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Finding A Financial Planner

Question: Help! How do I find a good financial planner? Someone who I can sit down with and show my entire portfolio, with stocks, IRAS, and real estate investments and who will understand all of it and help me crunch all the numbers so I can clearly see my different options to get out of the mess I got myself into?! Samantha, Venice, California

Answer: This may be unfair, but my first question is do you really need a financial planner? My overall bias is that for most people the answer is no--at least not until you can do most of your financial planning on your own. Here's why: One of the biggest money mistakes people make is to simply turning their money over to a professional and assume they'll do all the work. That's a recipe for trouble and disappointment.

Still, some of us truly need to talk to a real person rather than interact with a computer screen. In your case, talking to a knowledgeable person will help you make sense of your options going forward. There are other reasons why it can pay to work with a professional. A number of people find that their finances are too complicated to deal with on their own. Another good reason is time. Our lives are hectic, the law is constantly changing, and we'd like to work with someone we trust. And for many of us, tapping into the expertise of a planner makes sense when we are facing a major life transition, such as retirement.

There are several ways to find a financial planner. The best method is networking. Talk to neighbors and colleagues that use a financial planner and get their recommendations. You can also go to the website of the National Association of Personal Financial Advisors at www.napfa.org. Another resource is the Financial Planning Association at www.fpanet.org.

I'm definitely biased toward fee-only planners with a Certified Financial Planner (CFP) designation. That gives you confidence that they're professionals well-versed in the basics of the business. They also invest in continuing education. In addition, with a fee-only planner you get objective advice unsullied by commissions.

Once you have found several potential fee-only CFP candidates, carefully check out their references and learn whether they deal with people in your income bracket. Assuming that most check out and that they are all ethical, how do you choose? At that point, the deciding factor is which financial planner you're most comfortable with. After all, this is a person who is going to be working with you on the financial details of your life--the good and the bad.

12/21/07 by Chris Farrell

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Saving Too Much

Question: I would like your opinion on the retirement goals set by my investment firm. I'm 54 years old and have no debt at all. My house, car, etc, all paid in full. I have a job I love, making $90k annually plus I still have a small income from a former business - approx $10k annual. My house is worth approx. $340k and I have $350k invested in mutual funds through an advisor (Wachovia - fee based plus commission). I've had a miserable history with advisors - this group is my third. I'm currently putting 56% of my job salary into savings, plus I have 401K and a pension through my employer.

The 56% is getting a little tough but my advisor says to be in the "safe range" at retirement, I need to be this aggressive. I don't know if they are telling me the truth or if they just want me to beef my portfolio so they can charge a higher fee.

I would like a little breathing room and enjoy life a little. I worked hard to get everything in this comfy state but now I can't even have a small splurge occasionally... Advice? Please? Kate, Charlotte, NC

Answer: You're savings 56% of your income? No wonder you feel strapped. I'd really loosen the spending reins, and enjoy yourself. Obviously, in an email communication I can't know all the ins-and-outs of your finances. But by any measure, setting aside 56% of salary in savings is steep. I'm puzzled--no, I don't understand at all--the advice to save such a large percentage of your income. What am I missing?

Put it this way: The old financial planning advice was to salt away some 10% to 15% of income in savings. In recent years that figure has been upped to 15% to 20%, largely reflecting greater volatility in the markets and higher healthcare costs. But that's still way below 56%.

I don't understand the reasoning behind saving any more than 10% to 20% of income unless there is a particular goal in mind. What's more, unlike most people your age, you don't have any debt. Let's not turn the smart idea of saving for tomorrow into meaning little more than hoarding cash and collecting regrets today. Saving to save is just as bad as spending to spend.

04/02/08 by Chris Farrell

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Green Cards and Social Security

Question: I have 2 questions: 1: Is it true only US Citizens can collect SS when they retire; Green card holders do not qualify?

