Tuesday, April 29, 2008

Special Ask-The-Readers Edition: How do you choose a financial advisor?

"I've got to make money and save it. I've got to do that thing that rich people do where they turn money into *more* money. Can you teach me how to do that?"
--Liz Lemon (30 Rock)

Hitherto, all of my money matters have been handled by the soon-to-be-ex Mr. Pants. He was good at it and increased our net worth very well over the years. It's a good thing, too, because I'm pretty hopeless when it comes to money, and I haven't a clue about what constitutes a wise investment. I know I should regularly put money into my IRA, and I need to be frugal (although I'm not always good at it). Oh, and earning high interest is good, owing with high interest is bad. And it's either a good time or a bad time to buy a house, depending on whom you ask. And something something no-load mutual funds something blah blah blah.

So I think I'm going to have to outsource my financial thinking to a professional. I've had some friends recommend theirs to me, and I think I'll contact a few to see if they are a good fit ... not that I have any idea what would constitute a good fit. I really have no idea what to ask them, other than "How much is this shit going to cost me?"

So that's where you, dear reader, can help me. Tell me: what the hell do I ask these people? How do I know which one to choose?


steve said...

Lisa - I'm not a big fan of financial advisors... But a key thing to find out is how they get paid. Do they get paid on a commission for selling you certain company's stocks/funds? A percentage of each trade? A flat rate? etc.

Personally, I've always gone with automatic debit into my company's 401K, or your IRA. That way the money is gone before you can spend it and it is taken out pretax. So then all I do is check the Morningstar ratings on the funds and then divide the money across US and international funds with good performance, low admin fees, and a range risk levels (i.e. bonds vs. stocks). So far this is working pretty well for me and only takes a little time when you pick your funds. Periodically you could move money around between funds as you get older and want to reduce risk.

Lisa B. said...

Uhhhh, Morningstar ratings? See, I have no clue what you're talking about. How does one go about doing all this? Basicall, moving money between checking, my money market account, my CDs and my IRA is pretty much the extent of my experience.

Also, I just don't want to have to sit around checking ratings and thinking about performance and risk levels all the time. It's sort of like cooking--I'd rather someone else do it. I'll wash the dishes ;-)

Anonymous said...

Lisa B:

Like Steve said, you will probably find that a "for fee" advisor is what you want, as they aren't getting commission for selling you a product (that might not be the very best for you). Please check out the website for Jennifer Lazarus, www.lazarusfp.com , and you may tell her Lisa S. sent you. I could say lots more in email, but she can help you get a big picture plus suggest how to handle all sorts of details. She quotes you a flat fee after finding out what you want, and my personal experience was that while the fee seemed high, I got way, way more than she promised. Her advice of a few years ago is still serving me well. She used to be a teacher, so she lays it all out and is in fact compulsive about making sure you understand why she recommends what she does. I remain most favorably impressed.

--Lisa S.

Anonymous said...

hi pants,
i would suggest a Certified Financial Planner(CFP)and be sure they are offering a flat fee rather than percentage based.

This guy is a goof. but he gives good advice...
clarkhoward.com (total goof)

resources from his site:
Accountants & Financial Planners:

# Institute of Certified Financial Planners Membership Organization - 800-282-7526

# International Association for Financial Planners 800-945-4237

# National Association of Investors Corporation

# National Association of Personal Financial Advisors (NAPFA)- 888-FEE-ONLY (888-333-6659)
-For the names of true fee-only financial planners, financial planner interview form, & tips on selecting financial planners

# Certified Financial Planner Board of Standards - 888-CFP-MARK
Find out if a planner is licensed as a CFP, status of license, and check on disciplinary action

Recommended steps for choosing a Financial Planner or a Stock Broker:
1. Ask trusted friend or advisor to refer
2. Call Secretary of State Securities Division or NASD for info
3. Interview in person

air hugs

Lisa B. said...

I just discovered that my credit union has financial advisors that I can use. They charge a small per transaction percentage fee and then a small annual percentage based on how much money you have invested. I will look into this.

I'll also look into figuring out how to do it myself. It's one of my areas of stupidity, however, because once it gets slightly complicated my brain switches to "Hey, let's go ride bikes" mode.

Thanks for all the advice, all!

Anonymous said...

This is your soon to be X. Considering your soon to be financial situation, I don't think you need an advisor. Considering that a good percentage of your cash will go into your new house. The remainder (probably 6 months salary) should be held as a cash reserve. Nothing more complicated than CDs or high yield money markets. You have your pension, but that's not managed by you. You then have your IRA. For your IRA (it should be a Roth) I would get an account with Fidelity or Wells Fargo/Strong or some other solid institution and put it into a retirement year fund of funds. For example they have a year 2030 fund for people retiring in the year 2030. As I mentioned these are a fund of funds and the risk is adjusted and balanced for how close you are to retirement. It's easy because you don't have to do anything but add money. The funds are managed by professionals. That's all the planning you need to do. On the question of how much to put into the Roth, the answer is a much as you can stand.

If instead you decide not to buy a house right now, you may need an advisor. The problem is I can't imagine you not buying a house within the next two years. As a result the advisor may not be very helpful because you have less than a two year window and therefore can't tolerate risk. You're back to CDs, money markets and perhaps some government bonds. If you can't decide if buying a house right now is a good financial move then you should get an advisor, but considering you, this is not purely a financial decision.

Lisa B. said...

OK, how does one buy government bonds? Call up the government and say "I want some of those bonds you're selling"? Anybody have their number?

Also, STBX, you told me to open a simple IRA back when I was transferring money from that old 401K ... now I'm supposed to get a Roth?

This shit's too confusing.

Anonymous said...

I told you to choose a simple IRA at that time because the situation was different. In your situation I would tilt more toward a Roth because after buying your house you will be a little strapped from the cash flow perspective. Unlike the traditional IRA the Roth allows you to withdraw your principle at anytime for any reason. It's a great way for folks who are a bit more cash flow challenged to save for retirement with worrying that the don't have a reasonable cash reserve outside of their retirement accounts. If you were to stick exclusively to your traditional I would suggest you maintain an emergency cash fund of six months salary. With the Roth 4 months of this could be in the Roth doing double duty. Building for your retirement but also accessible as a rainy day fund. You would only need to maintain 2 months salary in cash.

Finally the current and future tax considerations change with the change in your situation. This also affects whether a traditional or Roth makes sense. For reasons I won't go into, that also makes the Roth more attractive for you.

Elayne said...

One other good thing about having some money in a Roth if you've already got money in a traditional IRA/401K is that when you take the money out during retirement you can draw from both funds so you'll be taking less out of the traditional IRA so that money will be taxed at a lower rate.

Seth said...

I just use the first guy I see on the tele at 3 or 4 in the morning.

Seriously, one of the few benefits of being relatively recently out of college is that I don't have enough money to ask such questions. I don't understand you and your middle class problems. Now if you don't mind I'm going to return to eating my lint and ramen cassarole.

Lisa B. said...

Wow, you can afford lint?

Steve said...

I think STBX's idea of a Roth with a programmed retirement date might really be a good idea for you. Then you don't have to worry about moving money from riskier (potentially higher earning/higher losing) funds into less risky (lower earning/lower losing) bond funds as you get older. Those programmed funds do it automatically. They are really hands off, so you won't have to figure out where to buy bonds :^)

As long as you get it through one of the big firms you should be good to go for the long term. Later if you get interested in investing you can buy your own funds outside of the programmed one and transfer money out of the programmed one (and vice versa).