how to evaluate a prospective financial advisor - what to ask

gibby2015September 2, 2007

Here I am again. Zone_8grandma's recent post about meeting with financial planner and retirement readiness prompts me to post this. I tried adding to my previous post about tax exempt, low risk, no AMT investment but since I'm off on a different topic really I'll start over.

I had asked that other question about some cash I had in an interest bearing account - haven't done anything with the interest bearing account yet. I haven't even spent any of it since I haven't had time to work on the projects I want to spend it on. Plus DH is between jobs so I can't bring myself to spend on any discretionary projects until his "sabatical" ends.

Anyway, I have done something about finding a financial advisor. Everything I read says ask for referrals from people you know so I asked a guy I used to work with who I consider to be a smart guy, has similar views/values as mine - and someone who retired before age 60. I figure he must have good financial advice. He's worked with the same guy for a long time - 20 years maybe. Another former coworker also got a referral to same FA and she is satisfied so far. I at least liked the sound of him on the phone - low key - not obnoxious salesy type like some others I've talked to in the past.

Anyway, I have a meeting setup with the guy in a few weeks. Can you direct me to a good "checklist" of what to ask/find out about a financial advisor when you meet with one? I just don't trust someone else to tell me what to do with my money but I know I need professional help because I'm not going to do it myself. How do I ensure I have a reputable, trustworthy person like zone8_grandma's guy appears to be?

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Congratulations on a smart decision. For starters, make sure he's a Certified Financial Planner (CFP). Anyone can call themselves a "Financial Planner", but to be certified there are certain standards and parameters you have to meet.

Some of the questions we asked our guy:
1) How long have you been doing this?
2) How are you paid? (Ours is paid 1% of our port)
3) How do we work together to give me the best chance of meeting my financial goals?
4) What questions do you have for me/us?

I'm attaching a link to a previous thread - look for a post by jkom dated May 14 - it gives some very valuable information.

Here is a link that might be useful: How to evalualte a financial planner

    Bookmark   September 2, 2007 at 12:04PM
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When we were shopping for "financial advice" we referred to EF Moody's website as well as the book "Brokerage Fraud" for guidance on how to select someone we could trust. Lots of things you would never think twice about that can come back to bite you if you don't do your homework first.

The authors of Brokerage Fraud are securities lawyers who help represent people who were ripped off. I'm posting a chapter from their book about financial planners, as well as something I found on the about a woman who lost half of her money due to securities fraud. Too bad she didn't read the book before she hired this guy. All the ways he ripped her off are highlighted in the book.

This is from Chapter 12., page 222.

Inundated with Choices-Financial Planners:

"Like money manager, financial planner is a term used liberally with no requirement for a particular license. Financial planners come in every color in the rainbow, so it is hard to put a label on them. Through course work and an examination, individuals can earn the distinction of Certified Financial Planner (CFP), a title that is NOT bestowed by any securities regulatory organization. It's similar to the difference between an interior decorator and an interior designer. The latter requires a college degree and license, whereas the former may be usually a frustrated housewife looking for a reason to get out of the house.

If your financial planner is also your stockbroker, then you are on safe ground in terms of licensing. Your stockbroker has a Series 7 license that allows him or her to make trades on your behalf. The problems we see arise when individuals who call themselves financial planners give investment advice without the requisite licenses. Other than Series 7-licensed stockbrokers, anyone who gives advice about stocks and bonds must have an RIA license. Make sure."

Two links that might be useful:

How to find a financial planner/Who can you trust?

Brokerage Fraud-What Wall Street Doesn't Want You to Know
Tracy Pride Stoneman & Douglas J. Schulz and Planning/Trusts Message boards

Molly Hunt - 10:10pm Aug 18, 2007 (398. 651/653)

Securities fraud

When I was looking for a stock broker, I met someone (I will call A) who represented a money management firm. When I decided to put my money w/ them, the rep told me he had left to go out on his own. I asked him about it and he told me he was doing option trading and doing very well. I asked if that was risky. He said he only did covered calls, the least risky kind of options.

I did a background check on him. I asked people , if when he got an LPOA for an acct I set up for him to manage, could he do anything like take money. The answer I got was no. So I set it up. Now one month later he has lost 1/2 my money in bad trades. I don't understand options. I kept asking whether he was doing convered calls and how could this happen. He said it was the market.

I showed this to a friend who told me that this guy was not doing covered calls at all and was doing very risky things and losing. When I filled out and gave A the option application for the brokerage firm where I have my money, it turns out he added to it to do all kinds of trades we had never discussed and he knew expressly I didn't want him to do.

I only have one paper he faxed to me saying that w/ what he was doing I could only lose the amount paid for the contracts. Other than that, when I asked him if he was doing covered calls bc my friend said it didnt' look like it, he said he was doing covered calls.

I'm trying to find out what legal recourse I have. We have no written contract. He also said on the application that he was not being compensated.

I'm so sick that I've done this and he's lost so much of my money. He doesn't know yet that I know. I'm trying to get him to email me something so I'll have something in writing but he keeps saying to call him.

He's waiting to see if I want to continue. I've removed any remaining money which I hope isn't a tip off to him but felt I had to protect myself.

Do I have any legal recourse? Any suggestions about how to get something I can use legally if he only wants to talk on the phone?

Thanks for any suggestions.