2: I have a Net Worth of about $300K, making up of Cash (60%), Stocks (25%), real estate (10%) and 401K(5%). Should I have a personal financial planner to handle my finances? If so, do you have any recommendations, and how much would it cost? Thank you. Ed, Seattle, WA

Answer: Green Card or Permanent Resident Card holders pay Social Security taxes, and receive Social Security benefits when they retire (as long as they've worked for 10 years before retiring). Immigrants can get more information at the Social Security Administration's website.

Your second question is a much bigger one. Briefly, my bias is no, you don't need to hire a financial planner. That is, not until you can do the basics of financial planning on your own. No matter what, you'll need to educate yourself first. Here's why: Over the years, one of the biggest mistakes I've seen people make is turning their money over to a professional and assume they'll do all the work. That's a recipe for trouble. And it takes time to find a good planner that you'll want to work with.

However, if you'd like a quick check up that focuses mostly on your portfolio (rather than the whole estate), Ive become a fan of the financial planning services offered by several of the major mutual fund companies. The fees are minimal, and the ones I have looked at are steeped in modern portfolio theory and sound personal finance practice. For instance, they won't try and get you to heavily trade stocks and bonds. You do have to be comfortable working over the phone and by email. The advice is limited, so I'd take it with a grain of skepticism. But it's also a nice way to check your assumptions and preferences.

04/21/08 by Chris Farrell

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Finding A Financial Planner

Oops. I wrote the Q & A yesterday, but I forgot to post it. Sorry about that. I'll put up two Q & As today. Thanks.

Question: We are currently searching for a reliable and honest financial planner, but we don't know how to go about finding such a person? What particular criteria should we use for finding such a person? We would like to know what types of fees we should expect to pay for 1) estate planning, 2) setting up a trust fund and a 3) LLC? If you could provide me with specific fee amounts I would most appreciate it. Are there some Books or Websites that you could recommend for us to gain more practical knowledge about these matters? Thank you very much. Paymaan, Alexandra, VA

Answer: Ross Levin is one of the nation's top financial planners. Several years ago he sent me a tip sheet on finding a good financial planner. I'm passing along his insights:

Understand your needs:

A) What is the triggering event that makes you feel you need a planner? Are you changing jobs, inheriting money, or do you just feel like you want more financial controls in your life?

B) What type of person will you feel most comfortable with discussing issues that are very personal for you? A good financial planner will spend a lot of time trying to understand you; you need to make sure that you are comfortable with the personality of the professional.

C) What would have changed in one year with your financial life if you were working successfully with a planner? Would you have drafted a will? Would you have saved tax dollars? Would you feel more comfortable with your investment philosophy?

Must Have's with a Planner:

A) Your planner needs to have a Certified Financial Planner designation. This indicates that your planner has experience, education, passed an examination, and is required to adhere to a code of ethics.

B) Look for a fee-based planner. While there are good planners that charge commissions for their services, it is usually best to pay the planner a fee directly, rather than have him or her earn their living off of commissions. There simply won't be as many conflicts of interest.

C) Find out if the planner's practice involves many people with situations similar to your own. Ask specifically to talk to some clients who the planner feels were in similar situations.

D) Ask for the SEC form ADV. This tells you about a planner's philosophy, experience, and regulatory history.

E) Have the planner clearly lay out what they expect from the relationship. Be sure to find out what type of planning they do. Some planners give out big books filled with analysis. Other planners are more organic. Neither is better than the other, but you need to know what to expect.

Where to Start:

A) The best place to start is with your friends and colleagues. Try to be specific with the regarding what you are looking for. Ask them to be specific with you about what they like about their planner.

B) If you have advisors who are not in the business of financial planning, ask them for recommendations. This is getting more difficult because more and more people are getting into the field.

C) If all else fails, call the Financial Planning Association. Their phone number is 800-322-4237. They will furnish you a list of planners in your area. It is still better for you to find a planner through a referral, though.

