Are You Paying Too Much for Financial Planning and Advice? by Jane Bryant Quinn

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Are You Paying Too Much for Financial Planning and Advice?
By Jane Bryant Quinn | Sep 21, 2010 | 5 Comments

How much are you paying for the financial-planning advice you get? Some investors don’t know. Others think they know but don’t. “Fee-only” planners and registered investment advisors state their fees up front. “Fee-based” advisors appear to do the same but might be charging you in other ways. Brokerage house advisory accounts charge the most and can entangle you in costs you didn’t expect.

In short, a stated fee isn’t always what it seems. For that matter, neither is an advisor. I recommend fee-only planners but I’ve found some who are so new to the business or so limited in their skills that I wouldn’t go near them.

So how do you go about assessing what you’re paying for advice and what the potential conflicts or trouble spots might be? Here’s a rundown:

Fee-only advice. This is my choice, always. These advisors give you a price list up front, for work by the hour, by the task, or for ongoing management of your money. They don’t take sales commissions, so they’re not primed to push products. They sell only their planning and investment expertise.

Within this world, however, there’s a lot of variation.

A fee-only planner, with a CFP designation (for Certified Financial Planner) helps you establish your priorities and goals, create budgets, set savings targets, test your insurance safety net, establish retirement savings accounts, project future retirement income, plan for taxes, and make basic investment decisions. By “basic,” I mean simple asset allocation and picking no-load (no sales charge) mutual funds. That’s all that most families need. You can find some of these fee-only planners through the Garrett Planning Network, the Alliance of Cambridge Advisors, or the Financial Planning Association (when you search the FPA site, click on “How Planners Charge” and check the box for “fee-only”).

But some of these advisors — especially people who have been in business for only three or four years — might not have the knowledge or experience to analyze your investments in depth. Those with a brokerage-house background are familiar with securities, but others are still learning. They might be qualified to advise on mutual funds but not individual stocks and bonds. They might be taking clients before they’ve finished their CFP.

On average, you’ll find more experienced planners through the National Association of Personal Financial Advisors. Some NAPFA members deal only with people of higher wealth. Others take middle-class clients, too (see what their websites say).

Even planners with good paper qualifications might not serve you well if they don’t understand your life experience. For example, young planners who don’t own homes are not the best guide through mortgage decisions. Someone in his or her mid-30s will think more aggressively about investments than someone in late middle age. If you’re approaching retirement, you want a planner who can feel the same, cold wind of uncertainty that you do.

Fee-only planners typically charge 1 percent on accounts up to $1 million or so, and less on larger amounts. But fees have been going up, says Tom Orecchio of Modera Wealth Management and former president of NAPFA. Some firms charge 1.5 percent or more for the first $500,000.

“Advisors say they’re working harder, for less money, than at any time in their career,” Orecchio says. Accounts under management have declined in value, clients need more handholding, and more new products are coming to market that need evaluating. So they’re charging people more.

Normally, a percentage fee applies only to money that the planner has directly under management. A few planners assess the fee on your total net worth, including your 401(k) and home equity. “That’s for comprehensive financial planning,” says John Sestina of John E. Sestina and Co. “We advise on everything, including whether to refinance a mortgage and how to allocate a 401(k).” He charges $5,000 for accounts up to $1 million (that’s 0.05 percent, at the top) and larger fees for larger accounts. For younger clients, he offers “financial planning lite”– $1,000 for full planning and investment services on accounts of any size, but only two or three meetings a year.

Fee-based advice. Here, you have wolves in sheep’s clothing. It sounds as if they also give fee-only advice. In fact, they sell products and earn commissions. You might pay fees for some products and commissions for others. The size of the fees might depend on what else you buy. “Fee offset” means that the fee is deducted from the commission you pay. Commissions aren’t always visible, so it’s easy to pay more than you realize.

Brokerage house advisory accounts. You pay fees here, too. The broker provides an investment plan, developed and monitored by the firm’s advisory team. You get periodic reports. Small investors, with $25,000 to $50,000, might be charged in the area of 2 percent a year. These accounts don’t include packaged products such as variable annuities or unit trusts. Your broker might sell them to you on the side, earning a commission on the trade.

Skip these expensive advisory accounts if you’re a long-term investor who holds mutual funds and a few stocks. You’re much better off in a regular brokerage account that doesn’t charge fees–or, for that matter, with a fee-only planner.

Regarding conflicts of interest, I’m always careful about the commissioned-sales world because of its fondness for selling high-cost products. But the fee-only world has potential conflicts, too. Planners who charge on an hourly basis might stretch out the time it takes to complete your job. Planners who work on retainer might pay less attention to your account, because they’ve got the money anyway. Planners who charge a percentage of assets have an incentive to hold on to your money — for example, by recommending that you keep your mortgage rather than paying it off.

