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The cost of advice
Vetting potential advisers is paramount, starting with how you'll pay the tab. You may be most comfortable with an adviser who charges a fee rather than someone who sells commission-generating products. Some fee-based advisers are paid by the hour or by the job; others charge an annual retainer or a percentage of the assets they manage. You shouldn't automatically rule out an adviser who works on commission, but that kind of compensation poses potential conflicts of interest. An unscrupulous adviser might be tempted to trade a lot in order to earn the commission, or sell in-house products when others might be cheaper or more appropriate. Advisers should disclose those conflicts and provide a persuasive explanation of why you might need a particular commission-generating product.
There's an adviser to fit every pocketbook. Unfortunately, many financial planners can be quite pricey -- typically charging from $3,000 to $5,000 for an initial plan, plus up to $300 per hour for consultation, or 0.75% to 2% of your assets to manage your investments. And some will only take on new clients with a net worth of at least $500,000 or $1 million. But more firms are starting to provide fee-based advice, where you pay $100 to $150 per hour to meet with a financial adviser and set up a plan for the future, even if you aren't ready to become a regular client.
Jane Bertsch, 59, signed on with Detroit-based Cambridge Advisors in 1999. For $5,000, she received an initial review, which included an evaluation of her investments, assistance in drawing up a will and tax planning. Three years later, Bertsch lost her patient-relations job with a group of hospitals. But her $2,000 annual retainer entitled her to advice from lawyer and MBA Bert Whitehead, Cambridge's founder, and his staff, who weighed in on whether Bertsch should take her pension early or wait, how she should pay income taxes based on her newly self-employed status and how she might restructure her $250,000 fund portfolio. Meetings are scheduled quarterly, but, says Bertsch, "if I were to decide to buy a new car, I'd call and ask whether I should buy or lease. They're always available."
In fact, advisers who share Whitehead's philosophy are available in more than 25 states through the Alliance of Cambridge Advisors, a network of about 150 planners. Clients can choose, like Bertsch, to pay an annual retainer for ongoing advice, or pay a one-time fee ranging from about $500 to $900 for a financial "tune-up" to address just two or three issues.
Questions to ask
Most advisers will schedule a free initial meeting, during which you should clarify the services they will provide and how you will be charged. Alex Booras, 71, a retired business owner in Plano, Tex., interviewed three planners before settling on JWA Financial Group in 2002. Booras was impressed by the group's thoroughness and its emphasis on low-cost funds. "They had an exhaustive policy statement -- about 20 pages--and they brought up things that I hadn't even thought of," says Booras.
A brochure on Napfa's Web site, "How to Choose a Financial Planner," can help prepare you for an adviser interview. Among the suggested questions: Are there financial incentives for you to recommend certain products? Do you provide a comprehensive written analysis of my financial situation and recommendations? Do you take custody of, or have access to, my assets? Ask for a written promise that the adviser will act as a fiduciary, which means the adviser will work in your best interest.
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