    Bookmark   September 2, 2007 at 6:19PM
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Hi gibby ... who expects to retire in 3000? (Or with $3,000.00??)

I've said over and over that I want people to learn how to manage their own money: no one cares as much about your money as you (except some folks who'd like to shift some of it from your pocket into theirs).

(I want you to learn how to be shiftless ... well, to know ways to forestall that kind of shifty game, anyway).

You expect to be dealing with this person on a long-term basis, dealing with issues that are core to your lifestyle, so you need someone who is very compatible, with whom you feel very comfortable.

And with similar views about the management of personal money.

Quite likely someone near your own age ... many advisors are within 10 years of so of the client's age, though this isn't a huge issue, I think.

I have a bias toward planners who are fee-based, selling no products. But there aren't many of them: one guy who sold mutual funds with me for a short time over 20 years ago tried it for a while ... said it was a good way to starve ... and I, who've done so for a number of years, agree.

Why pay someone for a service that you can get for free? As a psychiatrist mentioned to me several years ago when he asked me whether he could retire early ... he couldn't. I replied that I'd bet that he'd usually get different recommendations from the fee-based (more or less unbiased) guys than from the folks who were selling a few of the multiplicity of investments available.

Many so-called planners are really commissioned salespersons for insurance or mutual funds ... so guess what kinds of recommendations you may tend to receive from them? Most of whom would be breaking the law if they began discussing the relative value of stocks with you, thus liable to lose their licence if caught.

Stockbrokers too, many of whom are mainly commissioned salespersons, are pushed by their managers to promote certain kinds of issues ... when their company's just done a deal to raise 100 million or so for a certain corporation, guess what stock they want to move off of the shelf?

Don't give one authority to trade on your account without consultation ... remember, they are compensated based on commissions on their sales, also.

The Certified Financial Planner (formerly Chartered Financial Planner, locally) designation is a useful guide ... used mainly by mutual fund sales guys, mostly as in-service training ... and it requires further annual training. Very few mutual funds' sales folks took the courses that stockbrokers take ... their required training is much less rigorous.

There was a different designation in our jurisdictions a while ago for insurance folks: Chartered Financial Consultant (ChFC). I'm not sure whether it's still active, or whether the insurance folks now relate to the CFP system.

Learning how money works is an interesting hobby ... that pays well!

Have you considered taking the courses that stockbrokers take? Or the CFP courses?

Though they are tough, you wouldn't need to pass them if you don't intend to be employed in the field.

But you'd learn a good deal about how to manage money! Effectively!

The knowledge that you would gain there would make whatever professional you choose to deal with much less tempted to fool around with your account - because s/he'd know that you know the game.

A few years ago I called a guy new to the "Financial Consultants" listing in our Yellow Pages.

He'd been in business for a number of years, some of his clients/friends knew that he was into investments and had done well with them, so asked if he'd manage some money for them.

He said that would be O.K., that he wanted them to open an account with a discount broker for at least $10,000. (so that he could diversify), over which he had Power of Attorney. Discussion in the beginning (and ongoing) as to the general guidelines. When he made a trade, one confirmation to him, one to the client.

He billed them annually for 10% of the growth in their account, that year. I asked what happened if there were no growth. He said that there had not been a year that he hadn't been able to bill every client ... but no gain, no bill.

I gathered that he'd been doing it for at least a few years ... but no idea that I now recall regarding how many clients.

I liked that: not like your average mutual fund manager, who get theirs even if they have a lousy track record. Same for the guys who manage for 1% a year of the total asset.

But a risk ... that he might invest in really risky stuff, where's there's opportunity for spectacular growth (and equally spectacularly losses)! But there's some protection: the clients get the duplicate trade confirmations. If you don't understand ... you ask!

I was tempted to give him $10,000. to see what he'd do with it!

This is long enough as it is ... I may think of more, later.

Oh, yes ... no one knows the whole field.

You want someone who has links with people who have different skills ... tax planning, retirement issues, estate planning, insurance guy, lawyer, seniors' concerns, etc.

I told an insurance professional the other day about how some Canadians could make up to $46,345. or so (single) with no income tax liability ... he wasn't interested. Amazing. Would you want your insurance professional so narrowly focussed? I think not.

I've talked to real estate guys about financial planning, to drop a couple of ideas on clients downsizing homes, about to retire ... most not interested.

I've always had a wide-ranging mind.

Good wishes for success in your quest.

ole joyful

P.S. Conceivably you could retire with $3,000. ... if you had a solid home-based business, that had proved that it would pay you enough to live on. But most of us, including I, wouldn't!

And think of those lovely tax advantages (not available to employees)!

I said some time ago in a thread over on "Retirement" that every senior should have a home-based business ... to make a substantial amount of their expenses deductible.

o j (not juiced, today).

    Bookmark   September 3, 2007 at 10:25AM
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Okay - thanks for this info. I checked out the info on the linked thread - very useful. I need to take some time to do more reading before my visit. The guy appears to be about my age - maybe a bit younger - and has the ChFC designation for what that's worth. I believe he did start out his career working for someone like Prudential but is now on his own so makes sense if this is some kind of insurance designation. So far I like the guy's demeanor - not the pushy, fakey, sales type. I have a great CPA and an attorney who has drafted our wills so I'm in good shape estate planning wise. I'm more concerned about what's going to happen while we're still above ground.

