Thursday, Oct. 02, 2008

Know options before hiring adviser

Before the turbulent economy sends you running into the arms of a financial adviser, make sure you know all your options.

In addition to the various types of financial advice on the market, there are myriad ways advisers get paid for their services. Among them: commissions, hourly or flat rates for one-time help, asset-based fees for ongoing money management, or some combination thereof.

As you start your search, re-member that “financial adviser” is a catchall term and doesn’t mean that the person has obtained any specific training. You’ll want to understand the different professional designations you may en-counter and be mindful of potential fee structures.

FREE SERVICES: Many financial advisers, whether they work for a large brokerage or operate independently, offer free initial consultations that usually last about a half hour or more. But don’t expect to walk out with a detailed list of ideal investments. What the meeting should give you is a sense of how your adviser plans to approach your portfolio. One way to guide the discussion might be to ask what issues he or she thinks need to be addressed most urgently.

FEES VS. COMMISSIONS: Some advisers work on a “fee-only” basis, meaning they charge a predetermined amount for their services. Others, however, may also earn a commission from a third-party for selling financial products. If you’re going to a stock broker, for instance, the prospect of earning a commission may influence him to suggest a particular mutual fund or an annuity, said Samantha Macchia, a principal of Summit Financial Strategies Inc. Financial advisers are required to disclose whether they get any outside money from third parties.

FEES FOR ONE-TIME HELP: If you have a question about a specific topic, you may want to hire a financial planner on an hourly basis. This may be an optimal choice if you think your issue won’t take more than a couple hours to address. Rates vary widely, but typically range from around $150 to $300 an hour, ac-cording to the Garrett Planning Network, which has around 300 certified financial planners around the country who meet with clients on an hourly basis.

You can also find a certified financial planner in your area on the Financial Planning Association’s Web site. Another option if you have a straightforward question is MyFinancialAdvice.com, which lists planners who give guidance via phone or e-mail. Users can browse professional backgrounds and client ratings. Planners also list a range for their hourly rates.

For those looking for more expansive guidance, such as how to save for retirement, many fi-nancial planners charge a flat fee to help devise a big-picture game plan.

This arrangement usually includes periodic follow up, so make sure you’re clear on exactly how much follow up you’ll be en-titled to, and in what form (meetings, phone calls, e-mails).

Depending on the issue, individual planner fees can range from $500 to several thousand dollars, according to the Garrett Planning Network.

Some brokerage firms may also offer one-time help. At Charles Schwab, for instance, people can pay $1,100 for a consultation to help them determine when they can retire and how to reach their retirement asset goals.

FEES FOR ONGOING MANAGEMENT: If you want ongoing portfolio management and regular access to a financial adviser, you may be asked to pay a fee based on a percentage of your as-sets.

This type of service typically costs about 1 percent of your in-vestments, although the figure can go up or down depending on the size of your portfolio. Some-one with more assets, for example, may be charged less than 1 percent. If you’re being asked for 2 or 3 percent, you may be able to find something cheaper.

Other advisers charge a flat fee to develop a plan, then ask for an additional asset-based fee for active oversight.

Be sure to ask whether the fee covers costs for transactions (such as investing in an annuity). Some advisers and brokerages only take on clients with a mini-mum level of assets. At ETrade, people with at least $50,000 in investable assets can typically pay 1 percent or less for ongoing management.

If you don’t like the asset-based fee structure, you may be able to find a planner who charges an annual, one-time fee in exchange for ongoing management.

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