Financial Planning


Find the Right Pro to Manage Your Money

EDITOR'S NOTE: This article was originally published in the October 2007 issue of Kiplinger's Retirement Report. To subscribe, click here.

Financial firms are just dying to get their hands on the fat portfolios of the growing number of retirees and aging baby-boomers. You probably can't go a day without hearing a pitch from some sort of adviser begging to manage your assets.

The so-called experts come with different names: financial adviser, wealth-services provider, investment consultant and senior specialist, just to name a few.

Disregard those fancy titles. While there's no magic formula for finding a competent professional, start your search for an investment guru by looking for one of three professional designations: broker, registered investment adviser or certified financial planner. Brokers and investment advisers are registered with regulators, and certified planners undergo a rigorous education program.

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Each type plays a different role. Your choice will likely hinge on the level of advice you want and your investment style.

First, decide if you need advice at all. Do-it-yourselfers should consider a no-frills discount brokerage account. You'll be charged for each trade, but your costs will be lower than using a commission-based account at a full-service brokerage firm.

Most discount firms, such as TD Ameritrade, Firstrade and Scottrade, offer both online and broker-assisted options. Some mutual-fund companies, such as Fidelity, Vanguard and T. Rowe Price, also provide brokerage services where you can buy and sell stocks, bonds and mutual funds. Trading costs range from about $8 to $50, depending partly on whether you're trading online, by phone or with a broker's help.

If you buy and sell a lot, look for a firm with low commissions, but compare other fees, too. Some discounters levy annual fees, inactivity fees or fees for transferring your money to another broker.

Broker, Investment Adviser or Planner?

For more help with trading as well as investment advice, consider a broker-dealer at a full-service brokerage firm. A broker can use the firm's research to help you decide what to buy and sell. Commissions are generally higher than a discount broker's.

A broker should ask you about your financial goals and investing style before making recommendations. There are many great brokers who really care about your investments. But brokers are also salespeople who charge for each trade.

Keep in mind that brokers do not have a fiduciary duty to a client, meaning that they're not legally required to work in the client's best interest. Rather, they must meet a lesser "suitability" standard, selling you securities that are appropriate based on your financial circumstance and risk tolerance.

If you use a broker, you'll need to be a hands-on investor. A broker should get your okay for each trade, and you'll need to carefully review the recommendation. Ask how each recommendation fits into your investment strategy and whether there are alternatives that can provide better returns at lower costs.

You can check out brokers and securities firms by using the Financial Industry Regulatory Authority's BrokerCheck tool at www.finra.org.

Many brokers may call themselves "financial advisers." But if you want someone who has fiduciary duty to you, choose a registered investment adviser. An investment adviser will develop a comprehensive investment strategy and ensure that your portfolio is appropriately diversified. As your fiduciary, the adviser is required to put your interests above all else. For instance, an adviser should keep your costs down even if a firm could make more money recommending other investments.

You can open an advisory account at a big financial-services firm, such as Morgan Stanley or UBS. Or you can go to a smaller concern, which may describe itself as providing asset-management or wealth-strategy services. Some smaller firms offer private equity and real estate investments.

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