Sizing Up Your Financial Adviser

by Jerry Edgerton

Maybe you've just added up what it will cost to send the kids to college. Maybe you'll be retiring soon and will need to take full control of the money in your company or government retirement account. Or maybe you just realize that you need an overall financial plan plus some investment advice. Whatever your age and issues, you want to find a financial adviser who will give you sound counsel for a reasonable fee.

In evaluating potential advisers, you need to look at their education, experience and credentials--as well as how much they will charge you and how those fees will be paid. The process is a bit like finding the right contractor for home renovation: You want someone with the right expertise and licenses who has done good work for others in the past and who won't try to sell you a more expensive undertaking than you really need.

As you would with a contractor, ask family and friends for suggestions. If you have a lawyer or accountant whom you trust, ask there for recommendations as well. Or the professionals at your credit union may be able to give you a referral. But if those sources don't produce the adviser you need, a variety of Web sites can help. Focus on those limited to so-called fee-only financial planners and investment advisers. That means they collect a fixed fee for planning or a set annual percentage of your assets if they manage your money. They do not collect commissions on products they sell, as most brokers do.

Commission sales can camouflage what you are paying or lead to high-commission recommendations that are not in your best interest. "You want to know right up front what you are paying, and in a fee-only situation that is always clear," says Ron Roge, a Bohemia, N.Y., financial planner and money manager whose firm has been cited as being among top advisers by magazines such as Bloomberg Wealth Advisor and Medical Economics magazine.

To find the right adviser, don't hesitate to interview more than one. A firm whose printed or online profile sounds right for you may seem very different in a personal meeting or extended telephone conversation. Be especially wary of anyone who comes up with a single investment recommendation after no more than a cursory discussion of your financial situation and goals. That recommendation often might be an annuity--seemingly attractive for sheltering gains from taxes but notorious for high and hard-to-find fees. While you want to avoid such high fees, don't expect to get good advice for free. Instead, carefully think through exactly what you need. Then you can set out to find the right planner or investment adviser at the right price.

Here are some specific situations that might sound like your own and the likeliest place to go for advice in that case.

I need advice on a specific issue

Let's say you want assistance figuring out the best and most efficient way to save and invest toward college tuition costs. Or you want to review the investment choices in your company 401(k) plan and whether your current picks are the right ones for you. Though many financial planners won't work this way, the professionals affiliated with the Garrett Planning Network, for example, will tackle your problem on an hourly basis. Visit the Web site and put in your zip code to find a planner in your area. Network Founder Sheryl Garrett says rates range from $150 to $300 an hour depending where the planner is located (usually more expensive in large cities). She adds that many specific issues can be dealt with in four to five hours and that most of her associated planners offer a free half-hour session to go over your situation and issues and let you know how much it will cost for analysis and recommendations. "Most people don't need a full-time financial planner. What they need is someone they trust that they can go to for a check-up or to deal with specific issues," says Garrett. Ask the people at your credit union whom they recommend.

I need a full financial plan and some investment advice

Let's say you have questions about your whole financial life--from whether to refinance your mortgage to the best investments for your IRAs (individual retirement accounts) and other investments aimed at retirement. Many planners in the Garrett Network could do this--though it obviously involves billing for more hours than a single issue. Another source to find an adviser near you is the Web site of the professional association for fee-only planners, the National Association for Personal Financial Planners. Here, too, you can put in your zip code and get a list of prospective planners. Their lists of specialties also may help guide you; in addition to broad categories like retirement planning, they may have notations like "middle income clients" or "beginning investors." Planners from this site are more likely to want a fixed fee rather than hourly billing for a full financial plan--perhaps $1,500 to $2,500 or so.

I'm going to have a sizable sum and I need help

It's a nice problem to have but it also can be terrifying. Whether from an inheritance, selling your house and buying a less expensive one, or retiring and taking over control of the money in your corporate or government retirement account, you suddenly have to manage and invest a much larger amount of money than you have any past experience with. The best solution--especially if it is $500,000 or more--may be to hire a manager who will make the investment decisions. That choice can be a crucial one, especially if it comes close to retirement. "Retirees' assets typically have to last at least 25 years," says Jack Waymire, author of the book Who's Watching Your Money: The 17 Paladin Principles for Selecting a Financial Advisor". "Bad advice at the beginning of retirement can undermine their financial futures." Waymire also is the founder of the Paladin Registry a free-to-investors service which matches individuals with advisers and which he says screens out sales people who just want to rack up big commissions. The 800 advisers listed on Paladin have been checked for their credentials and to see that they don't have a record of client complaints with the federal Securities and Exchange Commission (SEC). Waymire says even if you don't use his service, you should use the same criteria in choosing an adviser:

• Make sure someone managing your money is a registered investment adviser with the SEC or with the state government. For planners, check for the Certified Financial Planner designation--which not only involves passing an exam but continuing education to keep up with recent developments.

• Never pay more than a 1.7% annual money management fee and ideally about 1%.

• Make sure you will get quarterly performance reports keyed to investment benchmarks that match your portfolio--the same proportion of stocks and bonds, say.

• If a manager is talking about his or her past performance, ask to see some client reports with the names blacked out. Says Waymire: "Don't select an adviser on the basis of a nice personality and a good sales pitch. Ask to see the record."

• Beyond that, you quickly can sense if a prospective adviser really has your interests at heart. If you hear a sales pitch with lots of talk about high returns and low risk, move on to find another adviser who really wants to help you for a reasonable fee.

Published April 9, 2007

Printed Tuesday, July 8, 2008

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