Ten thoughts on financial planning

By Paul B. Farrell
CBS.MarketWatch.com


ARROYO GRANDE, Calif. (CBS.MW) -- "There is more to financial planning than buying a basket of no-load mutual funds," says Dan Dorval, a certified financial planner, in objecting to my critique of commissioned brokers last week. And "paying your financial adviser so that person can stay in business long enough to help you is not a criminal act."

Well, I agree they should be compensated, but on a fee basis. Commissions present too many conflicts of interest, too many temptations for sleazy behavior and too much opportunity for abuse. Don't get me wrong, there are a lot of ethical brokers. Unfortunately, there are even more not-so-ethical brokers who love skimming money off the top of a client's portfolio for doing little or nothing.

And while most professionals e-mailing me strongly disagreed, one did understand the message of "Two Questions for Your Broker" loud-and-clear. Fee-only investment adviser Ulli Niemann said that my article "hit the heart of the matter ... that most brokers are simply commission hounds and useless as far as investments are concerned." Niemann is doing it right for his clients and his Web site proves it with tons of free information about the best no-load alternatives. See the StatSheet site.

The truth is that today most investors are forced to be do-it-yourself investors. Why? Because most advisers don't want so-called "average investors" as clients. The average investor has less that $50,000 in liquid assets. And they're the vast majority of investors!

By contrast, the average adviser can't make much money off clients with portfolios less than $250,000 to $500,000. Worse yet, most big Wall Street firms now believe that even a little $1 million portfolio is a waste of time.

So you're stuck doing it yourself. But the day may come sometime in your life when even the most hard-core do-it-yourselfers need a pro to help sort things, for any number of reasons:

You're too busy making money in your business and don't need distractions
You have temporary self-doubts and psychological blocks
You're going through a divorce or dissolution of a business
You think you're doing everything right, but want a second opinion
So how do you pick one? Sorry folks, but this is a hit-or-miss proposition. The harsh truth is that the best source is always a recommendation from a friend who has had long-term success with a financial planner. Period.

You should hire a fee-only planner, someone who is not a salesman earning commissions from the sale of funds, stocks, annuities, insurance or loans. And get a detailed estimate before signing a written service contract.

Questions to think about when you need a planner

What can a financial planner do for you that you can't do for yourself? Here are some items to get you thinking:

Goals: How realistic are you about your goals? How much money are you really spending? Are you honest with yourself about all elements about retirement savings?
Strategies: Even if you know your goals, what are the best strategies? What about life insurance? How does your home mortgage fit in? Or annuities? Yes, there is more to your financial plan than just buying a bunch of no-load funds.
Priorities: Okay, you can't do it all right away. First things first. But what comes first, second? What's deferred? Budget each step. New house. Kids' college. Retirement. Things take time. Maybe a pro can help you take things in order, slowly.
Research: Do you really have the time to research the right products to fit each of your goals and strategies? Do you even know where to get all the information? What's important, what's a hustle? How to put it together?
Comprehensive: Okay, you know you can work separately with your current broker, insurance salesman, CPA and banker, but can you put together the best overall plan?
Best deals: Assuming you have a workable plan, can you identify the best products for the lowest prices? Do you have the experience to get the lowest-cost options?
Objectivity. Once you focus on a particular aspect of your plan, like buying a new home or the best time to retire, emotions often get in the way of rational analysis. An independent outside voice can be worth its weight in gold.
Action. Like keeping at an exercise schedule or diet, once you make a decision, you may need a coach to push you when the going gets tough, through things like regular savings, excessive credit card debt, details in purchasing a home and not chasing hot funds.
Mediation. How do you balance the conflicting needs of you and your spouse? A good financial adviser should have experience in resolving delicate situations.
Bottom line: Yes, you want it all, can you get it? After all is said and done, is this plan going to help you make the money you need to meet your goals, buy that house, get the kids through college or help you retire in a comfortable lifestyle?
Check out Eric Tyson's "Personal Finance for Dummies" for more details on these 10 questions. Also see Jane Bryant Quinn's "Making The Most of Your Money."

In the final analysis, no matter what you decide, remember the immortal advice of Quinn:

"Most of us don't need professional planners. We don't even need a full-scale plan. Conservative money management isn't hard. To be your own guru, you need only a list of objectives, a few simple financial products, realistic investment expectations, a time frame that gives your investments time to work out, and a well-tempered humbug detector, to keep you for falling for rascally sales pitches.

"Don't put off decisions for fear you're not making the best choice in every circumstance. Often, there isn't a best choice. Any one of several will work."

 

 

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