Q&A: How to buy U.S. Treasuries

Dear Liz: Can I purchase a U.S. Treasury bill myself or do I need to go through a bank or a financial advisor?

Answer: You can buy government-issued securities — including Treasury bills, bonds and notes —from TreasuryDirect, which is operated by the U.S. Department of the Treasury. Setting up an account usually takes just a few minutes, but you’ll need a valid Social Security number, a U.S. address and a checking or savings account to complete the process.

You also can buy Treasuries in a brokerage account. You can purchase a Treasury bill on what’s known as the secondary market, where securities are bought and sold, or you can invest in a Treasury money market mutual fund or a Treasury exchange-traded fund.

Q&A: ‘Assets under management’ advisors

Dear Liz: We’ve been using a fee-only financial advisor for 25 years. We’d discuss what we needed, she would tell us how many hours it would take, then she invoiced us at an hourly fee.

She recently joined a company that charges 1% of investment portfolios to provide financial advice. Is this still considered fee-only financial planning? If so, how do we find a firm that charges an hourly rate? We don’t want to spend thousands of dollars for someone to just tweak the detailed roadmap that’s already been created.

Answer: So-called “assets under management,” or AUM, fees are indeed considered fee-only planning, as long as the advisor only accepts fees paid by the clients and does not receive commissions or other compensation for the investments they recommend. AUM fees are a common compensation method and 1% is a fairly standard fee. If the advisor is doing significant, ongoing planning and investment management for you, the fee may be worthwhile. If not, there are other compensation methods that may be a better fit. Garrett Planning Network represents fee-only advisors willing to charge by the hour, while XY Planning Network and the Alliance of Comprehensive Planners offer fee-only advisors who charge retainer fees.

Q&A: ‘Fee based’ vs. ‘fee only’ financial planners: There’s a big difference

Dear Liz: How do you find a fee-based financial planner? I just inherited a lot of money, and trying to figure out our future is stressing me out.

Answer: That’s understandable. Getting sound advice can mean the difference between growing your newfound wealth and wasting it. But finding a good, honest, competent planner requires some work.

Most advisors aren’t fiduciaries, so they aren’t required to put your interests ahead of their own. Instead, they can recommend investments that cost more or perform worse than available alternatives, simply because the recommended investments pay them more.

Such advisors often call themselves “fee based,” hoping you’ll confuse them with “fee only” planners. Fee-only planners are compensated only by the fees you pay; they don’t accept commissions or other compensation that could influence their advice.

The National Assn. of Personal Financial Advisors and the Alliance of Comprehensive Planners are two organizations that represent fee-only planners, many of whom charge a percentage of your investable assets. You can find fee-only planners who work on an hourly basis at Garrett Planning Network and those who charge monthly retainer fees at XY Planning Network.

Interview at least three candidates. Ask them how they are paid and what your “all-in” costs — their fees plus the cost of investments they recommend — are likely to be. Ask about, and verify, their credentials. (You can check a certified financial planner’s status at cfp.net/verify-a-cfp-professional.) Find out about their education and experience, including whether they’ve advised people similar to you.

They should be willing to assert in writing that they will be fiduciaries. Finally, check their backgrounds, including their disciplinary history, at BrokerCheck.finra.org.

Q&A: Be wary of advisor motives

Dear Liz: In a recent column, you discussed the difference between fee-only vs fee-based financial planners. Most of my retirement dollars are in an IRA with one of the better-known investment companies. One of the advisors with that firm has advocated for an annuity with a well-known insurance company as a component of my portfolio. So, does this affect the advisor’s status of fee-only vs fee-based, or is this person to be only on the fee-based side of the equation? Or am I just confused?

Answer: You’re confused because it’s confusing — deliberately so. Many investment companies, including the better known ones, don’t make it clear that their advisors do not have to put your best interests first. Most are held to a lower “suitability” standard that allows them to recommend an investment that isn’t as good as the alternatives, simply because it pays them a higher commission.

If you want an advisor that puts your interests ahead of their own, seek out a fee-only financial planner — one who only accepts fees paid by clients rather than commissions and other incentives. This advisor should be a fiduciary, meaning the advisor is required to put your best interests first. The advisor must be willing to state, in writing, that they will put your interests ahead of their own.

It’s especially important to check with such a fiduciary advisor before purchasing an annuity, since these are complex products with potentially significant downsides that could be glossed over by someone who’s being paid to sell you one. An annuity could be the right fit for you, or it could be an expensive mistake. Get an objective review from a fiduciary before you buy one.

Q&A: How a fee-only financial planner differs from a fee-based one

Dear Liz: What is the difference between a fee-based financial planner and a fee-only financial planner? I have had a few complimentary meetings with a fee-based financial planner regarding retirement planning and income-generating strategy. I am 61 and currently have $325,000 in a traditional IRA and a 401(k) from a former employer, with 70% of both accounts held in stocks. The planner suggests that I put the whole $325,000 into a fixed indexed annuity, which he says is no risk. Is this a good idea?

Answer: Someone who is “fee based” typically accepts commissions or other incentives for selling certain investments in addition to charging fees. “Fee only” advisors accept money only from their clients.

Another important word that starts with f: fiduciary. Fiduciary advisors promise to put your interests ahead of their own. A fiduciary advisor, for example, typically wouldn’t recommend putting all your money in a single investment since having all your eggs in one basket is rarely in your best interest.

Most advisors are not fiduciaries, however, and may recommend poorly performing or expensive products to you when better options are available because those lesser options pay them more. Indexed annuities can pay high commissions to the people selling them, for example, and that can be a powerful incentive for your advisor to gloss over their potential disadvantages.

