Finding a Financial Planner Who's Right for You

One of the new paradigms is that you, the investor, should be in charge. But that doesn't mean you want a yes man.

You're at the stage of life when you're thinking of hiring someone, or someone new, to help you with your money. Set your standards high. You want a no-nonsense person or group that has years of experience working for savvy people. You want sound judgments, sensitivity—and a track record of results.

QUIZ: Do You Need a Financial Planner?

We'll help you make smart choices in a rapidly evolving field. Financial planners and independent financial advisers, a subgroup of planners who specialize in portfolio management, once mainly worked for mass-market banks and brokerages. In the past, the assumption was that they would do 95% of the talking and suggest 100% of the action, usually with recommendations that you buy a host of products: stocks, bonds, mutual funds, wrap-fee investment accounts, annuities and life-insurance policies, and tax-shelter gadgets.

The unpleasant financial events of 2008 and early 2009 have changed this way of delivering "advice." Few of the prominent brokerages or financial-advisory firms truly prepared their customers to handle such a calamity in stocks and other areas of investments. There's plenty of blame to go around, including those of us in the financial press who didn't see the meltdown coming. And Bernard Madoff's crimes destroyed much of the trust many people once had in elite professional money managers.

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Some of these people will, of course, still try to sell you funds and insurance. Financial advisers charge hourly or annual fees or take a percentage of your total assets if you involve them in the management. But whether you go with a big firm or a smaller outfit, a planner's philosophy, not who he or she represents, is the key to your satisfaction.

Take the growing area of "life planning" or "holistic financial planning." The emphasis is on your personal priorities and well-being. Your investments are part of the program, but their role is to support whatever you want to achieve, such as retiring on schedule, changing your career, owning rental property, keeping an old beach house in the family, endowing a scholarship fund, buying into a baseball team, or anything and everything else.

Advisers now expect you and all their clients to be more skeptical and demanding. That's good, because the smarter and tougher you are, the more eager a competent, well-schooled planner will be to collaborate with you. He or she will butt heads, speak frankly, restrain you from getting cocky and encourage you to say or write exactly what it is you want to accomplish and how and when. Those are all worthwhile reasons to engage a financial planner.

There's a quick way to tell whether an adviser or planner is likely to be compatible. "Ask yourself whether you're the client or your money is the client," says Phil Dyer, of Dyer Financial Advisory, in Towson, Md.

If the answer is your money—meaning that you're mainly after a tailored portfolio plan or a radical makeover—by all means go to a brokerage or a bank or an investment-management company, or consult with Vanguard or Fidelity or Charles Schwab for guidance. Just remember you may be paying as much as 2% of your assets annually to maintain an investment program that you might assemble yourself from ETFs, low-cost mutual funds and the bond offerings from a discount brokerage.

If instead you want you and your family to be the focus, invest in the services of a planner who thinks that way. Dyer, for example, is one of 58,000 certified financial planners in the U.S., so he knows his stocks from his bonds. He's also trained as a personal coach and mentor and is a registered life planner with the Kinder Institute, whose founder, George Kinder, was one of the first people to distinguish matters of the portfolio from matters of the heart and mind. There are other groups of life planners, such as the Alliance of Cambridge Advisors.

The easiest way to start your search is to go to the Web site of one of the main planning organizations, such as NAPFA (National Association of Personal Financial Advisors) or the Financial Planning Association, and use their planner-search tools.

Then—and this is important—find the planner's Web site (they all have them) and take a tour. You're looking for evidence that he or she and the rest of the team are experienced and have credentials. But you're also looking for intangibles. At Global Vision Advisors, of Hingham, Mass., for example, the partners describe what they do as a "discovery process." Partner Tom Holland says this "isn't just about the money" and varies with where you are in life.

Holland has different thoughts (and fees) that vary whether you are an "accumulator," which means you are building up money, if you are near retirement, or if you need advice on how to leave a legacy. The firm's Web site is full of specifics about what Global Vision does and thinks—including its investment philosophy, which is to not stand still and to rotate in and out of different investments based on market and economic cycles.

Many planners and independent advisers link to their public regulatory disclosure forms from their Web sites. If not, visit the Securities and Exchange Commission's Investment Adviser Public Disclosure site: Follow the instructions, and look for something called a Form ADV, which comes in two parts. The first tells you how many clients the firm has (which includes independent practices), how much money it has discretion over (for Phil Dyer, for example, that's about $10 million), and other biographical stuff, including lawsuits and arbitrations.

The second part reveals how clients pay (fees, commissions, percentages of assets, or a combination), and much, much more, including such details as whether your agreement with the adviser includes periodic financial reviews or if you must pay the pro-rated hourly fee for every six minutes' of consultations.

This expanded disclosure dsn't mean planners' fees are standard or even comparable. As commissions fade into the past, the number of ways you pay for advice multiply. Tom Holland starts with an annual retainer fee that range from $1,500 to $3,500, depending on whether your affairs are the simple ones of an "accumulator" or are more complex.

On Phil Dyer's ADV II form, you can see that he charges $250 an hour for financial planning, a minimum of 0.8% of assets under management if you also retain him to supervise your investments, and that he has a special interest in working with military officers because he was once a captain in the Army.

There's no getting around the fact that a good, experienced adviser will probably cost you several thousand dollars a year.

Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.