So I need to do a bit more studying before my appt and then we'll see how it goes. I will probably be back with questions.

    Bookmark   September 3, 2007 at 11:41AM
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Talk to some more folks whose judgement you respect, asking for referrals.

Interview several.

Not quite as important a decision as marriage ... but somewhat comparable: especially in these days of disposable spouses.

Actually, when one gets somewhat distressed by a marriage (which usually is the spouse's fault) ... I suppose one could change "DS" from "Dear Spouse" to "Disposable Spouse".

ole joyful

P.S. Sometimes (frequently) your financial planner knows more about your family business than your spouse does (sometimes your choice ... sometimes the spouse's ... but when one passes from this life and the other doesn't know what's going on ...

... it adds to the trauma - at a very traumatic time - plus ...

... it'll be almost certainly costly, short and long-term.

See a thread that I initiated, over on "Retirement" - I think.

o j

    Bookmark   September 3, 2007 at 1:02PM
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Well.....Ted Bundy, the serial killer, was a charming, likable guy who could win the trust of even hardened cops. He could have won popularity contests, if he hadn't gone around murdering people in his spare time.

Get thee to the CFP website I linked above and search for some names of CFPs who are in your area. Then interview them. True, you don't know quite what questions to ask yet. But AFTER you have interviewed several people, you will have a better idea of what you might be looking for. And you can go back for a second visit or arrange for a phone call to further winnow the field down.

It is more important to find someone with a good track record, whom you have checked out with the NASD. When I chose a firm to handle my MIL's retirement portfolio, I was very specific in my requirements. I wanted someone old enough to have seen the market through some bad times as well as good times, but young enough so I could have confidence that 15-20 yrs in the future, the firm could keep going through personnel changes. That also meant they had to already have been in business a number of years - my minimum was ten years.

I wanted to see exactly what kind of reports they give their clients. I wanted at least 3 referrals from satisfied clients with at least 3-5 years of time with the CFP firm.

When I talk to my MIL, who has absolutely no financial acumen at all and never will have (I thank the Women's Liberation movement every day I will never wind up like her, at least until I develop dementia or Alzheimers or whatever) - if anything happens to us she will keep her money with the firm I selected because "they're nice people."

They are indeed nice people - heck, one of the owners is even Catholic, which gives them brownie points in my MIL's eyes. But I selected them because I received a professional referral from my ex-boss who personally trained the firm's founder 20 yrs ago; and as well I did all the steps mentioned above and interviewed several CFPs before selecting this firm. I am confident they will behave in an ethical, honest fashion with my MIL even if we are not around to oversee them.

Yes, it will cost her money in fees. But it is a waste of time to think my MIL will ever learn to handle money. She is a poster child for the elderly widow waiting to be scammed by some friendly, smiling, chatty con man.

There is a difference between a financial advisor, a term which means nothing, and a CFP, who has a fiduciary responsibility to handle your money in your best interests. As I've said before, if you want to fly risky and invest on the edge, use a stockbroker, not a CFP. Or conversely, if you pride yourself in your financial acumen, use a stockbroker and direct him yourself. You will in both cases save yourself some money.

But money is not all there is to financial advising and estate planning.

A good CFP will give you honest advice. You may not want to take it. Some of our clients, when I worked for an independent CFP, didn't - they would only keep part of their portfolio with him; with another portion they would do riskier investments he wouldn't handle. But sometimes it's more useful to have a knowledgable sounding board than it is to save a few thousand in fees - which, BTW, are deductible off your income taxes if you itemize.

    Bookmark   September 3, 2007 at 2:31PM
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My apologies - I meant to add to my previous post that the CFP website has a very good checklist in .pdf form that you can download and print out, on what questions to ask of a financial planner.

Hope all the info you've gotten from folks here have helped, and best of luck to you.

P.S. - no matter who you go with, make sure they set up non-discretionary accounts for you. This way, no trades can be made without your express permission. NEVER allow anyone to use your money by opening discretionary brokerage accounts!

    Bookmark   September 3, 2007 at 2:58PM
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We employed a CFP (with Mesirow) for two years, during which we pulled money out of our portfolio to build a house. Since he did not charge brokerage fees for the stocks we sold and had a many months long trial period, we came out ahead for the first year.

By the end of the second year we decided that we didn't want to pay 1% for him to "manage" our VERY conservative holdings -- there was no action required other than sending us statements.

I'm leary when I see planners advise that they will only take clients who have a $100K income and/or a minimum portfolio of over $500K. These are the 1% boys. Yet, I have to wonder how a planner makes a living offering only fee-for-service consults!

    Bookmark   September 3, 2007 at 5:29PM
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A question to ask that might be useful: "Are you a fiduciary?"

Here is a link that might be useful: What kind of advisor do you have?

    Bookmark   September 3, 2007 at 7:27PM
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>>I'm leary when I see planners advise that they will only take clients who have a $100K income and/or a minimum portfolio of over $500K. These are the 1% boys. Yet, I have to wonder how a planner makes a living offering only fee-for-service consults!Exactly. Most of the small-time planners struggle through doing fee-for-service, small potato stuff as they try to establish a good client base.

Successful planners are very often fee-based. I have no problem with this, any more than I have in paying my mechanic $100/hr. Both are specialists, and not only work hard but have paid a lot of dues. It's like remodeling - go on the cheap, and you may possibly get someone good. But your chances are higher if you go with someone who has the license, the references, the business insurance, the specialized training, and the desire to do a good job for his clients.