Indexed annuities are sold as a way to benefit from some of the upside of the stock market without the risk of loss if the market falls. But these annuities are complex and insurers can typically change the rules that govern your returns. In addition, you may face surrender charges if you need to take your money out.

The Securities and Exchange Commission has issued investor alerts about indexed annuities. These alerts urge potential investors to thoroughly investigate how the contracts are structured, how returns are figured and how the calculations can change. Anyone who is considering an indexed annuity would be smart to run the purchase past a fee-only, fiduciary financial planner to see whether it really makes sense for their situation.

By the way, there’s no such thing as a no-risk investment. Every investment poses some kind of risk, and a fiduciary advisor will take the time to explain those to you so you can make an informed judgment.

Q&A: Finding a fee-only advisor

Dear Liz: I need help locating a fee-only financial advisor. My search only comes up with advisors with investments.

Answer: It’s not clear what you mean by “advisors with investments.” Some fee-only planners charge a percentage of the assets they manage and often require you to invest a minimum amount with them. Others charge a monthly retainer (check XY Planning Network) or by the hour (visit Garrett Planning Network).

If you’re primarily looking for help with issues other than investing, such as budgeting or debt management, you could consider hiring an accredited financial counselor or accredited financial coach. Visit the Assn. for Financial Counseling & Planning Education. Another resource is nonprofit credit counseling agencies affiliated with the National Foundation for Credit Counseling at www.nfcc.org.

Q&A: How the pandemic made working with a financial planner easier

Dear Liz: You often recommend in your column to seek the advice of a fee-only financial planner. Where would I find such a financial planner? Our understanding is that a person has to have at least $1 million of savings to invest before a “fee-only” financial planner will consult with you. Can you be more specific?

Answer: Once upon a time, it was difficult to find fee-only financial planners if you didn’t have a lot of money to invest. Many required you to invest at least $250,000 and charged 1% of those assets annually.

Today you have many more options.

There are now fee-only planners who work on an hourly basis (such as those affiliated with Garrett Planning Network) or who charge monthly retainer fees (the XY Planning Network).

There are also accredited financial counselors and accredited financial coaches (Assn. for Financial Counseling & Planning Education) who often work on a sliding scale. The National Assn. of Personal Financial Advisors and the Alliance of Comprehensive Planners are two other organizations that represent fee-only planners.

One positive outcome of the pandemic is that many more planners now work virtually, which widens your potential options.

Also, many discount brokerages and robo-advisors now offer more affordable ways to get fiduciary advice. (“Fiduciary” means that the advisor is required to put your best interests first.)

Many use a hybrid model, with computer algorithms directing your investments plus access to a human advisor by phone, email or video call. The cost is typically 0.3% to 0.5% of the assets you have invested with the company, which is significantly cheaper than the 1% traditionally charged by financial planners.

Q&A: Weighing portfolio rebalancing costs

Dear Liz: I constantly read about the need to “rebalance” portfolios each year or more often to make sure you have a specific distribution of stocks, bonds and cash. However, selling stocks can create capital gains that will be taxed. An advisor rebalanced my portfolio and the result for me was an increase in capital gains taxes and an increase in my Medicare premiums. The extra taxes and costs to me seem to outweigh the benefit of hitting an exact asset target. Can extra taxes and Medicare costs be avoided while rebalancing?

Answer: Most of the advice about rebalancing is focused on people whose primary savings are in retirement accounts, where capital gains aren’t taxed.

Outside of retirement accounts, the costs of rebalancing must be weighed carefully. There often are ways to minimize capital gains taxes, such as selling losing stocks to offset winners, but in many cases the rebalancing should be done slowly, over time, to manage the fallout.

If your advisor didn’t discuss the tax and Medicare implications with you before taking this action, then it’s time to find another advisor.

Q&A: Finding affordable financial planning

Dear Liz: I’ve read your advice and that of many others to only use a fee-only financial planner. However, we’ve never felt like we could afford that expense, and many of the planners I’ve found wouldn’t take accounts as small as ours anyway. We’re in our mid-40s and feel like we’ve wasted many years waiting to be “ready” for a fee-only planner. Is it really better to have zero financial planning advice, rather than just using a free planner?

Answer: A “free” planner is typically an advisor who is paid by commission. You may not pay for the advice directly, but you could wind up with underperforming, overpriced investments because the advisor is not required to put your best interests first.

You can find certified financial planners who charge by the hour at Garrett Planning Network, and the XY Planning Network represents planners willing to charge monthly retainers. Many discount brokerages and robo-advisors offer access to certified financial planners, as well. You might also consider an accredited financial counselor or financial fitness coach, which you can find through the Assn. for Financial Counseling & Planning Education. Whereas many certified financial planners cater to higher income people, coaches and counselors handle issues relevant to middle- and lower-income Americans, including budgeting, debt management and retirement planning.

Q&A: Now is a good time to get a financial tuneup. Here’s how

Dear Liz: I’m hoping you could provide recommendations, referrals or tips on how to help me manage my money. I’m seeking a financial planner who can help me pay my bills on time, learn to budget and pay off credit card debt.

Answer: When you’re struggling with the basics, a financial fitness coach or an accredited financial counselor may be a better fit than a financial planner.

Financial coaches and counselors specialize in budgeting, debt management, retirement planning and creating better money habits in general. Coaches and counselors in private practice typically charge $100 to $150 an hour, although many work on a sliding scale, said Rebecca Wiggins, executive director of the Assn. for Financial Counseling & Planning Education, which grants both credentials.

These accredited financial professionals also are employed by the military, credit unions and other organizations to provide services for free or low cost. You can start your search at https://www.afcpe.org/.