There’s no such thing as free advice–at least advice you’d want to follow. But until recently, Americans of average means have had a hard time finding a professional financial adviser who would give them the time of day for a modest fee.
There are basically three types of financial advisers. Some work on straight commission, getting a percentage on sales of securities or other investments you buy; some charge only a fee; and others charge a mix of fees and commissions.
Consumer advocates generally recommend fee-only planners, saying they won’t be motivated to steer a client into investments with the biggest commissions.
Fee-only planners may charge by the hour, by project or a certain percentage of assets they manage for clients. A comprehensive plan that includes advice on retirement, insurance, taxes and estate planning can run as high as $5,000. That’s steep for households earning the median U.S. income of $42,400.
“It’s a cold, cold world out there if you are middle class,” said Barbara Roper, director of investor protection for the Consumer Federation of America.
But more fee-only planners are reaching out to the middle market, which is broadly defined as households earning $50,000 to $130,000.
Nancy Hradsky, membership manager for the National Association of Personal Financial Advisors, said the fastest-growing category is planners catering to middle-income clients. The trade association for fee-only planners has nearly 1,100 members. At least 20 percent of those target the middle-income market, she said.
One reason for the growth is that more middle-income families, particularly those in the second half of their working lives, realize they need professional help, Hradsky said. The demand is now strong enough to support a planner’s practice, she said.
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Consumers can shop for a planner by visiting the Web sites of the Financial Planning Association (www.fpanet .org) and National Association of Personal Financial Advisors (www.napfa .org).
Although most planners practice as individuals, some groups offer services nationwide. The Alliance of Cambridge Advisors (www.cambridgeadvisors .com), for example, is a network of about 90 advisers who charge annual retainers based on a client’s income, assets and complexity of finances.
A first year’s retainer can start at $2,000, but advisers offer limited retainers, with fewer services, that can range from $250 to $1,000.
Another adviser with a focus on middle-income consumers is Sheryl Garrett, a Kansas planner who once worked for a wealth management firm that charged a minimum fee of $4,000.
“I got really discouraged having to turn away clients I would have liked to work with,” but who couldn’t afford the fee, she said.
Six years ago, Garrett started her own firm that charges for advice by the hour. It attracts middle-income investors who don’t need a full-time adviser but might want an expert to review a portfolio or develop a retirement plan. It also appeals to high-income, do-it-yourself investors who want to bounce ideas off a professional.
Garrett charges $180 an hour. A portfolio review, say, for a young investor might take a half-hour’s time, a cost of $90. A retirement plan for someone nearing retirement, a more time-intensive analysis, costs $500 to $800, she said.
The concept has been so popular that Garrett three years ago launched the Garrett Planning Network, a group of advisers who pay to join the network and must meet certain standards. The network has grown to 185 advisers nationwide.
Consumers can find advisers at www.garrettplanningnetwork.com.
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Hire a planner to avoid disaster
When should you hire a financial planner?
“When you can’t afford to step on another financial land mine,” said James Ludwick, an adviser in Maryland.
People in their late 40s and 50s often hire an adviser once they conclude they no longer have time to recover from money mistakes, he said. Parents sometimes recommend that young adult children seek professional advice to avoid making the same money mistakes the parents made, he said.
Other times to seek help include:
– During major changes in your financial life, such as marriage, birth of a child, job switch or inheritance.
– When finances get too complicated or too time-consuming to handle on your own.
– To develop a financial road map for young investors.
– To provide a second opinion for do-it-yourselfers.
— Eileen Ambrose