Most of the time, you probably do fine managing your own finances. But every now and then you may need help from a professional. It can be tough to turn over your money to someone else, so use our advice to vet each expert. Start with recommendations from people you know and trust, but don’t let that be the last word. Check credentials and interview a few candidates to find someone you’re comfortable with. Your money is at stake, and so is your peace of mind.
Financial planner
You can go for a brief consultation or for a complete overhaul.
Why you need one. Saving for retirement or some other long-term goal is a big reason. Most planners recommend portfolios of mutual funds based on your time horizon and risk tolerance. But there are hundreds of other reasons to seek help. Most common are stage-of-life hurdles: compensating for a pension freeze, for instance, or juggling saving for college and retirement. Perhaps you and your family suffer generalized financial anxiety and need an expert to get everyone’s emotions under control. Some issues, such as managing a large lump-sum payout, require comprehensive analysis and lend themselves to a long-term engagement with a planner or group who become your family’s financial “emergency team.” Other issues, such as whether to buy a home or keep renting, call for only a brief consultation. A few planners specialize in fast solutions to well-defined problems.
How to find the right one. Start by matching your needs with candidates’ strengths. Planning organizations have websites with state-specific search engines and links to planners’ sites and regulatory disclosures. The National Association of Personal Financial Advisors, or NAPFA, enrolls fee-only planners who either charge by the hour or charge a percentage of assets under management if you hire them to manage your investments. The Financial Planning Association is the largest professional group, with 24,000 members. Many NAPFA members also belong to the FPA, although the FPA also has planners who are commission-based insurance agents and securities brokers.
What you’ll pay. Costs are all over the place. You’re likely to lay out four or even five figures for comprehensive advice. Hourly rates commonly run $200 to $300. Most planners do some small jobs, but they spend most of their time on permanent clients who pay a percentage of their assets under management — typically 1 or 2 percent, depending on the size of the account — or a percentage plus an annual retainer of, say, a couple of thousand dollars. You can discuss billing in your introductory meeting. First, however, check the planner’s Form ADV Part II, available at sec.gov or via a link on the planner’s website. Among other details, you’ll see current rates for different services, the number of clients the planner handles, and the percentage of time he or she spends on different kinds of jobs. Establish upfront what and how you’ll pay for everything the planner will do on your behalf, including two or three progress reports a year and any emergencies that crop up.
What to ask. You need to know whether you’ll have regular access to the planner’s time and thinking (twice a year is usually enough) and whether you can call with a question or for a quick consultation without getting charged $150 every time. Does the planner have other clients like you — for example, preretirees, blended stepfamilies, ex-military families, widows or widowers, or the self-employed? Does he or she have the expertise to address problems that involve, say, legal or tax issues? Some planners may strike you as generalists, which could work fine if there are lawyers and accountants in-house or on retainer to address technical questions. Your toughest call may be whether to give a professional discretion over your investments. If you do, be sure you agree on particulars, such as whether you prefer index funds or actively managed funds, whether individual securities will be in the mix, and how comfortable you are with frequent trading versus a patient approach. If a planner is unduly eager to take over your accounts, forget it.
Investment adviser
High-net-worth individuals may need special expertise.
Why you need one. Most likely you can get all the investment advice you need from a financial planner, especially if you’re mainly looking for mutual fund picks and someone to help you stick with an investment strategy. Likewise, the fund company or brokerage where you park most of your money probably dispenses free basic investment advice and more-complex advice for a fee, which is often waived if you have, say, at least $100,000 in assets with the firm. But you may need an investment adviser (also called a money manager) because you want or need more-expert advice. That could be the case if you have many financial goals or a complex financial situation and need a professional to play quarterback. Or you may want to invest in assets that don’t come in off-the-shelf products, such as venture capital, hedge funds or private equity, and need special expertise. (To invest in those things, you must be an “accredited” investor, meaning you have assets in excess of $1 million or annual income of at least $200,000 for an individual or $300,000 for a couple.) One bad reason to use an investment adviser is because you think one can help you beat the market by more than a few percentage points. Few can, especially after deducting their fees.
How to find the right one. Tap the expertise of people familiar with financial professionals: your financial planner, if what you want is beyond his area of expertise, or your accountant, estate attorney or even mutual fund company (call the company’s toll-free number for candidates). Once you have several candidates, check their qualifications, backgrounds, strategies and fees. The shortcut for this is the adviser’s Form ADV (see the “Financial Planner” section). For credentials, the gold standard for investment advisers is Chartered Financial Analyst, which is like a graduate degree in investing. The Financial Industry Regulatory Authority (FINRA) lists more than 100 financial credentials. Many just certify a specific area of expertise. See a rundown of all the credentials.
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What you’ll pay. To get the best deal from an investment adviser, you should be charged a percentage of assets managed. That way, there’s a direct incentive for the adviser to grow your portfolio. In general, the bigger your account, the lower the annual fee. Figure 2 percent on the high side and 0.5 percent on the low side.
What to ask. First, find out the performance record of the advisers you interview, which should at least match the averages of markets in which they invest, after expenses. Ask for a list of clients with situations similar to yours who you can speak with. Also find out how you can monitor your account. You should have easy access to it through a third party to guarantee that the numbers the adviser advertises are legit.
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