Planning your financial future

Get competent advice from advisers by being clear about what you want.

By Walter Updegrave, Money Magazine senior editor

NEW YORK (Money) -- Question: I'm a divorced 51-year-old woman who needs advice about how to improve my financial future. The only advice I've gotten so far is from an adviser at my bank who has put $45,000 into some sort of annuity. I also have about $25,000 in a money-market account there and $55,000 in a managed portfolio of funds.

I don't really understand whether these vehicles are best for me. I would really like to find a competent person who can advise me in words of one syllable that I can follow. I've looked at Web sites that refer people to planners, but I usually come up empty because I live in a small town in a rural area. Is there anything I can do to improve my situation? - C. F., Shelbyville, Texas

You've run into the same stumbling block that many people bump up against when they seek financial advice. Instead of an adviser assessing your situation, explaining what you need and then recommending investments that are part of an overall plan, the person you've been dealing with appears to have acted more like a salesperson looking to load you up with "product" - an annuity, a mutual fund program or whatever.

This happens for several reasons. First, there are a lot of investment firms out there that are interested in moving whatever investments they're peddling regardless of your needs. And since many advisers are paid by commission, there's a built-in incentive for them to sell you what they've got.

In some cases, this sort of activity is so egregious that people end up falling for pitches for high-fee investments that are totally inappropriate for them. (For an example, I suggest you read a feature I wrote recently for Money Magazine titled Retirement Deals You Can Do Without.)

But let's not dump all the blame in the lap of investment firms and advisers. Plenty of individuals are so interested in a quick answer that they're all too willing to jump into the latest fund or other investment that's getting all the buzz. And many investors aren't nearly as skeptical as they should be when an adviser is pitching an investment to them.

I also find that while some people say they want good advice, they're not really willing to pay for it. They somehow expect an adviser to spend tons of time with them yet are unwilling to pay a reasonable fee or invest enough to make the relationship economically feasible for the adviser. That's just not realistic.

So how can someone like you get competent advice and not just end up with the investment du jour that an adviser happens to be pushing?

Be clear about what you want. I don't mean whether you want stocks, bonds, mutual funds or some other type of investment. I'm talking about your financial goals. For example, perhaps you want someone to assess your situation and help you come up with an overall plan to achieve financial security. In that case, you may need a financial plan.

On the other hand, perhaps you need more targeted help. Maybe you need some guidance on how to save simultaneously for your kids' college tuition and retirement. Or perhaps you're just trying to roll over a 401(k) into an IRA and just want assistance in building an IRA portfolio that makes sense given your age and the other investments you own.

What's most important, though, is that the starting point for you and the adviser should be a discussion of your goals and expectations. The type of investments the adviser recommends should be based on that discussion. If the adviser doesn't seem interested in hearing about your goals or his or her main focus seems to be simply getting you to buy a particular investment, that's likely a sign you're dealing with someone who's incompetent or who's a glorified salesperson posing as an adviser.

Find the right match. There are all sorts of ways to get financial advice these days. You can get it face to face, over the phone, on the Web or in a combination of these ways. You can go to an independent financial planner [www.fpanet.org/plannersearch/search.cfm], the local office of a brokerage firm or a nearby bank.

Many mutual fund companies and discount brokerage firms are also revving up their advice services, usually by phone as is the case with Vanguard and T. Rowe Price, although Fidelity and Schwab also have a network of branches with representatives you can deal with in person.

The key here is to find a way of getting that advice that makes sense for you, but also works for the adviser. Most of us would probably love to spend several hours sitting down with a financial planner discussing our finances and then coming away with a detailed financial plan that outlines everything from the specific investments we should own to how much need to save each month for retirement.

But that kind of relationship doesn't come cheap. You're probably going to pay a minimum annual fee of several thousand dollars or 1% or more of the assets you have invested with the planner, whichever is greater. If you've got less than a couple of hundred thousand dollars to invest, that sort of arrangement doesn't make sense for you because the fees will drag down the growth of your investments.

And even if you were willing to pay the freight, that sort of relationship probably wouldn't make much sense to the planner because he or she has limited time and resources and naturally prefers clients with more money to invest because that translates into more income for the planner.

On the other hand, unless you've got an incredibly complicated financial life, you can probably get by without lots of personal attention. If you have limited funds, you may be able to get the guidance you need at an affordable price by dealing with a firm by phone that uses computerized programs to recommend funds and build portfolios to meet a wide range of goals.

Or, for that matter, you may be able to hire a financial planner on an hourly basis to help you with a specific issue, such as whether to take a lump sum from your company pension or the monthly payments for life. Most planners don't like such "one night stand" arrangements. But the Garrett Planning Network has a roster of planners who are willing to work that way.

Ask lots of questions. One of the best ways you have of evaluating an adviser is to pose some relevant questions. Not in a confrontational or adversarial way, but in a manner that shows you are serious about making an informed decision. To begin with, ask why the adviser is recommending a particular investment. Is there a downside? An alternative? Why not use the alternative?

You should also ask for an explanation-in writing-of all fees involved, whether you pay them upfront, at the back end, over time, directly to the adviser or in some other way. And, of course, you should ask the adviser what experience he or she has in the area you're seeking help in, whether it's retirement planning, building a portfolio or whatever. (For more on the type of questions you should ask, click here.)

Part of an investor's job is to develop an instinct for when people are feeding you a line. I'm not saying you can always tell when someone is trying to snow you. But certain things should send up red flags, like an adviser who glosses over fees and compensation issues or who pressures you to move quickly or who wants to move all or most of your money into one type of investment.

Follow your intuition

Learn to listen to your instincts. If the answers you get from an adviser seem vague or evasive or boilerplate or put you off in any way, don't be afraid to move on to someone else.

One final note. I don't see the fact that you live in a rural area as that big an impediment to working with an adviser. There must be a decent size city you can get to without too much trouble so that you can arrange a meeting with a few advisers for initial consultations.

After choosing one, you can do the rest of the work by phone or e-mail or through a Web site (which is how most advisers stay in touch with most of their clients these days anyway). For that matter, you can do everything by phone, email and the Web from beginning to end. I don't think you necessarily have to work face to face to get competent advice (although, of course, you've ultimately got to go with a method you're comfortable with).

So there you have it. Finding and working with an adviser requires a bit of time and diligence on your part, which isn't too much to ask when you consider that your financial future is at stake.

But by asking the right questions, evaluating the answers and relying on your instincts and common sense, I think you should be able to find someone who can improve your odds of achieving your financial goals, whatever they may be.


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Ask Walter a question: Click here or e-mail us at asktheexpert@turner.com.

Are you nearing retirement -- or recently retired -- and want to make sure your portfolio is in top-notch shape? For an upcoming article, Money Magazine is offering free portfolio makeovers by a certified financial planner. E-mail your story (including specific financial concerns) to makeover@moneymail.comTop of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.