds or a discretionary account with the proper paper making it a Roth IRA and/or the 403(b) if a school teacher. (Why do agents and friends like the AmEx "planner" use annuities? Answer: Commissions of course... up to 10% using the annuity vs. 2% using mutual funds outside of the annuity.)
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