How to find an advisor you can trust
Dear Liz: I’m 56 and have never had a clue about money matters although I have money. Over time, from your column, I have gleaned that one should go to a fee-based financial planner, but I have a hard time trusting people. I’ve had more of these professionals contact me than there are stars in the sky. I’m pretty scared and in “ostrich mode.” I would truly appreciate it if you could give me a nudge toward the right man or woman to chart my path.
Answer: Ultimately you’ll be charting your own path, but it can help to have a trusted advisor point the way.
“Trusted” is the key word, obviously. Many people prefer “fee-only” (not “fee-based”) arrangements because the planner is compensated only by the fees you pay, not by commissions he or she might earn on investment products. A fee-only planner doesn’t accept commissions, while a fee-based planner might.
Something else you’ll want to determine is whether the planner is willing to say in writing that he or she is willing to act as a fiduciary. What that means is that the planner is willing to put your interests ahead of his or her own. This is a much higher standard than most advisors must adhere to by law. Typically advisors only have to recommend “suitable” investments and strategies, rather than the ones that may best serve your needs.
It’s likely that many of the professionals contacting you are not fee-only financial planners but are instead investment salespeople of some kind. If you want a good financial planner, you typically have to seek one out.
Since you have money, you can start by asking for referrals from the National Assn. of Personal Financial Advisors at http://www.napfa.org. NAPFA holds its members to high educational, experience and ethics requirements. Many of its members specialize in financial planning for high-net-worth individuals and typically charge a percentage of your assets or a retainer fee. You also could get referrals from the Garrett network mentioned above if you want to pay for advice by the hour. Both organizations’ websites have additional tips for choosing a planner.
“Fee based” isn’t the same as “fee only”
Dear Liz: I had to nod my head when reading your recent column concerning the financial advisor who kept trying to get her client to buy a variable annuity. My wife and I for many years dealt with a like-minded lady who was personable and intelligent. We did purchase several annuities before research alerted us that maybe this wasn’t the best way to go. Every time we met with her she wanted to transfer us to a new “fantastic” annuity, which started up new surrender charges, some as high as 20%. Finally, our accountant suggested a financial planner. We paid the gentleman $1,000 for a full-bore assessment, turning over all our records and meeting three times with him. His advice? Buy a variable annuity. I have a hard time trusting anyone in the financial world.
Answer: It’s possible, but rather unlikely, that you were dealing with a fee-only financial planner. Some planners charge fees, but they also take commissions — and annuities tend to pay fat commissions.
If you want advice that’s free of such conflicts, you’ll need to look for a true fee-only (not fee-based) financial planner. You can get referrals from the National Assn. of Personal Financial Advisors at http://www.napfa.org or the Garrett Planning Network at http://www.garrettplanningnetwork.com.
Your broker is not a retirement expert
Dear Liz: We’re in our mid-60s and have $1.4 million in a brokerage account totally invested in stocks. Our broker maintains that we have plenty of money for retirement. Is he right?
Answer: Unless your broker is a comprehensive financial planner — which is highly unlikely, given that you’re 100% invested in stocks when you almost certainly should be taking less risk — he shouldn’t be offering advice. You need to consult a fee-only financial planner who can review your entire situation, including how much you spend, your risk tolerance, your health, your expected longevity, any upcoming purchases or lifestyle changes and any legacies you may want to leave behind. Only then can the planner give you personalized, knowledgeable advice about this crucial area of planning.
You can get referrals from the National Assn. of Personal Financial Advisors at http://www.napfa.org, the Garrett Planning Network at http://www.garrettplanningnetwork.com and the Alliance of Cambridge Advisors at http://www.acaplanners.org. Each site offers advice about how to evaluate and choose a planner.
How to invest an inheritance
ear Liz: I’m writing to get some help on what to do with $300,000 that I have recently inherited. My husband and I are in our early 50s. We owe $180,000 on our home at 5% interest, with seven years left on our 15-year loan, and have no other debt. We have a combined $225,000 in retirement accounts and about $15,000 in a regular savings account. Does it make sense to pay off or pay down our mortgage with the inheritance or just keep it in savings?
Answer: You need to take a small chunk of that money and invest it in a session or two with a fee-only financial planner who can review your entire situation and give you personalized advice.
In all likelihood, the advice won’t be to pay off the mortgage. You’re on track to have your home loan paid off before retirement age, and most people have better things to do with their money than pay off a low-rate, often tax-deductible debt.
It doesn’t make much sense to let your inheritance languish in a savings account, however, when you’re likely to need more money for retirement. A planner can help you come up with an investment allocation that takes somewhat more risk but that should bring you greater returns.
You can get referrals to fee-only planners from the Garrett Planning Network at http://www.garrettplanningnetwork.com and from the National Assn. of Personal Financial Advisors at http://www.napfa.org.
Finding trustworthy advisors
ear Liz: It looks like my mother is going to win a lawsuit that could bring her more than $2 million. Can you advise us what steps to take once she receives her money? She wants me to play a major part in her finances as she is not a native English speaker, but I do not know much about finance, either. I can probably look for a financial advisor, but how do I know we are not going to bump into another Bernie Madoff?
Answer: Your mom needs at least three advisors to handle such a big windfall: a financial planner, an accountant and an estate-planning attorney.
You can get referrals for fee-only financial planners — who are compensated only by fees their clients pay and not by commissions or kickbacks — from the National Assn. of Personal Financial Advisors at http://www.napfa.org or the Garrett Planning Network at http://www.garrettplanningnetwork.com. You should interview at least three prospects about their education, ethical commitment and experience advising people who acquire sudden wealth. Check out their backgrounds using the BrokerCheck feature at the Financial Industry Regulatory Authority website (FINRA.org).
Garrett advisors typically charge by the hour and often don’t manage assets — the client makes the actual investments. NAPFA advisors typically do offer asset management and may charge a percentage of assets.
One way to reduce the chances of becoming a Ponzi scheme victim is to make sure your money is held by an independent financial institution such as a bank, brokerage or mutual fund and that your statements come from that institution. You also should find out who audits your advisor and do a background check on that company as well.