Always evaluate the advice, in terms of your advisor’s interest as well as your own. Advice isn’t always worth what you pay for it. You might do better by paying less.

Why Hire a Professional Who Doesn’t Put Your Interests First?

Jane M. Young CFP, EA

When selecting a financial advisor you want someone who will act in your best interest. To ensure this is the case hire an advisor who works to a fiduciary standard. A fiduciary standard requires your advisor to put your interests first even if those interests are not in their best interest. According to the National Association of Personal Financial Advisors over 90% of all investment advisors are paid (fully or partially) on commission therefore they are compensated for selling products. Additionally, many of these advisors are employed by a broker/dealer or an insurance company, where they are held to a lower standard of diligence. They are required, as part of that employment, to act in the best interest of their employers.

How do you find an advisor who will put your interests first?

Here are two ways to be sure you are hiring someone who adheres to a fiduciary standard. All financial advisors who are members of the National Association of Personal Financial Advisors (NAPFA) are required to adhere to a “Fiduciary Oath” as a requirement of membership. Additionally, both Federal and State law require that anyone who is a Registered Investment Advisor be held to a fiduciary standard. You wouldn’t accept less from your doctor or lawyer why accept less from your financial advisor?

Here is a link with more information on the fiduciary standard of care:


Four Financial Tips For Widows

U.S. News and World Report – The Best Life
Comment By Philip Moeller

Posted: September 14, 2009

The Boomerater™ Report, our weekly collaboration with online baby boomer resource Boomerater, this week helps widows plan for their financial future while avoiding mistakes others have made. “My dear husband recently passed away,” a Boomerater member writes. “For 40 years he handled our finances and I’m lost without him. I want to make sure our savings last so that I have financial security. My husband was a wonderful handyman who could fix anything and he did most of the yard work. I am considering selling the house and moving to a retirement community. Also, I work full time, but am thinking of retiring or changing to a less demanding job. There are so many decisions to make, where do I start?” Here is what other members said:

Take your time—don’t make rash decisions. It may seem impossible to consider a normal future right now, but you will be amazed at how much strength you have. Please do not make any changes right away. Learn what you can about your finances and keep the bills up to date. But don’t make major life changes like retiring or moving in a rush. A great place to start to put things in perspective is a Web site run by the Women’s Institute for a Secure Retirement. They have a retirement calculator to help you know how much you will need to live, resources for estate and retirement planning, details about types of survivor benefits and Social Security, pensions, etc. Another good site is operated by the Women’s Institute for Financial Education, and focuses on women’s financial independence. Just having a place to start was a big help for me when my husband died.

Get help to develop a realistic plan. Take some time off from work if you can but I wouldn’t recommend changing jobs or moving right now. Don’t worry about fixing things around the house—most of that can wait. When the time is right, you’ll want to create a plan for your finances that suits you. It may mean you change jobs or move to a new home. To create a plan, you take stock of where you are now and look at your income and your living expenses. If you’re living on less than what you’re making—great! Otherwise you’ll need to scale back. Then, look at what sources of income you’ll have when you retire. This may include Social Security, pensions and other retirement accounts, as well as savings. A financial planner can help you estimate future medical expenses, determine when to start collecting Social Security, and when to withdraw from various retirement accounts. The National Association for Personal Financial Planners and the Alliance of Cambridge Advisors are two organizations whose members offer fee-only planning. It might make sense to contact a member near you to set up a financial review that could give you peace of mind now and a guide to help for full planning later when you’re ready to take that step.

Beware of Scams! Shortly after my dad died my mother was the target of a terrible scam by a con artist who preyed on widows. He called her, identifying himself as on officer of the court, and told her she had missed her assigned jury duty. When she said she didn’t know anything about it he treated her horribly, saying she was obviously trying to get out of her civic duty. When she became upset, he told her he would try to have the warrant for her arrest cancelled but would need her full legal name, date of birth and Social Security number. She gave it to him and now is a victim of identity theft. What a mess! Don’t give money or personal information to ANYONE.

Don’t turn your financial future over to your children. It is a big mistake to let your kids take over your finances. Count on them for emotional support, but not financial advice. My sister turned all financial decisions over to her son, who had no expertise. He made unwise investments and she also ended up paying more in taxes than she would have with a qualified financial adviser.

Read other member suggestions or add your own comment about financial planning for widows. Boomerater is an online resource for baby boomers, with local directories to help you find everything from an Atlanta financial advisor to Texas assisted living. The site also contains forums where boomers can post questions and swap first-hand experiences. If there are questions on your mind that you would like answered by other people who have faced similar situations, or you have advice of your own to share, go to and participate in the forums. Say that The Best Life sent you.

To U.S. and World Report Site:

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