September 6, 2004

5:30 PM

How do I find a good financial planner?
posted by Songdog to (7 comments total)

My wife and I have a new child. We want to make him as secure as we can as well as saving toward retirement and other financial goals. We'd like to find a good advisor to help us proceed wisely, but we're not sure how best to find or choose such a person. I know large investment firms offer services along these lines but I suspect they exist in part to push their firm's own investment vehicles, and we'd prefer more independent advice. (We may also need mildly specialized expertise in one area: we both commute across state lines, which makes for a more complex tax situation.)
posted by Songdog at 5:31 PM on September 6, 2004

Who does your taxes? Most C.P.A.'s also give investment advice, and naturally they're quite good at it - if they've been doing returns for a while they see what's out there, what works for people in your situation - and what doesn't. They give good specialized tax advice too.

I have a good CPA in town - referred to me by a co-worker; nearly all his clients are physicians. You might try asking some of your co-workers where they get their taxes done, which is a pretty inoffensive question.

By the way, most CPA's will charge for their time in giving this type of consultation. I'm much happier to pay up front, for exactly the reasons you're suspicious of large firms :)
posted by ikkyu2 at 8:30 PM on September 6, 2004

Going to most CPAs to get investment advice is like going to most proctologists to have a baby delivered.

It helps to think of financial planning decisions as three-pronged.

First, you should make sure your investments and insurance are titled properly (joint/ individual/ custodial/ IRA, etc)-- are they owned and registered in the most tax-friendly manner possible?

Second, it's important that the type of asset is suitable for your needs-- For insurance, should you buy term or whole-life? Should you own equities directly, or through an ETF or mutual fund?

Third, you must select appropriate investments or products-- Which ETF? Which insurance policy?

In my experience, CPAs are good at answering the first question, tolerable at answering the second question, and miserable at answering the third. (Conscientious) Brokers are better at answering the second and third questions, but usually have no idea how to answer the first.

I don't know how much money you have, Songdog, and it's really none of my business, but if you are a typical new parent, you probably don't have enough to be worth a good broker's time. A Merrill (or similar full-cost) guy will want to push you toward loaded mutual funds in order to earn enough commission for his time. A Fidelity (or similar discount) rep may only make $100-$200 from you, and will be reticent to commit much time to helping you with your situation.

A CPA who holds a brokerage license and works for commissions is the worst of all worlds-- high-fee products, a facade of credibility, and tenterhooks placed almost undetected into every crevasse of your financial corpus. Stay away.

The vast majority of "financial planners" work for commissions, and make hay on insurance products, especially Variable Universal Life, which is a hungry salesman's dream product.

So, in exchange for you indulging my long-winded explanation, I will answer your question.

The very best thing for you to do (at this stage in your life) is to learn to do it yourself. After you do your research, you'll probably decide to buy enough term insurance to pay off the mortgage, send your kid to college, and give your wife a nest egg upon which she can rely if she hits some employment-related adversity. Then, you'll deploy retirement savings first to your 401(k) to take advantage of the company match. With leftover retirement monies, you'll fund an IRA (or Roth IRA, if you qualify) for you and your spouse. If you still have savings left over, you'll hold your additional funds at the same firm (a discount firm which offers low-cost mutual funds or ETFs with low trading costs), and invest them in the most tax-efficient, low-turnover, low-fee vehicles available. Then you'll run some standard tests to make sure you have diversified across countries, across market-caps, and across industries. You will go to bed knowing that you're paying little in fees, that your portfolio is protected from unsystemic risk, and that your family will survive even (heaven forbid) in your absence.


If you choose not to educate yourself, I suggest in the strongest possible terms that you eschew the CPAs and CFPs who sell proprietary products, and search for a fee-only financial planner. With a fee-only planner, you'll have cleared most conflict-of-interest hurdles. You'll need only to worry about the competence of the planner (because his integrity will be nearly irrelevant). Earning the CFP Designation is not rocket science, but it does assure you that your planner can pass a relatively broad (if not deep) battery of tests, and that he has made a commitment to his craft. Last, I would encourage you to spend five or ten minutes interviewing a few fee-only planners over the phone, creating a shortlist, and then explaining in a very up-front manner that you want fifteen more minutes with anyone remaining on your shortlist to choose the planner with whom you'd feel the most comfortable. When you take any more time from someone like that (time he can't bill to you), you're taking advantage of him.

Expect to pay $750-$1500 for a good, detailed financial plan.
posted by trharlan at 10:21 PM on September 6, 2004

Great answer trharlan! I've been thinking about this question quite a bit recently as well. I'm about to get married and we're talking about starting a family 18 months to 2 years.

I'm lucky enough to be pulling in more financially than is going out (though it took quite a while to pay off some high interest credit card debt I ran up in college when I didn't know any better). I'm now doing monthly investing (cost dollar averaging) into a few different ETF's using sharebuilder.com, in addition to maxing out my yearly contribution to a 401k plan that my employer offers. I'm also looking into getting enough term life to cover my soon-to-be wife if something happens.

It still feels like there are holes missing in what I'm doing, and I had been asking around about CFP's that friends/family would recommend. Unfortunately, I'm in a better position financially than most of the people I know so they aren't that much help. I've pretty much decided that at this time it'd be best for me to take care of myself (pretty much what trharlan says above).

Are there any books that people would recommend along these lines?

Any financial websites/blogs/internet communities?

From what I've seen of fool.com, they're no where near the financial resource that they used to be. They've turned into a money grubbing website that's the opposite of what they had counseled against in years past.
posted by freshgroundpepper at 12:28 AM on September 7, 2004

My spouse and I went to our local bank. They have a person working with them whose job title is financial planner. I thought this type of job would be a conflict of interest, but she works in the bank but not really for the bank (directly). At any rate, we went through an interview process and she made a bunch of good suggestions which we're going to follow. Perhaps your bank has a similar service.
posted by plinth at 3:14 AM on September 7, 2004

Thank you all for your suggestions!

trharlan: a fee-only financial planner sounds promising, but again, how do I find one?
posted by Songdog at 5:46 AM on September 7, 2004

Songdog, try the National Association of Personal Financial Advisors. All their members are fee-only. They have a web form you can fill out to find a planner. (Note: I did this, and got quite a few brochures in the mail).
posted by profwhat at 9:54 AM on September 7, 2004