My financial health is just as important as my physical health. Very often what you are paying a CFP for is to keep you OUT of trouble. That fiduciary responsibility means they aren't going to get you into the latest offshore deal, or suggest you start investing in hedge funds or options.

We're aggressive investors. And we handle our own portfolio, and do extremely well at it. But that is not how my MIL's retirement portfolio should be handled, and thus I found a professional, independent CFP firm to take her as a client on a fee-based relationship. She would otherwise stick it in CDs, which right now is fine but as the Fed starts to gradually lower rates over the next year, will not adequately keep her up with inflation. She has an excellent chance, probably 50-50%, of outliving my DH and I as she's extremely healthy. I would not be surprised to see her reach 100+; so her money needs to be properly invested to last the next 20 years.

    Bookmark   September 3, 2007 at 10:30PM
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jkom - thanks for the responses here and on my other thread. As I mentioned in my post, I have received a referral from someone I trust and respect and that person isn't a professional so I think I'm on the right track there. I personally won't use anyone that isn't a referral and so far I've ruled out all the other referrals for various reasons. This one I think might actually be good so I'm planning to drill down a little deeper - hence the need for the checklist.

I too have no problem paying an hourly professional services fee for this type of service if that's an option and at this point I'd probably prefer it to start with. Anyway, we'll see. I haven't yet had time to pour over all this stuff but will do so before I meet with the guy.

    Bookmark   September 4, 2007 at 8:13PM
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Good wishes as you proceed, Gibby.

I hope that you find someone who will provide the services that you need, skilfully and responsibly.

I'd suggest that you learn some things about money (and taxes) yourself, as no one cares as much about it as you.

With the exception of someone who'd like to shift (some of?) it from our pocket into his/hers.

ole joyful

    Bookmark   September 5, 2007 at 9:06PM
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Thanks joyful. Fortunately I have I have learned some things about money and taxes that have served me pretty well so far. However I don't have as much knowledge as a competent professional and unfortunately since I'm a professional in a different field I don't have time to develop that level of expertise in financial management. That however is what keeps preventing me from getting any professional advice - since I do care more about what I've accumulated than anyone else does.

    Bookmark   September 5, 2007 at 9:56PM
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A financial advisor should do a comprehensive review of where your money is currently invested,monthly household budget, retirement savings, etc. Then, they should advise you on how to diversify your investments for the best growth based on your ages, risk tolerence,etc. Everyone should balance their investments to take advantage of growth periods, yet have enough lower risk investments to weather the storms of market downturns and economic malaise.

Fidelity Investments does a real good job at this. If you find you are unhappy with other advisors, you might want to give them a call. They sell no load funds, but you can buy any fund thru them. They charge nothing for their advise. The great thing about them is how much research they do with you on your financial situation.

Like I said in another post here----I retired at an early age in 2000. Talk about scary. I had just built a new house in 1999. Many newly retired people that I talked to,at that time, were headed back to work because their 401K's had become worthless because they didn't diversify their investments. Thru Fidelity's advice, I moved some investments around in order to better weather the downturn and I survived this whole period very well. I'm still retired---never had to go back to work.

The other good thing about Fidelity is that you can go thru a portfolio tune up with them on a yearly basis as long as you have $50,000 invested with them. This is a very important thing to do in an economic climate that is ever-changing like we have in this decade. Good luck in your search.

    Bookmark   September 6, 2007 at 12:37PM
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When people refer to mutual funds as being "no load" ... they almost always mean that they don't charge a commission when buying and selling.

But no mutual fund manager that I know of doesn't charge a Management Expense Ratio ... as they all have offices to maintain, insurance, utilities and staff to pay, plus phone costs, etc. Oh, and did I miss "profit"? Not many of them are poor.

Also, if you're paying them ongoing annual fees ... why shouldn't you get ongoing annual (no-cost) service?

In the States those fees usually run about a fifth to a sixth of the average rate of growth in the market ... in Canada, their fees are higher (and Canadian purchasers of mutual funds should scream to high heaven about that), about a fifth to a quarter of the average rate of growth of the market.

If you want to let me manage some money for you, I'll gladly do it, on the understanding that when there is $10.00 of growth ... you pay me $0.50 (5%).

But - no growth - no pay!

The usual manager gets his, whether there's growth or not.

And how come, if they're as smart as they claim, do so few of them manage to outperform the market averages, over time?

On the other hand, a guy who's been following a system in Canada for ten years, back-tested for another ten years, that emulates a U.S. system, has developed an average growth rate over those 20 years of just over 14% - which is quite a bit more than the relevant market average (Cdn. more or less equivalent of D J Industial average).

How much time does it take?

A couple of hours (or less) per year.

And ... know what else?

It requires that one carry quite similar investments, year to year, so there is low friction cost.

Sounds like a good deal to me.

Have yourselves a great week, everyone.

How did you like that short foretaste of retirement, this summer while on vacation?

Wouldn't it be nice to be enjoying vacation every week?

That's what retirees do.

Wouldn't you just love to retire early?

There are ways to achieve that goal, should you choose.

As I said ... enjoy your week.

Oh, I didn't say that?

