Selecting a Financial Planner: Fee v. Commission
March 18, 2008 8:11 AM Subscribe
How should I select a financial planner? Should I find a fee-only or commission-based planner? $150-$200/hour seems like a lot of money to me.
My husband and I are looking for a financial planner in the Boston, MA-Portland, ME area.
We live and work in Boston right now. He is an internal medicine resident and I am a holistic health professional. He will finish residency in June of '09 and at that point, we plan to move home to Maine and buy our first home. While we both have student loan debt (consolidated at a low rate), we have also been setting money aside so that we can hopefully come up with a 20% downpayment.
We are good savers, but have been very timid about investments. We are looking to find a certified financial advisor who:
a) can help us reach our short-term goals (move, house purchase, pay of student loan debt);
b) help us set up a solid system for when our income increases significantly;
c) won't charge us crazy amounts of money.
I am hoping to establish a long-term relationship with this financial advisor.
Do you use a financial planner? If so, would you recommend using a fee-only professional ($150-$200/hour seems like A LOT of money to me...) or would you recommend a commission-based professional? And lastly, can someone recommend a CFP in the northeast?
Thanks for your suggestions!
My husband and I are looking for a financial planner in the Boston, MA-Portland, ME area.
We live and work in Boston right now. He is an internal medicine resident and I am a holistic health professional. He will finish residency in June of '09 and at that point, we plan to move home to Maine and buy our first home. While we both have student loan debt (consolidated at a low rate), we have also been setting money aside so that we can hopefully come up with a 20% downpayment.
We are good savers, but have been very timid about investments. We are looking to find a certified financial advisor who:
a) can help us reach our short-term goals (move, house purchase, pay of student loan debt);
b) help us set up a solid system for when our income increases significantly;
c) won't charge us crazy amounts of money.
I am hoping to establish a long-term relationship with this financial advisor.
Do you use a financial planner? If so, would you recommend using a fee-only professional ($150-$200/hour seems like A LOT of money to me...) or would you recommend a commission-based professional? And lastly, can someone recommend a CFP in the northeast?
Thanks for your suggestions!
I was recently dragged into a financial planner meeting by my significant other. My worst fears came true on the third meeting when we were pitched short term disability insurance. At least when I went to a timeshare meeting I got a free bar tab out of it, and didn't have to pay. Next week we are going to discuss life insurance. Yay.
The pluses I did get out of it we could have covered in fifteen minutes: Combine these credit card balances and move them to a 0% card and then calculate what it would take to pay it off. Then put $500 a month into a savings until you get a 3-6 month required expenses reserve saved up.
posted by Big_B at 8:50 AM on March 18, 2008
The pluses I did get out of it we could have covered in fifteen minutes: Combine these credit card balances and move them to a 0% card and then calculate what it would take to pay it off. Then put $500 a month into a savings until you get a 3-6 month required expenses reserve saved up.
posted by Big_B at 8:50 AM on March 18, 2008
I think the main question is, how much time do you want to put in to planning your financial future?
Yes, you can figure out for yourself all the stuff a financial advisor can help you with. But are you willing to read the books, do the research, and put in the effort it takes to set up all those systems?
I think another nice thing about meeting with an advisor is that it forces you to get very strategic about what you're doing. A lot of people will use their time with a financial advisor to set up a system and make a plan that gets them going, then will only visit one again when, as thomas144 says, they have a significant change to their life.
If you do go with an advisor, by all means, choose a fee-only. Yeah, it's more expensive. But I'd rather pay my money directly to the advisor than know they're getting their money from somebody else who is trying to get more of mine.
posted by missjenny at 8:58 AM on March 18, 2008
Yes, you can figure out for yourself all the stuff a financial advisor can help you with. But are you willing to read the books, do the research, and put in the effort it takes to set up all those systems?
I think another nice thing about meeting with an advisor is that it forces you to get very strategic about what you're doing. A lot of people will use their time with a financial advisor to set up a system and make a plan that gets them going, then will only visit one again when, as thomas144 says, they have a significant change to their life.
If you do go with an advisor, by all means, choose a fee-only. Yeah, it's more expensive. But I'd rather pay my money directly to the advisor than know they're getting their money from somebody else who is trying to get more of mine.
posted by missjenny at 8:58 AM on March 18, 2008
We found our financial planner through the find feature of NAPFA, which is an association of fee-only advisors. We've only been using him for about 6 months, and we've been very happy so far. Our situation is a little bit different than yours. We needed to consolidate a whole bunch of mutual fund investments that were getting overwhelmingly difficult to manage. We needed guidance on how to invest money for future schooling for our kids. And with our twin toddlers running around the house, we were simply running out of both enthusiasm and time to manage the money ourselves.
Our planner charged a fixed price for our initial financial plan, and his ongoing fee is based on a percentage of the money he manages for us. Based on his performance so far, we believe his fee will be easily offset by the extra gains that is made by his managing of our money. I think he is atypical of planners in that he really actively micro-manages our money (ie, not just tweaking on a quarterly or monthly basis). And it's nice knowing he eats his own dog-food, in that he puts his money his the same investment vehicles that he recommends to us.
posted by jaimev at 9:10 AM on March 18, 2008
Our planner charged a fixed price for our initial financial plan, and his ongoing fee is based on a percentage of the money he manages for us. Based on his performance so far, we believe his fee will be easily offset by the extra gains that is made by his managing of our money. I think he is atypical of planners in that he really actively micro-manages our money (ie, not just tweaking on a quarterly or monthly basis). And it's nice knowing he eats his own dog-food, in that he puts his money his the same investment vehicles that he recommends to us.
