Which type of financial planner makes sense for you?

  @Money January 16, 2013: 5:22 AM ET
NEW YORK (Money Magazine)

I'm married with three children making about $150,000 a year. My wife and I have a mix of stocks, mutual funds, IRAs and other accounts, but it's not organized and we have no idea whether we're on track to meet our goals. We'd like to get help, but have no idea where to start. Any suggestions? -- William, Dulles, Va.

The first thing you want to do is think about exactly what type of help you want. Are you looking to have someone assess your financial situation and then recommend a plan that you and your wife will implement? Or are you more interested in having someone actually manage your finances and your investments on an ongoing basis?

If you think that you can get by with an independent evaluation that comes with a road map that you would then follow on your own, then you probably ought to consider a financial planner who will work with you on an hourly basis or for a flat fee.

The planner would sit down with you and your wife, go over your finances and then come up with specific recommendations for everything from how much you should be saving for goals like retirement and your kids' educations to how the money you're saving should be invested.

But you would then be responsible for following that advice, making sure you regularly put away the recommended amount for each goal and that money get invested in the types of investments the adviser suggests.

You can find planners willing to work on that basis at the Garrett Planning Network. Fees vary from planner to planner, but you should expect to pay roughly $150 to $250 an hour. Unless your finances are especially complicated you might end up paying, say $500 to $1,500, to get things sorted out.

If you find you need help with new financial issues in the future -- or if you just want to check back every couple of years to make sure you're still making adequate progress toward your goals -- you can always hire the planner again for another evaluation.

Related: How to build a strong portfolio out of multiple accounts

But some people prefer to have someone take charge of their finances. In that case, you may simply want to hire a financial planner who would oversee your affairs on a regular basis.

If you decide to go that route, you should know that when it comes to compensation planners typically fall into one of three camps: commission only, in which case they receive a sales commission on the investment products and services they sell; fee only, an arrangement under which the planner charges only for his or her advice and receives no commissions; and fee-and-commission, a hybrid of the previous two, in which the amount the planner receives for commissions is usually deducted from the fees charged for advice.

Depending on your circumstances, any of these arrangements can work. Generally, though, I favor the fee-only set up. Since the planner receives no money from selling you investments, he or she has no incentive to favor one product over another because it pays a higher commission. That reduces the chance that you may end up in investments that carry bloated fees or that may be inappropriate for you.

That said, the fee-only approach may simply not be affordable for many people.

Low-risk investing: Is it worth it?

A typical charge for a fee-only planner might be 1% or more of assets per year with a minimum charge of several thousand dollars. Unless you've got a sizable sum to invest, that's not a very practical option. Annual fees would eat up much of any return your investments earn.

In any case, you can search for all three types of planners in your area by going to the Find a Planner section of the Financial Planning Association site.

Related: Retirement checkup for the next year

Whichever type of planner you go with, you want to check his background to be sure he has the appropriate credentials and hasn't had serious run-ins with regulators.

You can start that process by going to the Check Out Brokers and Investment Advisers section of the Securities and Exchange Commission's website. There, in addition to some good tips on choosing an adviser, you'll also find links for vetting an adviser -- not just with the SEC but with industry and state regulators as well.

Finally, as you talk to different advisers -- and I'd say you should interview at least three -- try to get a sense of whether you would feel comfortable working with them and whether they're offering real advice as opposed to a sales pitch disguised as advice.

Every adviser, regardless of how he charges for his services, is going to have some sort of conflict or bias. That's unavoidable. But as long as you understand what the potential conflict is, you'll be better able to assess whether the advice serves your interests as well as the adviser's.

So take a few minutes to talk to your wife about what kind of help you want and how much you're comfortable paying for it. After you've done that, you can then start looking for an adviser that suits your needs. To top of page



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