Like letting a fox watch the hen house?

December 26, 2012 2:20 PM

Can you recommend a financial planner in DC? Also. Um. How does that work? Newlywed financial noob questions inside.

We are in the very happy position of watching our bank account grow each month, but we have only vague ideas of what to do with this growing nest egg.

Our savings account interest isn't breaking even with inflation. Rates on CDs are pretty terrible too. Homeownership is something we're interested in, and getting a low mortgage in the next few years can save us thousands of dollars in our lifetime.

This "buy now, or save first?" calculator says we should buy now. But, are condos riskier than single family homes? Should we buy for the size of our family today, vs what it might be in 5 years? (i.e. having a baby?)

Obviously, this is a complicated situation and something we should ask a professional about. But my real question is this: how do financial planners make money? Is it a fee I pay, or a commission on products they sell us? Is this a wise investment to make? How much can I expect to pay a financial planner, and do they even care about small potatoes like us? How do I go about finding a financial planner? I belong to a credit union and USAA.

I feel like alarm bells go off whenever someone tells me how to spend my money. Can you give me reassurances?

Feel free to memail too. Thanks!

posted by fontophilic to work & money (6 answers total)

Is it a fee I pay, or a commission on products they sell us?

Excellent question to ask, and the very first one you should. Fee-based financial planners are recommended for most consumers, especially those just getting their feet wet. They are not invested in the outcome, so they are able to give you a disinterested opinion.

There will be a variety of offered services ranging from a brief consultation up to an ongoing relationship. One thing you can get is a review of your whole financial status, including recommendations on how to repair anything going wrong and how to maximize your investment potential versus your tolerance of risk.

Condos are considered riskier than homes, but they can also be right for people, and with the bubble popped you shouldn't be thinking of it primarily as an investment. Real estate is going to be a slow slog for a long time as far as appreciation, and individual markets could sag further. Ideally you should be buying whatever you buy for a five+ time period; less than that and renting will be a better use of your money, with all of the transaction costs of a purchase and sale.

You'll want to be moving money from "savings" into a tax-free or tax-deferred retirement fund -- IRA or a 401(k) type of instrument, if available -- and any other deferred compensation arrangements at your disposal. That fund will be in a mix of stocks, bonds, and such that will appreciate at a rate meeting your tolerance for risk, years to retirement, and expected income needs after you stop working. So there isn't a simple answer, but a fee-based planner will give you the best advice here customized for just you.

Good luck!
posted by dhartung at 2:45 PM on December 26, 2012

I can tell you how I did it when my husband and I were in your shoes almost three years ago.

We went to the National Assoc of Fee-Only Financial Planners website and found fee-only planners in our neighborhood. I researched each of them, narrowing the list to those who work with clients who are just starting out, then I called each of those folks and spoke for a couple minutes. We made a meeting appt with the one I clicked with.

At that meeting, he explained exactly how he got paid. He gave us a clear explanation of the services he offered (a one-time only plan, a plan plus a yearly check-up, a plan plus full portfolio management, etc) and then we went home to discuss.

Ultimately, we got a one-time plan (which took an additional three meetings) and have used it to formulate our own ongoing decisions. We've set ourselves a deadline to re-evaluate this year and maybe go back.

It was a great experience. I would urge you to go the fee-only planner route because the advice is as unbiased as possible. In my research, I also didn't find many broker dealers or bank/broker financial advisors who were interested in taking on clients who were as relatively asset-poor as we were.
posted by minervous at 3:01 PM on December 26, 2012 [1 favorite]

Definitely go with a fee based planner.

I'm not young, but I'm fabulous and on the upswing from being broke, so last week I checked out a book by Suze Orman from the library and it was actually quite helpful for covering the basics. It's a little dated, but there is still some great basic advice.
posted by getmetoSF at 6:01 PM on December 26, 2012

Definitely try your credit union and USAA! Also, at my office, financial planners are usually available from time to time to discuss your 401K and retirement planning. I don't know if that's unusual but that was the case at two different places where I have worked. I talked to one of them once and his advice was general but helpful. I understand your wariness about someone telling you what to do with your money but I think you should be able to audition people for free before you pay for any services.

As for your question about home ownership, dude, this is something I struggle with on a regular basis. I think that it's not a good idea to buy a place if you think you are going to sell it in less than five years. I don't think you will make back your investment and it will feel like by the time you finally unpacked everything, you're moving again. DC is a special place in that there will always be people moving to this area and as a result, demand for housing will always be high (not to mention the height restrictions on buildings which, no pun intended, also put a ceiling on the supply of housing in the area).

But. A good friend of mine tried to sell his home for more than a year. It was a nice place for a reasonable price considering how spacious it was. They eventually did sell it and I think they were pleased with how much they made on the sale but it was an eye-opener for me. They weren't underwater or anything but they were kind of stagnated in their lives for a little while because they couldn't sell their house. They wanted to move to a different city and get a house for their little girl and that was put on hold until they sold their house.

I don't know if this is something that you've thought about yet as newlyweds but if you have an accountant, maybe they can recommend a financial planner. And if you don't have an accountant, I definitely recommend getting one for tax season. It's something that my husband and I put off for years but we finally paid someone to do our taxes last year and I feel confident that he saved us money. Taxes are complicated enough but when you get married, I think you have the option of filing jointly or separately for your federal and DC taxes and that's a lot to do on your own to try to get the best deal.

And I love Suze Orman. I haven't watched her show in a while but it's been interesting to see how her advice has changed with the recession. Her thing is always "people first, then money, then things," which I really respect.
posted by kat518 at 9:02 PM on December 26, 2012

I have worked with Kathleen Finn.

She's great. She helped me get everything in order, made me understand insurance, wills, health care directives, mortgage benefits, etc. She's the reason I was able to buy a new house! I'll be contacting her soon to help me through next year's taxes.

She works out of her townhouse in Logan Circle. Highly recommended. PM if you need additional info.
posted by kinsey at 8:17 AM on December 27, 2012 [1 favorite]

Thanks all. I think I have a much better understanding of what we're looking for. I think a hurdle for me was understanding how certain terms are used within this whole, new-to-me, universe.

I can now say we're looking for fee-based, comprehensive financial planning. I'm liking a yearly package pricing structure, and it looks like I can expect to pay $1000 to $2500 for this. This seems to generally include a comprehensive look at all the various piles of money/debts/assets/insurance/legal planning we've got, an in person meeting or two which generates a detailed plan of actions to take and is generally rounded out with some much needed hand holding, and email consultations.

When we gain a bit of financial literacy (vs our current arm-flailing level of knowledge) we might not need such a comprehensive package. Financial consultations about specific topics seem to range from $100-500. This could be a situation like "Hey I got a new job, do I roll into a new 401k or go to an IRA?" You call up your planner, and he or she gives advice.

Google terms we are not interested in are: wealth management, portfolio management, or wealth advisors. This seems to be code language for "we want rich people only, min $10k retainers, min $500k portfolios."

The google terms of: Financial planning, family financial planning and personal financial planning are much more our speed.

I'm going to take minervous's advice and make a list of people who seem like a good fit, make a few calls and go on from there.

I'd love to get more personal recommendations so I'll keep this unresolved for now.

Thanks again!
posted by fontophilic at 11:42 AM on December 27, 2012