posted by jaimev at 9:10 AM on March 18, 2008
The book I always recommend "The Only Investment Guide You'll Ever Need" is a very easy and entertaining read. It really has all the information anyone needs, but if you still feel you need to talk to a human and pay them for the privilege, a fee-based adviser is the way to go. Another good book is "The Millionaire Next Door" although its message is a little more subtle (the difference being "be frugal" vs. "oh, look, rich people are frugal people").
posted by thomas144 at 9:14 AM on March 18, 2008 [1 favorite]
posted by thomas144 at 9:14 AM on March 18, 2008 [1 favorite]
Could you look into some free community services that offer those kinds of services, or perhaps your bank has an investment advisor you could talk to? Don't ever go to someone who makes money from selling you their products. If you're not investing enough to justify the cost of a fee-based advisor, spend the money on a finance class at your local community college and do it yourself.
posted by blue_beetle at 9:26 AM on March 18, 2008
posted by blue_beetle at 9:26 AM on March 18, 2008
Fee only! That way you know that they are working for YOU not for the company paying them commission.
I think, even if you hire someone else to help you, you still need to invest some time in learning about this stuff yourself (so you have some basis by which to judge whether the person you hire is giving you good advice). Personal Finance for Dummies is an excellent introduction to general financial literacy, and you can go on from there to books on the specific investing or other topics you want to learn about in depth.
posted by Jacqueline at 10:13 AM on March 18, 2008
I think, even if you hire someone else to help you, you still need to invest some time in learning about this stuff yourself (so you have some basis by which to judge whether the person you hire is giving you good advice). Personal Finance for Dummies is an excellent introduction to general financial literacy, and you can go on from there to books on the specific investing or other topics you want to learn about in depth.
posted by Jacqueline at 10:13 AM on March 18, 2008
I worked for a registered investment advisor - they can be worth the money, particularly if you have multiple IRAs, a living trust or recently received an inheritance. Typically they won't take you as a permanent client unless you meet their minimum, which can start as low as $25,000 but is usually much more. Rarely will you find a good RIA or CFP that will take clients with less than $10,000 to invest.
Fee-only advisors are the best way to go. If they're commission-only they aren't usually able to act as your fiduciary, meaning they put your best financial interest above theirs, and this is critical if you want good financial advice. Their percentages charged range from 1/2 percent a year to 2% a year. 2% is very high, though.
The NAPFA website, the The Certified Financial Planner Board of Standards, and the Financial Planning Association all offer searches for advisors. Once you find one, you might want to check them out with the SEC to make sure they don't run off with your money.
posted by fiercekitten at 11:02 AM on March 18, 2008 [1 favorite]
Fee-only advisors are the best way to go. If they're commission-only they aren't usually able to act as your fiduciary, meaning they put your best financial interest above theirs, and this is critical if you want good financial advice. Their percentages charged range from 1/2 percent a year to 2% a year. 2% is very high, though.
The NAPFA website, the The Certified Financial Planner Board of Standards, and the Financial Planning Association all offer searches for advisors. Once you find one, you might want to check them out with the SEC to make sure they don't run off with your money.
posted by fiercekitten at 11:02 AM on March 18, 2008 [1 favorite]
If you are looking for a fee-only financial planner you might try the Garrett Planning Network. This is an organization for fee-only planners.
$150 to $200 per hour isn't that much money. You probably only need 4 to 8 hours the first year and just an hour or two per year after that.
Here are a few things to ask about in your first interview. If you don't like what you hear, find someone else.
1. They use only no-load mutual funds.
2. They primarily use only index mutual funds.
3. If they mention universal or whole life insurance, run away.
4. If they push variable annuities, be careful. They are appropriate for very few investors.
5. They should recommend term life insurance (not whole life).
6. They should recommend disability insurance.
It is good that you are thinking about this issue now. There are some stereotypes about doctors that contain more than a grain of truth. Doctors are prime shark bait for all sorts of salesmen because they have high disposable incomes. Doctors have an oversized belief in their competency in fields outside their area of expertise, particularly regarding investing. They are very smart people, just not about investing, and they just don't know it. Because they are in a high tax bracket, they have an obsession about avoidance of taxes. They are always looking for some scheme to screw the taxman and end up screwing themselves. All of these factors make them very susceptible to financial salesmen who know these characteristics and how best to exploit them. Be on your guard.
posted by JackFlash at 1:12 PM on March 18, 2008
$150 to $200 per hour isn't that much money. You probably only need 4 to 8 hours the first year and just an hour or two per year after that.
Here are a few things to ask about in your first interview. If you don't like what you hear, find someone else.
1. They use only no-load mutual funds.
2. They primarily use only index mutual funds.
3. If they mention universal or whole life insurance, run away.
4. If they push variable annuities, be careful. They are appropriate for very few investors.
5. They should recommend term life insurance (not whole life).
6. They should recommend disability insurance.
It is good that you are thinking about this issue now. There are some stereotypes about doctors that contain more than a grain of truth. Doctors are prime shark bait for all sorts of salesmen because they have high disposable incomes. Doctors have an oversized belief in their competency in fields outside their area of expertise, particularly regarding investing. They are very smart people, just not about investing, and they just don't know it. Because they are in a high tax bracket, they have an obsession about avoidance of taxes. They are always looking for some scheme to screw the taxman and end up screwing themselves. All of these factors make them very susceptible to financial salesmen who know these characteristics and how best to exploit them. Be on your guard.
posted by JackFlash at 1:12 PM on March 18, 2008
This thread is closed to new comments.
I don't recommend that anyone get a financial adviser unless you have suddenly received a substantial windfall, like for example $5-10 million dollars in a household with an annual income less than $150,000. Whatever you do, do not consult a commission-based financial planner.
posted by thomas144 at 8:36 AM on March 18, 2008