Well, enjoy your week, anyway.

ole joyful (got my juice early this morning ... with an early breakfast - which is rather unusual for me)

    Bookmark   September 6, 2007 at 1:25PM
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Ok so Fidelity is recommended as someone who apparently will work for you for free? Er...I think I'm missing something. And what's the difference between them and a company like Smith-Barney?

I'm new in this small city and have no one to ask for referrals. (don't mean to hijack)
I looked on line and in the yellow pages. Most CFPs seem to be associated with a financial company of some sort which I'm leery of. One is a woman who's company name is her name and she advertises that she specializes in "middle-income" which sure sounds like me.

    Bookmark   September 7, 2007 at 4:18PM
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Ok so Fidelity is recommended as someone who apparently will work for you for free? Er...I think I'm missing something. And what's the difference between them and a company like Smith-Barney?

No one is going to do this for free - obviously there is something missing in that post about Fidelity.

btw, my CFP guy is with Smith-Barney.

    Bookmark   September 7, 2007 at 4:36PM
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>>Most CFPs seem to be associated with a financial company of some sort which I'm leery of.There's no reason to be frightened of such a thing. The independent CFP I worked for was part of the Associated Securities Group, for instance; a group of many different independent CFP offices who banded together to get their "back office admin" stuff handled by a large company, to enable economies of scale. It's simple efficiency. In fact, they were eventually bought by a highly rated insurance company, who keeps the brokerage arm entirely separate from their usual insurance sales reps.

BTW, we never felt any pressure to use their insurance company paper when we went out and got quotes. The entire 18 months I worked there doing admin paperwork, I think we only wrote 2 life policies on the holding corp's paper. It was so rare I had to call the Exec. Asst. to the SVP just to find out where the application kits and med requirements could be found. We usually used their competitors in the life insurance market as most clients were guided to low-cost term life if they wanted life insurance - the holding corp. insurance company wasn't in that market and had no interest in it.

One of the most interesting clients we had was a relatively young couple who both worked in high-tech and had made millions of $$$ in share options. They had one young son, no plans for any other children. When they came to the CFP office they had no wills, no trusts, no healthcare or POA docs. The CFP gave them a long list of "to do's" which took over four months for them to complete. We gave them referrals to 3 estate attorneys who were all interviewed by the couple. They picked one and got a Revocable Trust, Healthcare Durable POAs and regular POAs for both, plus an ILIT (Irrevocable Life Insurance Trust) for their child to pay the eventual estate taxes. While all this went on we got their accounts transferred over, consolidated and set up.

They also received an in-depth, customized, hand-done estate planning document running some twenty-plus pages. The CFP who does this is a specialist in elder care (she used to be an elder care social worker, in fact) and does all the estate planning analysis. She reads every single page of every single piece of paper the clients bring in regarding their legal, insurance, and financial matters; it takes her anywhere from 3-8 weeks to produce the estate plan, depending on how backed up the queue is.

This isn't one of those "plug in the numbers" software programs. It's all text, listing the clients' stated short-, medium- and long-term goals, and mapping out what the CFPs recommend on everything from homeowners and auto insurance coverage to retirement planning. It is a map of "how to get from here (where you are currently) to there (your desired goals)."

Now, there isn't anything done for them that this couple couldn't have done themselves. But it would have taken them time to find a good referral to an estate attorney, for instance; and it was the type of thing they had been putting off for years already. By committing themselves to having someone handle their financial portfolio, they got more than just financial advice. They also got someone to look over their shoulder and say, "BTW, have you gotten that trust done yet? We need a copy of it so we can change the title on your accounts, you know. And you've transferred your assets, like title to your house, into the trust, right?"

Just that little bit of urging got them to organize their estate so that in the event of anything happening to either or both, there won't be any "coulda/shoulda/woulda" loose ends for grieving relatives to deal with.

No discount brokerage is going to give you that. Like I said, you can certainly do this yourself -- but it's all too easy to put it off and put it off, until one day...oops, it's too late!

    Bookmark   September 7, 2007 at 5:20PM
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green-zeus - I have just recently taken advantage of Fidelity's no charge portfolio review service for our rollover IRAs. I'm even "suspicious" of that though. What underlying motivations did that Fidelity guy have and I tend to think you get what you pay for; i.e. if you pay nothing you get limited value. However I tried to do some reading on the funds he recommended and the ones he recommended I reduce my positions in and it seemed to make sense to me - but I'm no expert obviously - or I wouldn't have posted this question to start with.

    Bookmark   September 7, 2007 at 11:47PM
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Hey gibby--I understand exactly what you are saying. You can't just put your brain into neutral and expect others to have your interests at heart as much as YOU yourself does.

The best thing about these portfolio reviews is it gives you a better idea of how to spread your risks depending on your age, risk tolerence,etc. It will never give you a definitive answer into WHAT funds to enter into. Even the advisors only have the history of the fund to go by. No one can tell you what will happen in the future. There is NO substitution for your own gut feeling as an investor. I think everyone has gut feelings on this---and you need to follow that because very often you will be more correct than ANY of these advisors. However, my Fidelity advisor has not recommended some Fidelity funds because they were no longer highly rated. So it seemed he was not being biased---at least with me.

You saw the market tank again yesterday. In this sort of climate, it isn't so important as long as you have a good selection of 5 star funds,maybe some bonds,some in cash. You have to learn to weather downturns like this by being diversified. If you have a long timeline, you shouldn't even think about moving stuff around too much, unless you're in REIT's.