06/12/08 by Chris Farrell

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Getting a CFP

Question: I am always inspired by Chris Farrell who is so knowledgeable and can answer any questions. That makes me want to pursue career as a financial planning. I am thinking of taking classes to become CFP but looks like there are so many other qualifications you can get. What do you recommend in terms of preparing for future career as a personal financial planner? I have worked in investment banks but never as a personal planner. Kumi, Carlsbad, CA.

Answer: Thanks for your kind words. I'm a fan of the certified financial planner designation. From my experience as a journalist, plus knowing several friends that got a CFP, it gives the practitioner a very broad overview of household finances. The CFP offers the kind of broad background that will enable you to deal with everything from managing a portfolio to dealing with long-term care insurance to philanthropic gift giving.

That said, in quiet conversations over the past year or so I have been told by a number of CFPs that the new generation is having a hard time building up a business. The current generation of successful financial planners are having a tough time letting go.(Of course, another way of looking at the succession problem is that a good CFP can easily work well past the normal retirement age.) What's more, we've lived through an enormous expansion of the financial services industry over the past two decades. One implication of the current credit crunch is that the industry will consolidate in coming years.

So, while I admire the CFP professional degree, it pays to investigate what your career prospects will be once you have the designation in hand. You might want to visit the Certified Financial Planner Board of Standards at www.cfp.net.. I'd look for a conference or CFP gathering near you to ask some tough questions of current practitioners about the CFP as a career. Good luck.

08/22/08 by Chris Farrell

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A Financial Planner

Question: I am 66 years old, retired in Feb 08, and my portfolio is down by about 30% since then. I have not withdrawn from the investments. Instead, I've withdrawn cash from my bank savings to supplement Social Security and pension payments. The Rollover IRA (from 401K) was all in Fidelity Freedom Fund 2010 until April when I invested 20% of this into Fidelity Gold and another 20% into Fidelity Canada--all down the last time I looked. Is there a sane way now to get out of these investments and into cash or Treasury inflation protected securities (TIPS)? Or must I wait it out so I don't mess it up further? And, yes, I am past due for making an appointment with a Certified Financial Planner (CFP).(PLEASE WITHHOLD MY NAME-CALL ME MS DIZZY) Durham, NC

Answer: Well, I would never call you Ms. Dizzy, let alone think it. In general, I like target date funds: As Lauren Young of Business Week recently put it: "These funds, which automatically adjust their asset mix as an investor's retirement date approaches, were seen as a way for individual investors to achieve the discipline, diversity, and typically higher returns of pension funds."

You put your money into two commodity funds. Gold has recently peaked, and come down sharply as the dollar's value has stabilized in the international currency markets. The Canadian fund is essentially a commodity fund since the performance of energy, agriculture, metals and other commodities were behind its run-up and current down-draft. In other words, you aren't well diversified and you are in riskier sectors of the financial markets.

I can't give you a better suggestion than you did in your last sentence: Work with a personal financial planner. Before you start bouncing around between funds I'd spend time a financial planner you can work with, especially one with the certified financial planner (CFP) designation. The big drawback to a fee-only certified financial planner is they are expensive. It's easy to spend $2,000 to $3,000 for a comprehensive plan. If that's too much you could negotiate for a smaller deal that focuses primarily on your retirement portfolio.

If you search the Getting Personal site you can get some more information on how to find a financial planner.

For a quick check-up you could tap into Fidelity. (I'm assuming you're with Fidelity since the 3 funds you mention are all Fidelity funds). It offers a free online, interactive service. There is a toll-free number to call to talk to an advisor with any follow-on questions. The service isn't comprehensive, but it's helpful.

