Finding the Right Pro

published 30 April 2006

Whether driven by a life event, such as marriage or retirement, or simply by the realization that successful investing isn't as easy as it once seemed, people of both modest and princely means are seeking out experts to help meet their financial goals. The good news is that more advice is available to more investors than ever before. That's the bad news, too. Sorting out the choices is daunting.

Shocking but true: Just about anyone can hang out a shingle and call himself or herself a financial planner. Professional designations indicate a measure of training and experience. But how do you distinguish between them? And how do you know what to pay when compensation schemes are all over the map? "Many investors turn over money to the wrong people," says Jack Waymire, author of Who's Watching Your Money? (John Wile & ySons, $24.95). "You can't just go to the Yellow Pages and look up quality adviser." Maybe not. But we'll guide you through the maze and, in the end, give you an idea of how to spot the real thing: a quality adviser.

Your first order of business is to decide what level of service you want. If you seek a basic road map for your family's fiscal journey, then you'll want a financial planner. These generalists should be able to tackle almost any money question you have, whether it's household budgeting, investing for college and retirement, long-term-care and disability insurance, or tax strategies. A certified financial planner (CFP) has completed a course of study and passed an exam on the financial-planning basics, has at least three years of experience and must adhere to a code of ethics. Credentials that reflect similar training are chartered financial consultant (ChFC), in the insurance industry, and personal financial specialist (PFS), in accounting.

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Or you may prefer someone to help you solely with investments. Such market mavens -- whether they're financial planners, stockbrokers, bankers or money managers -- may just steer you toward investments, or they may manage your portfolio themselves or farm out your assets to managers whom they supervise. An investment-savvy designation to look for is chartered financial analyst (CFA), for a person who is trained in economics, financial accounting and portfolio management.

The Internet can also be a good starting point. A few online registries will winnow the field for you. Advisers in a registry administered by Paladin Investor Resources, founded by author Waymire, must meet exacting standards. Of 14,000 advisers who have been screened since June 2004, only 820 have been admitted to the registry. All 820 have fees as their primary method of compensation and average more than 16 years of experience; 74% have multiple certifications. All registry services, at www.paladininvestors.com, are free to investors.

Vetting potential advisers is paramount, starting with how you'll pay the tab. You may be most comfortable with an adviser who charges a fee rather than someone who sells commission-generating products. Some fee-based advisers are paid by the hour or by the job; others charge an annual retainer or a percentage of the assets they manage. You shouldn't automatically rule out an adviser who works on commission, but that kind of compensation poses potential conflicts of interest. An unscrupulous adviser might be tempted to trade a lot in order to earn the commission, or sell in-house products when others might be cheaper or more appropriate. Advisers should disclose those conflicts and provide a persuasive explanation of why you might need a particular commission-generating product.

There's an adviser to fit every pocketbook. Unfortunately, many financial planners can be quite pricey -- typically charging from $3,000 to $5,000 for an initial plan, plus up to $300 per hour for consultation, or 0.75% to 2% of your assets to manage your investments. And some will only take on new clients with a net worth of at least $500,000 or $1 million. But more firms are starting to provide fee-based advice, where you pay $100 to $150 per hour to meet with afinancial adviser and set up a plan for the future, even if you aren'tready to become a regular client.

Jane Bertsch, 59, signed on with Detroit-based Cambridge Advisors in 1999. For $5,000, she received an initial review, which included an evaluation of her investments, assistance in drawing up a will and tax planning. Three years later, Bertsch lost her patient-relations job with a group of hospitals. But her $2,000 annual retainer entitled her to advice from lawyer and MBA Bert Whitehead, Cambridge's founder, and his staff, who weighed in on whether Bertsch should take her pension early or wait, how she should pay income taxes based on her newly self-employed status and how she might restructure her $250,000 fund portfolio. Meetings are scheduled quarterly, but, says Bertsch, "if I were to decide to buy a new car, I'd call and ask whether I should buy or lease. They're always available."

Most advisers will schedule a free initial meeting, during which you should clarify the services they will provide and how you will be charged. Alex Booras, 71, a retired business owner in Plano, Tex., interviewed three planners before settling on JWA Financial Group in 2002. Booras was impressed by the group's thoroughness and its emphasis on low-cost funds. "They had an exhaustive policy statement -- about 20 pages--and they brought up things that I hadn't even thought of," says Booras.

A brochure on Napfa's Web site, "How to Choose a Financial Planner," can help prepare you for an adviser interview. Among the suggested questions: Are there financial incentives for you to recommend certain products? Do you provide a comprehensive written analysis of my financial situation and recommendations? Do you take custody of, or have access to, my assets? Ask for a written promise that the adviser will act as a fiduciary, which means the adviser will work in your best interest.

Let the government help you, too. Advisers who manage clients' money (or the firms they work for) are registered investment advisers and must file documents with the Securities and Exchange Commission or with state regulators. Registration is not a stamp of approval, but a Form ADV (for adviser) is a mini background check, replete with the adviser's educational background, professional experience, method of compensation -- and disciplinary information. Any reputable adviser will make the form available to you without your even having to ask.

Mutual fund investors may be able to find an adviser at their fund company. As part of Fidelity Investments Portfolio Advisory Services, Strategic Advisers (a registered investment adviser and wholly owned subsidiary of Fidelity) will manage a handpicked selection of Fidelity and non-Fidelity funds for clients with at least $50,000 under management. For clients with $300,000 or more, Fidelity provides a more sophisticated service that incorporates funds and certain stocks, with an eye to each client's tax situation. Fees range from 0.25% of assets to 1.1%. An adviser at Vanguard Group will recommend a portfolio of in-house funds suited to your goals for a fee of $1,500 ($1,000 if you're already a customer with less than $250,000 invested with Vanguard; $500 for customers with accounts of $250,000 to $1 million). Clients with $500,000 or more can get an adviser to manage their funds (Vanguard and non-Vanguard), stocks and bonds. Fees start at 0.75% of assets for accounts of less than $1 million and fall as account balances rise.

Or consider the estate-planning conundrum that challenged one New Jersey couple with three grown children. With one son in the priesthood, the parents wanted to make sure that his share of their estate would be preserved for him without violating his vow of poverty. So the family called in Martin Shenkman, an estate lawyer in Teaneck, N.J. Shenkman solved the problem by devising a unique trust. It enables the priest to use the money for things that are permitted by the Church but not provided for -- such as a study trip to the Holy Land.

Again, referrals from people who've been in similar situations are your best bets for finding the right specialist. Most professionals charge by the hour, so organizing your thoughts and documents ahead of time can pay off. Make sure the specialist is willing to consult with your other advisers. "The only effective way to do financial, investment, tax and estate plans is to do them together," says Shenkman. If you don't have the clout to assemble an august group of experts around a table, a 15-minute conference call a few times a year should do the trick.

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Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage, authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.