This is my opinion only, but I think everyone should take up a position in bonds in order to hold up your performance in down markets. I think we'll see more downs in the market because the USA doesn't dictate the economic markets anymore. Everyone went running for funds and stocks this year, and now they've lost all the money they "made" during the year. Something can be said for earning that tax free interest every month, and bond holders have made money during the entire year. Put some safety nets under your main funds---and then, if you have the money, put safety nets under your safety nets.

    Bookmark   September 8, 2007 at 10:38AM
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I've been burned a few times with planners/advisors (yes, I guess I'm a slow learner--or, I thought I couldn't learn & understand adequately myself). They tend to recommend high expense ratio funds, load funds, funds their firm tells them to push, "management" of your account for a percentage of your portfolio (which turns out to be a computerized program, they don't really pay attention to your account specifically unless you have contacted them with a question), etc. And this has held true for the MorganStanley type as well as an independent. The only way I would go now, if I thought I needed a planner, is with a fee-only.

But I really don't think I need one since I have only a couple stocks, otherwise almost all mutual funds & a modest portfolio. After all, I had to pull together all my info about my assetts, income, debt, plans for future spending and retirement etc for them--which was 80% of the work right there! After going to the library and getting a small book on basic investing for laypeople, I now rely on, which will analyze your portfolio allocations, has a screener to help pick mutual funds, basic investing education, discussion boards, lots of free info. It looks overwhelming at first, but just zero in on the parts that interest you. You can even get a free trial of their "premium" service. TD ameritrade, wellstrade, also have a variety of good free or low cost services with an account (and a lot that you can use just visiting their sites). Also one of them (I can't recall which) has a little questionnaire to help you get some insight into what kind of investing you are comfortable with--how much risk, etc. T.Rowe is where I now hold my investments.

I did use an attorney to complete will, trust, POAs, etc as mentioned above. Can't neglect those.

Do you know EXACTLY what you want from this advisor?

How to diversify your investments? & in what ratios?
Recommendations of what exactly to buy?
Or when to sell? (which, if you are investing for the long term and have chosen solid investments, should basically be when you need the money for something else. I can't tell you how many times I've gotten a call "advising" me to sell both my stocks when their prices dropped--thank heavens I didn't listen, they are both still excellent performers)

So think really hard about what you need, you may have to take the time to educate yourself just to know that even, and ask just exactly how the planner will continue to meet those needs after the initial flurry of activity.

And if he recommends selling one fund to replace with another, look them up yourself on --look at the expenses and performance of each fund, Don't be snookered into dumping a long-time solid performer for the sake of one that is currently hot but costs much more to own.

Sorry for the long post. I have a modest income and strongly feel that I wasted too much of it on so-so advice, out of fear.(Now I'm afraid that smaller investors are too often played for suckers!)

Good luck, Raee

    Bookmark   September 9, 2007 at 2:21PM
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Great post Raee - I could probably retire on the money I've lost on Mutual Funds with Morgan Stanley and plain old this was my house real estate. Now I feel like I'm never going to be able to retire and I'm a bit scared.
I need someone to give big picture advice. Should I buy a house or rent? Do I need tax sheltering? I've got a long way to go before its "this fund or that fund"

    Bookmark   September 9, 2007 at 7:52PM
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Okay - I'm studying tonight and I need help. I can't believe I'm so ignorant on this stuff. I looked at - that is a messy website to try to decipher. What I got out of it so far reinforced what I've been thinking all along - most of these people are incompetent and many are crooks. My takeaway was that you're better off if you can find someone who has some actual formal, relevant training in finance.

So now I'm back to thinking about someone else I ruled out because I do something with him socially once a year. This guy was recommended by my CPA whom I have a great deal of respect for - he has done phenomonal things to help DH's family deal with some unbelievable tax problems when his father died. Also, I was referred to the CPA by a good friend who is the CFO of an instituational investment organization so there is a good history here.

Anyway, I still can't sort out all these CFA, CFP, ChFC, etc. etc. etc. However, what I do know is that the person I know socially (I'll call him Mr. B) has bona fide credentials in finance - a masters degree from some prestigious university and many years of experience in finance/investment analysis of some sort for a large banking organization. He now has his own company which does show up on the FINRA site under the Investment Advisor search. The other guy I'm about to meet with (Mr. A) sells securities offered by another company that shows up on the Investment Advisor search.

So - from that I interpret - Mr. A is a middleman selling stuff through another company registered with the SEC. Mr. B is himself (his company which is mainly him) is registered with the SEC. However he works directly with clients.

Somehow I'm feeling like Mr. A is just another sales person like all the other ones I've talked to and that Mr. B actually has more substantive credentials.

If any of this made any sense to anyone can you comment?

    Bookmark   September 9, 2007 at 9:06PM
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Okay with the help of AARP I'm starting to get it. I guess I need really BASIC info. More to come I'm sure.....

Here is a link that might be useful: AARP - if anyone else needs remedial help

    Bookmark   September 9, 2007 at 10:03PM
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You are right, You really have to have a good idea where you are starting from (like your monthly/yearly budget, tax bracket, etc) and where you want to go/ when you need to get there before you can be confident about the advice you might get from a planner. This is one reason why I have learned to love Google! Just tackle one question at a time--start with a good budget that lets you save as much as possible. Then you can find calculators that will help you figure out which things put or keep the most money in your pocket over your time frame (whether that is years or decades). They do the math for you!!! it's great!!! looks like a great place to start. also offers a free workbook which would be useful. I would take advantage of it without guilt, and without further committment.

