Q: Any good ideas on how to go about finding a financial planner who won’t be working on some sort of commission? I’m just in a quandary to find a good planner to help me with my retirement planning. Thanks!
A: First, a brief review of how financial advisers make a living. Commission-based advisers charge a commission, a fee incurred when buying and selling recommended stocks, bonds, mutual funds and other securities. Fee-based advisers charge a mix of fees and commissions. A fee-only planner bills an hourly fee or a flat fee to design a financial plan. Fee-only planners don’t make money off the products they recommend you own. The main source of income for most fee-only planners is managing client money, typically around 1 percent of assets under management. (There are many blends of compensation schemes, but these three are the main ones.) Hiring a fee-only adviser doesn’t guarantee you’ll get good, objective advice, but it hikes the odds.
Two quick points. First, if you have a retirement savings plan at work, such as a 401(k), the plan usually offers retirement savings advice as part of the package. It’s worth checking out. The other issue to consider is whether you should work with a planner at all. When I lived in New York City, the discount clothing store Syms had a well-known famous tag line: “An educated consumer is our best customer.” That holds for financial planning, too. (A good place to start is Burton Malkiel’s short book “The Random Walk Guide to Investing: Ten Rules for Financial Success.”)
Let’s assume you want a planner. Here are some ideas to explore:
The best approach for finding one remains the old-fashioned way: Suggestions from friends, colleagues and people you trust. This approach doesn’t work for everyone, however. The main website for finding fee-only financial planners is the National Association of Personal Financial Advisors. Typically, fee-only certified financial planners (and their similarly credentialed peers) work with high net worth individuals. In other words, they’re expensive. One potential way to lower the cost is to check out the Garrett Planning Network. The Garrett planners are CFPs who keep the price of their advice down by breaking down the major financial questions into discrete tasks — in your case, retirement.
The number of more affordable options is growing, especially with retirement planning. These options typically rely on Web-based interaction, some exclusively and others with a blend of online and human insight. The investment, asset allocation and diversification advice is usually based on insights from modern portfolio theory. Money is typically invested in a basket of low-cost broad-based index funds. The index fund fee is low. So is the overall management fee. The portfolio advice is adjusted to your risk tolerance and risk capacity.
Major financial services companies like Vanguard, Fidelity, TIAA-CREF, and Charles Schwab offer reasonably priced retirement portfolio and planning advice. Companies like these are also investing more resources into their personal financial advice business, widely seen as the next frontier. Competition is coming from intriguing start-ups like Betterment LLC, Wealthfront and Rebalance-IRA. For instance, Rebalance-IRA offers a mix of online and human guidance.
It isn’t easy to find a good planner. But these ideas should get you started.