Your best financial adviser? Start with your employer

When I attempted to become a financial planner years ago, I realized that a successful adviser has to be a good salesperson first and an educator and adviser second. Educating people to take control of their finances on their own doesn't pay the bills.

In her new book "What Your Financial Advisor Isn't Telling You," Liz Davidson puts a twist on the same idea. The problem with financial advisers, she writes, is that they are typically not financially motivated to operate in the consumer's best interest.

The former hedge fund manager isn't against using a financial planner. In fact, she spends a portion of the book describing when a person should hire one and how to find a good one. But she believes that people should start their planning at the same place where most of us make money — our workplace.

"Your employer is your best financial services provider," she said. It's the source of 401(k)s, health insurance, life-health-disability insurance, flexible spending accounts, health saving accounts, dependent care and tuition reimbursement and commuter benefits. Employees may not even be aware of all the services offered, Davidson said. Some even offer services that can help in managing debt.

Davidson doesn't sell any investment products, but she does have a dog in the fight. Her California-based company Financial Finesse works with larger companies such as General Mills and M.A. Mortenson to offer financial guidance to their employees. She believes that before consumers hire a financial planner, they should pay down high-interest rate debt, set up an emergency fund, max out their retirement plan, and consider an FSA, HSA, and any other employer-sponsored benefits.

Jeanna Fifer, a certified financial planner at Cahill Financial Advisors in Edina, believes that such advice is appropriate for most people. "Those action steps are part of sound financial planning," she said.

Davidson doesn't expect an employer to offer all the answers to savings and retirement. Her book offers a chapter on getting out of debt with a DebtBlaster strategy that pays off the highest-interest rate balances first. It's a time-honored strategy but not the only one. Author Mary Hunt, who successfully dug herself out from a $100,000 credit card debt without declaring bankruptcy, advises paying off the smallest balances first regardless of interest. Having fewer and fewer payments because small bills are paid off faster can be more motivating, she said.

One of the perceived advantages of using a financial planner, Davidson said, is their ability to select mutual funds or other investments that perform better than average. According to one survey, there is some truth to that. A study by Financial Engines and Aon Hewitt showed those who received investment advice typically get 3 percent higher returns than those who don't.

Even Morningstar discovered that low fees are the single best indicator of superior future performance in its own 2010 study, followed close behind by its star rating system.

"What Your Financial Advisor Isn't Telling You" is full of tips that a good financial planner might also pass along, including auto-escalation. It's a simple finance tip that says you should increase your savings rate every year and every time you get a raise or bonus. Some employers offer auto-escalation annually for retirement savings.

Increasing a 401(k) contribution rate by one percent or more each year is nearly painless for most people. It's a way of combating the inertia that causes so many Americans to save too little. With auto-escalation, "individuals don't have the opportunity to let their busy lives interrupt saving for retirement," said Matt Cosgriff, a certified financial adviser at BerganKDV Wealth Management in Bloomington.

Unfortunately, too many of us struggle to find enough time to get dinner on the table, help the kids, and open the mail, let alone take time out regularly to think about our financial future, he said. That may be a good reason to seek out a financial planner, but Davidson suggests an alternative. Give yourself a "Financial Independence Day" at least annually where you take a day off to tackle one big financial task, like a will, or multiple small tasks, such as rebalancing your 401(k), setting up a spending tracker on Mint.com and calling the insurance agent.

Fair point. But after laying bare our finances for planners, we shouldn't feel bad about asking how much we're paying them — nor asking our employers to provide more financial education.