Type in buy vs. rent & you find the GNMA web site with tools & info to help you figure it out. There are other sites too along the same lines.

Same with calculator taxable vs tax-free investments. That search brought up which also had links to other informational sites; and also the TIAA-CREF site, which seems to have a good 'learning center'.

About needing a tax shelter--are you losing a lot of your income to taxes? (You need to know your tax bracket) For the person with a moderate income, I think that there are few sensible ways to cut your tax bite--using an IRA, or your employer's 401k or 403b (which works toward the retirement money too), taking advantage of chances to put pre-tax pay into an account to use for expenses like child care or medical/dental stuff; tracking all the deductions you can (example--for a while I had a job that required me to drive from office to office, I logged my mileage) or putting your savings into a tax-free bond fund so you don't pay as much/any tax on the interest earned. Buying a house just to deduct the interest on the loan doesn't really usually save you money overall, though, although that tax deduction might help you decide if you are better off to buy vs. renting.

Gibby, I liked your link to AARP. I think that there are CFPs out there who charge by the hour to do a plan and make recommendations, and who do not sell investments or insurance of any kind. That is what I would look for. Not to say that there aren't good, ethical brokers out there who will put your interests up there with theirs. I just haven't encountered one myself!

It sounds like Mr. A & Mr. B are both in business to sell investments, and Mr. B may or may not have experience with individual/personal planning--depends on what he was involved in at the bank. But you know, most firms will give a free consultation so you can figure out if they are what you are looking for. And a referral from a friend who seems to understand their own finances is a strong point. Still, if I had learned more about my finances and money management, before I ever dealt with an advisor, I think I would have been better off.

It all takes time to research & learn, but I think Ol Joyful would agree, it's an effort that will really pay off for you. And you can do it!!!

Here is a link that might be useful:

    Bookmark   September 10, 2007 at 3:47PM
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Well, I guess the good thing is I know I don't know enough and I'm not comfortable proceeding to work with someone without knowing more. I know about taxes because I have good professional advice. And I'm covered on wills. And I know how much and how I spend my $ because I track everything in detail in Quicken and have done so for 16 years. And we save/invest a significant portion of what we make and have basically no debt. My real problem is that I now want to make sure I'm investing optimally - all the 401K stuff that hasn't been actively managed along with some other considerable liquid funds that don't need to be so liquid.

I think I could do my own plan with the right software tool. I've used various things online but I want something I can install on my own computer and update as I see fit. Does anyone have any recommendations?

And then I need an investment advisor - to tell me how to invest optimally for my situation. That is just not something I'm going to have time to become an expert on - at least not until I retire and have more time. Mr. A is highly competent in this area.

If I need any more financial planning I'd be fine with paying an hourly professional services fee - to review my plan, provide other specific advice, etc. Mr. B may be good for this.

    Bookmark   September 10, 2007 at 6:41PM
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>> I think that there are CFPs out there who charge by the hour to do a plan and make recommendations, and who do not sell investments or insurance of any kind. That is what I would look for. Not to say that there aren't good, ethical brokers out there who will put your interests up there with theirs. I just haven't encountered one myself! There are certainly CFPs who charge by the hour. However, all CFPs have broker licenses. And there is nothing wrong with affiliating oneself with a brokerage, any more than you need be nervous about taking your car to a factory-authorized dealership rather than an independent garage. There are good and bad in both sectors.

You need to remember there is a substantial legal difference between "investment advising" and "financial (estate) planning."

It sounds like many of you folks posting have used "investment advisors". They have NO fiduciary responsibility to you. None. Nada. Zip. They are NOT legally obligated to put your personal interests FIRST.

I cannot emphasize this enough. It is a critical, crucial, legal difference.

A CFP must, by law, put your personal interests first. And yes, there is little profit for them in doing so unless you have a portfolio of assets to manage. Do you grudge them a living, any more than your doctor or carpenter or mechanic or gardener?

When I worked at the independent CFP's office, there were many people who came for their first introductory no-cost meeting. Most of them were not suitable clients, for varying reasons. It might be something as simple as a personality clash (such as the couple who came in and spent two hours contradicting one another with every answer), or as basic as a differing risk assessment (clients who wanted options, offshore leases, or anything risky were politely declined).

But surprisingly often, it was because people couldn't adequately define their goals, yet thought they could still somehow afford everything they wanted without saving sufficiently for it. They got offended when they were told they couldn't retire early, travel around the world, fund four children for college and graduate school, and pay off their mortgage in five years, on their current debt-to-assets ratio.

Now, I am certainly not saying anybody involved with this current discussion is like that. What I am trying to explain is that any advisor, whether a CFP or not, cannot make you something out of nothing. What a CFP can do is help you define your goals, and determine if they are achievable. This involves MORE than diversifying your portfolio. A lot goes into your complete financial picture, and everyone's situation is a little bit different, because their goals and risk-taking factors are individual.

Life being as changeable as it is, it can be handy to have someone there with the professional knowledge to help you and your family analyze and cope with changes to your financial/legal situation as the years progress. Many couples have differing views about money and any good CFP will tell you they spend a lot of time "counseling" couples so that everybody stays "on the same page" together.