08/28/08 by Chris Farrell

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Finding a financial planner

Question: My mid-twenties daughter has come into ~$250K that she would like to invest. Her near-term objective is to use the interest/growth to supplement her annual income. Before she talks to any financial advisers, what should she be wary of and what credentials are essential in a financial planner? Thanks. Gerald, Oxnard, CA

Answer: My most important suggestion is for her to be conservative with the money. If I were her, I would lock it up in FDIC insured investments, accounts backed by similar federal insurance at credit unions, and short-term U.S. Treasury securities. She won't make much of an income in today's low interest rate environment. But she'll preserve the value of the inheritance while she educates herself about managing money. It also takes time to find a good planner that will work well for her.

Next, I wonder if she really needs a financial planner. My bias is that most people don't and, even if she does, she should invest time learning the basics on her own. When I lived in New York in the '80s and '90s, the bargain basement clothing retailer Sy Syms ran these memorable commercials with the tag line, "an educated consumer is our best customer." Well, what's true for clothing is even more true with money. One of the biggest money mistakes people make is to turn their finances over to a professional to manage without really understanding the basics of the business. It's a recipe for trouble and disappointment.

If she does decide that hiring a pro is the right route for her there are several ways to find a planner. The best method is probably networking, talking to neighbors and colleagues that work with a financial planner. Get their recommendations. She can also go to the website of the National Association of Personal Financial Advisors. Another resource is the Financial Planning Association.

I favor the Certified Financial Planner (CFP) designation and the Chartered Financial Analyst (CFA) designations. Both signal that the planners are knowledgeable about a wide range of financial issues, from estate planning to portfolio management. They are required to invest in continuing education, too.

The fee-only financial planner option is the most expensive. But it's a good way to ensure that she's getting objective advice unsullied by commissions earned from selling her financial products.

12/09/09 by Chris Farrell

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Philanthropy

Question: I am in the field of fundraising and I am in the position of asking individuals for annual gifts to a School. This current economy however has donors a little more wary of making gifts. This makes me a bit more conservative in my requests. Should I be? Are personal advisors and others still encouraging individuals to make annual charitable gifts for tax purposes and can this reminder especially as we enter tax-year-end be a good motivator to get donors to support the School. Maybe asked another way, are there tax incentives that make charitable spending more attractive in a down economy?

I do want to emphasize that I am speaking of donors who are still employed with little or no change in salary. We are very conscientious about approaching our donors who are facing difficult times. Kurt, Bel Air, MD

Answer: This is an intriguing question. I'm not sure how much insight I have to offer, but here are some thoughts. And I did recently participated in a meeting of certified financial planners and this topic came up for discussion. Clearly, it goes without saying that It's a tough environment. But the financial planners I know are working with clients to encourage them to keep up with their charitable giving. (As you say, we're not including folks that are hurting financially or have lost their jobs. Most can't give the way they did before.)

I can't think of any twists to the tax code that boost the tax benefit of charitable giving in down times. The tax advantages of charitable giving really kick when the economy is on a roll and households are feeling flush, perhaps with bonus money rolling in. They'd like to do good and shelter some income from Uncle Sam. For instance, when the stock market is strong the well-heeled often turn toward donating appreciated stock to charities. The charity gets a bigger gift and the donor gets a nice tax break. Yet even with the stock market up sharply since March most portfolios remain well in the red column. Big bonuses and lush pay raises are rare these days, except on Wall Street. (And that's another story.)

Still, many financial planners believe that giving remains important. In many cases, I've been told, people can afford to give away the same amount, but they're fearful. They've lost wealth with the drop in home values and the stock market. It's understandable.

So, to your question: Yes, I'd keep on asking but I would lean on the conservative side. I think your instincts are right. And the charitable gift tax benefit is still a valuable financial incentive.

There's another trend I have noticed. Some people I've run across are giving away the same amount of money but they've changed the focus of their giving to reflect our troubled times. For instance, maybe they were donating money to a museum and now they're donating to a homeless shelter. In that case, I would recommend that you support the shift in emphasis. What matters is the giving and that people share their wealth. And at some point I'll bet that perspective will help the school, too.

12/14/09 by Chris Farrell

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