April 18, 2016 By

Q&A: How much does a fee-only financial planner cost?

Dear Liz: You frequently suggest consulting a fee-only financial planner, such as those who are members of the Garrett Planning Network, which seems like great advice. Can you provide any guidance on how much one should expect to pay for the services of this type of planner? We are a couple living in Los Angeles looking for a pre-retirement evaluation. That would probably include evaluation of existing investments, insurance needs, Social Security, long-term care, etc. How should we evaluate a quote of $3,000 for a full review estimated at 10 hours or $300 an hour?

Answer: The cost for a comprehensive financial plan varies depending on where you live and the planner’s experience level, among other factors. Nationally, the range is typically from $150 to $300 an hour, so $3,000 for 10 hours in Los Angeles is at the high (but not unreasonable) end of the scale, assuming the planner has several years’ experience.

Another way to get a feel for going rates is by interviewing a couple of other fee-only planners in your area. If the cost you’re quoted is dramatically lower, though, make sure the planner isn’t accepting commissions as well. Some planners are “fee based,” which means they accept both fees from clients and commissions on the products they recommend. You can ask for the planner’s Form ADV, a form filed with the Securities and Exchange Commission. Part II of this form contains information about how the planner is compensated.

Filed Under: Q&A, Retirement Tagged With: , , ,
April 12, 2012 By

Beware your financial planner

Financial planner Allan Roth has a pretty good piece in the latest issue of AARP the Magazine on “The Two Faces of Your Financial Planner” (renamed “How to Choose Your Financial Planner,” a much snoozier headline, in the online version). Although it’s geared for older readers, it should be read by anyone who gets professional advice. The piece discusses the inherit conflicts of interest with every method of compensation, from commissions to assets under management to hourly, and points out that the people you trust with your money may not be worthy of that trust:

My point is this: Bad advice is epidemic in my industry, and it doesn’t come only from villainous fraudsters such as [Bernie] Madoff. It also comes from pleasant, empathetic folks who are merely responding predictably to my industry’s perverse incentives and self-serving ethical standards.

We financial planners are masters at persuading ourselves that what’s in our best interest also happens to be the moral thing to do. By and large, we’re good people, which is why we can be so convincing — and so potentially dangerous to your money.

The conflicts inherent in a commission-based model are pretty apparent. If a planner gets a big payday when you buy a specific investment, but less of a payday or none at all if you buy another, that’s a pretty good incentive to rationalize putting you in the investment that will do the most good for him or her.

There are also conflicts that come with the hourly model (the potential to run up the bill) and the assets-under-management model, although I don’t quite agree with the example Roth uses: “That’s why few of us will ever tell you to pay off your mortgage: Using $100,000 to discharge a loan rather than investing it could cost us $1,000 a year in fees.” Actually, the reason fee-0nly planners typically don’t recommend mortgage prepayment is that most people have much better things to do with their money than pay off a low-rate, tax deductible loan–things like catching up on their retirement savings, paying down every other debt and making sure they’re adequately insured, among others.

The article offers some excellent advice for how to get the best money advice, including checking credentials, refusing to commit to a plan or investment on the first meeting, asking what the penalties are if you want your money back from an investment and requesting the planner to put in writing why he or she thinks an investment is suitable and the total cost you’ll be paying.

Filed Under: Liz's Blog Tagged With: , , ,
April 2, 2012 By

Is a money manager worth the cost?

Dear Liz: My husband and I are nearing 60. The company where we both have worked for over 30 years recently merged with another firm. The money in our retirement accounts, which totals several hundred thousand dollars, will be distributed to us, and we need to figure out how to manage it.

We took your advice to interview several fee-only financial planners, and all of them are pushing for wealth management. They would manage the money in exchange for a percentage of the assets. How do we find an unbiased opinion of whether it is worth it to spend over $10,000 a year for this service rather than putting that money toward our retirement?

I find it doubtful that any of the planners can earn a return that would be worth at least $10,000 a year. We’re with Vanguard’s Target Fund 2020, which we currently use for retirement funds we have gathered outside of work.

Answer: You’re right that a financial planner — or any money manager, for that matter — is unlikely to offer returns substantially above what you would get in passive investments that seek to match the market, rather than beat it. Study after study shows that few investors, professional or amateur, can consistently outperform the stock market averages.

What wealth management should provide is a suite of services to help you in all areas of your financial life. You should get a comprehensive financial plan as well as assistance with your taxes, insurance needs and estate planning.

Your investments should be targeted to your specific needs, time horizon and risk tolerance. Your planner should advise you about sustainable withdrawal rates once you retire, so that you minimize the risk of running out of money.

Your planner should be willing to act as your fiduciary, meaning your needs come first, so you don’t have to worry about the conflicts of interest that may arise when an advisor is recommending products that pay him or her commissions. The best wealth managers, in short, provide a one-stop shop that alleviates the need for you to try to coordinate all these services yourself.

If you don’t feel you need this level of service, however, seek out a fee-only planner who works by the hour. You can find referrals to this type of fee-only planner from the Garrett Planning Network at http://www.garrettplanningnetwork.com.

Filed Under: Financial Advisors, Q&A Tagged With: , , , , , ,