You don't have to have a CFP, and many of us can't afford one. But for those who can afford it, a CFP can be an invaluable resource. And I say that, even though I handle all the investments in our family and have done a very good job of it. There is a world of difference between an amateur and a professional - this is even more true of finance and investing than it is of most areas.

    Bookmark   September 10, 2007 at 7:53PM
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Just thought I'd post an update on this. After meeting with the last guy, I decided against him. He gets his 1% albeit built into the cost of the funds he sells. So in my mind, just another salesperson and I'm not into that 1% off the top concept. So far, I've not been able to get a referral for a fee based planner. So I've decided to educate myself and work with someone from Vanguard. I have enough funds to move into Vanguard that I can get the basic advice I think I need a this point for $250. I've been reading some books to understand the fundamentals so I can somewhat evaluate what I'm being advised to do and not just go along blindly. I really do not like the idea of not being in control of my own $$ and there is alot I can do on my own rather than paying someone else to do it. We'll see how this progresses. So far I think I'm catching on and actually I know more than I thought. I also have a few smart friends who work in finance who can answer questions for me. So far so good.....

    Bookmark   December 31, 2007 at 4:57PM
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Another thought in re-reading this thread - if you are not a suitable candidate for using a fee-based financial planner, a good option for those who feel they don't know very much about investing might be one of the lifecycle funds. They are offered by just about all the major brokerages, and are an excellent way to diversify on a low-cost basis. Pick your retirement date, and the fund will gradually adjust the mix of stocks to bonds as you get closer to retirement.

The disadvantage? It can be time-consuming to research the past-year performances of such funds, requiring you to investigate each brokerage's lifecycle fund by breaking down what funds they're investing in, then checking out the 5 and 10 yr performance ratios for each individual fund that goes into the lifecycle fund. Most lifecycle funds are new on the market so don't have an easily identified past performance record.

I think the important point to take away from this discussion is that there is a legal difference between investing advice and estate planning advice. Always remember that a stockbroker can give you investing advice and portfolio advice - but it is illegal for them to do anything related to estate planning; e.g., a comprehensive analysis of your entire financial and legal estate.

The SEC has recently confirmed this position: that CFPs are the only planners allowed to do estate planning, as some major brokerages were abusing the letter of the law. There are, however, registered CFPs who belong to major brokerages, as the recent ruling by the SEC has prompted them to encourage their brokers to actually go for the CFP designation.

If you go this route through a brokerage, I suggest you aim for a broker who has held his CFP designation for at least three years. Gibby3000, you may want to ask Vanguard if they have any CFP brokers who are currently taking clients.

    Bookmark   January 1, 2008 at 12:11PM
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Had my conversation with the Vanguard CFP tonight. I think I'm going to like the arrangement - at least for now. Simple, no frills, low cost investing that I can understand - between my various readings and studying their website. He's a salaried employee - like me - presumably motivated only by his desire to do a good job and help his company be successful - like me. Perhaps I'll need something more "sophisticated" in the future but I like this for now.

    Bookmark   January 14, 2008 at 8:01PM
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Good for you for taking the step, gibby3000. Hope this works out well for you. The market is an uncertain place these days but always remember that in the long run, "dollar cost averaging" works to your advantage.

Do remember that finances are just part of your overall estate. Get your legal affairs in order too, and check everything at least once a year to be sure such things as beneficiaries, etc., are kept updated on all your accounts and paperwork.

    Bookmark   January 15, 2008 at 2:38PM
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Just thought I would post an update on my situation. Since my last post I did get a referral for a fee only planner - from my CPA. In the meantime I did do more reading and educating myself and decided I definitely wanted a fee only person. So I met with the guy a while back and for the first time found someone in sync with my way of thinking. Had my second meeting tonight to discuss his recommendations in more detail - I am very happy with the outcome. I will make my own trades in my Fidelity and Vanguard brokerage accounts. I pay him $200 per hour for his advice. He charged pretty much a fixed fee for the initial evaluation and recommendations - though the first meeting would hvae been at no charge if I decided never to work with him again. Based on the nature of my portfolio, I will probably have him review twice a year. After the initial analysis ongoing review/tweaking of portfolio is quite reasonable. Overall I think the $ spent so far will probably be the best investment I've made in my future. And I'm kind of kicking myself for waiting until I was 50 to start thinking seriously about getting professional advice. Granted I didn't have much early on but I should have at least paid more attention to my 401K.

    Bookmark   August 12, 2008 at 10:11PM
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Oops - one more thing I forgot to mention - jkom, your insights and advice have been very helpful. thanks

    Bookmark   August 12, 2008 at 10:15PM
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gibby3000, you are very welcome and I'm glad I was able to be of help. My DH and I feel the same way you do, we wish we would have taken an interest in our retirement portfolio sooner than we did. We're fortunate that the previous bull market and steep rise in home prices have worked in our favor, even with the rocky ride that 2008 has been so far.

It sounds like you made some very good choices for your financial future, and I wish you the best of luck going forward.

    Bookmark   August 12, 2008 at 11:09PM
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Your arrangement sounds great. I wish we had started at 50, but we didn't start until DH started muttering about retiring.

Had we started at 50, I'm sure we'd have been better off.
Good luck to you!

    Bookmark   August 15, 2008 at 1:51PM
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