RISCARIO INSIDER

November 19, 2011

IS THE BEST ADVICE FREE OR FOR-FEE?

The answer depends on where you're getting the advice and the business model of the advisor. When a billionaire sells advice via a seminar, I'm skeptical. Why not show generosity by giving the information away for free? The Khan Academy does and is changing lives.

For-Free or For-Fee?

There are many places you can go to get a free financial plan. If they sell mutual funds, count on the proposal including mutual funds (instead of cheaper ETFs). If they sell insurance, count on a recommendation to buy some (and probably not cheap term).

Even if you pay, there may still be biases. If they sell investments, you may be encouraged to move your portfolio to them. Do that and they may even waive their fees for the plan. The result is the same as if you got a free plan. Their real model might be asset accumulation.

However, the criticism may be unwarranted. Time and expertise cost money. A monkey will work for peanuts but maybe you don't want a hire a monkey.

For-Fee

What about for-fee planners? We're reluctant to hire them when we can get free plans elsewhere. They may also get compensated for the investment or insurance sales that arise from their recommendations.

The optics vary.

To appear independent, they may send you to someone else in their firm. In the bank-owned world, the investment advisors make referrals to the insurance specialists and share in the compensation. Management may get incentives to ensure both groups to work together.

In private firms, revenue can be shared too. Let's say an accountant sets up a company with a planner, investment advisor and insurance advisor. All revenue could go to this one-stop shop and get shared through the ownership structure.

For-fee planners often establish informal affiliations. They could get paid for the referrals they give by getting referrals in return. That's reciprocity. Buyer beware again.

Other Sources For Free Advice

If you're getting advice from someone who doesn't sell financial products, you may be getting good advice. Bloggers, journalists and authors can be excellent sources. They make their money in other ways.

Retirees may have valuable advice if they've kept their knowledge current and can connect with younger generations. Former insiders are another source but find out why they left. If you sense they were booted out for poor performance, they have biases.

If they're giving free advice, how much are they putting online? If none, they may have difficulty learning new skills. Perhaps they don't have much to say that would withstand public scrutiny.

The Sellers

You could get good advice from someone who's selling but you might not. If the advisor only sells mutual funds, will you get any recommendations to buy low-cost ETFs?

When Paid Advice Doesn't Pay

I've met advisors who wanted to give unbiased paid advice but they couldn't create a viable business model. So they added commission-paying elements like investments or insurance.

You're not keen to pay when you can get free advice elsewhere. This says the for-fee advisors haven't been able to show value for your money. To compensate, some will give you lengthy financial plans that are mainly fill-in-the-blank templates. There's more value to you if that content is online, hyperlinked and kept up-to-date. You could then get a much shorter plan — maybe one that fits on a single page and has clear action steps.

The Dilemma

Even if you're paying for advice from someone who's really good, they probably sell something related and get rewarded for referrals. Without those subsidies, the advice would likely cost you more.

The Biggest Problem

The biggest problem with free advice is compliance. Or rather, your lack of compliance. We place less value on what's free even when we agree. Here's the paradox. If you pay, you're more likely to value the advice, act and get the benefits. You then get more than your money's worth.

Podcast 144 (4:59)

direct download | Internet Archive page | iTunes

PS What do you think of my free advice?

November 12, 2011

THE HORROR OF ROGERS “ULTIMATE” INTERNET

Rogers Ultimate internet too slow to run speed test ...

How is your Internet access these days? We “upgraded” to Rogers’ priciest Ultimate plan 1.5 months ago and have periodic problems. The speed is inconsistent and access has been intermittent the last three days. I can’t even run SpeedTest.net. The usual steps of unplugging/replugging the equipment hasn’t helped.

Here’s another example of the risk of innovation.

Previous Plan

The Rogers/Bell attack ads (click for more)

Our Hi-Speed Extreme Plus plan had downloads of 25 Mbps, maximum 125 GB. In August, we got upgraded to 32 Mbps and 150 GB for a few days. The faster speed made a noticeable difference and seemed "just right". In September, that became our normal plan ... except now everything seemed sluggish.

What happened?

We had a rental wireless modem for $7 per month. The range was lousy compared to our previous wireless N router. As a compromise, we turned the Rogers gear into a wired modem and connected to our own wireless router. We’ve done this for years. It works well but we were paying Rogers for wireless services we were not using and did not need.

Costco To The Rescue

While vacationing in the US in late August, we bought a Motorola Docsis 3 modem, the fastest available. The price was $75 at Costco. After returning home, we tested it for several days. The results were excellent ... until I returned our rental modem to Rogers. Service slowed down. I thought this was due to the back to school crowd or technical problems. We waited patiently for weeks.

Consequences

I called Rogers and found that we'd been put on an ancient plan with 18 Mbps and 95 GB/month. We're still paying the same $70/month but losing 14 Mbps and 55 GB per month! That's crazy. By upgrading, we ended with less. Using convoluted logic, the rep explained we weren’t paying more because of price hadn’t gone up.

This was the consequence of returning the Rogers equipment. We were not told at the time. We could only get the previous service if we were willing to pay an extra $7/month to rent Rogers equipment we clearly didn't need.

Fastest

I asked if I could upgrade to Ultimate which is 50 Mbps and 250 GB per month. This costs $100/month plus $7/month wireless modem rental plus tax. In the past, this plan required digital cable. That's a nonstarter since we don't even have a TV: we use Netflix, mobile devices and a projector.

This time, I was told that I could upgrade and did. We couldn’t get the published plan, though. We’re on a faster backbone that isn’t available everywhere. The rep put us on an unadvertised plan: 75 Mbps and 200 GB/month. Faster is better but why chop usage by 50 GB? Google is piloting 1000 Mbps and unlimited usage via fiber optics. That’s forward-thinking.

Rogers Ultimate is inconsistent as others have reported. Sometimes great. Other times sluggish. Maybe it’s time to call tech support again.