Looking for help in all the right places

by Don Kuehn

For most of us, the notion that we might one day have enough saved for retirement to warrant outside financial advice seems a bit out of character. But you worked hard; you sacrificed a lot to get to the golden door of retirement. Don't blow it now.

I received an e-mail recently from the chairperson of a large retirees' chapter commenting that many of us are exposed only to the insurance and annuity companies selected by our employers (or our unions) to offer services and products to members. By the time we are ready to step through the retirement door, we recognize that our knowledge of the investment world is limited and that we have no place to turn for unbiased advice. What's a person to do?

It seems everyone today claims to be a financial planner. Stockbrokers, accountants, insurance agents and attorneys are claiming, in increasing numbers, that they are qualified to dispense financial advice--for a fee, of course. Even middle-class individuals have investment portfolios. And where there's money to be made, there are "sharks" to be found feeding on the unwary.

After you retire, the money you have accumulated through a lifetime of savings, investments and inheritance is the only money you are going to have. You want to protect it from inflation, see it grow at a reasonable rate commensurate with your tolerance for risk, and avoid speculative investments that could leave you looking for that little part-time job just to "tide you over."

A good financial planner does more than steer you toward a portfolio of stocks, bonds and mutual funds. That means having a working knowledge of tax issues, knowing when the services of an attorney are necessary, working with accountants, considering household budgets and helping with consumer decisions of all kinds. You want to find a planner with whom you can build a relationship that will last many years.

Financial planners make their money in one of three ways: they charge an annual fee based on the size of your portfolio; they earn commissions from the sale of the securities or products they encourage you to buy; or they charge an hourly fee for their services (fee-only). Which is best, and how do you find one to work with you?

I'm sure an argument can be made for each approach, but a planner whose fee structure is based on a client's net worth is likely to put the greatest effort into larger accounts and leave the small fry as an afterthought.

I am also uncomfortable with the idea of a commission-based fee structure. On its face it may seem like the cheapest way to get good advice, but there are plenty of studies to show that even small differences in commissions, loads or service charges eat away at the long-term earnings of your investments. A commission-based planner has a vested interest in steering you toward products that pay the highest royalty, not necessarily those that best fit your financial plan.

The remaining option--the fee-only planner--is in my opinion the best choice. Although there are not as many fee-only planners, if you are diligent, you should be able to find some in your area.

So, how does a person find a fee-only planner? Probably through personal recommendations. Ask your attorney or accountant or insurance agent for some names. Speak to friends whose economic level is similar to your own. You can also call the Institute of Certified Financial Planners at 800/282-7526 to get a list of CFPs in your area.

Although there are good planners who aren't CFPs, that designation after a planner's name indicates that the person has at least three years of work experience in the field, has completed a course of study covering 106 planning-related topics and has passed a 10-hour exam. The license must be renewed every two years, contingent on continuing education requirements as well as adherence to a code of professional conduct and ethics.

Another source is Cambridge Advisors, at 888/834-6333 (recorded message), whose members specialize in planning for middle-income clients. All licensees must be CFPs, charge on a fee-only basis and participate in a year-long training program.

After you have a few names, make appointments to interview prospective candidates. If they won't see you, have a high minimum portfolio value for clients they work with or are evasive in answering questions, cross them off your list. Hey, it's your money.

Also be prepared to answer questions about your net worth, budget, employment benefits, insurance coverage, future earnings or inheritance prospects and the all-important risk tolerance. Before you leave the interview, get the names of three references whose circumstances are similar to your own and be sure to call them to see how responsive, prompt and professional the planner has been in their dealings.