If you want money advice you can trust, your best bet is to hire a fee-only financial planner. The trick is finding a planner who’s willing to be hired for a reasonable fee.
Fee-only planners don’t accept commissions or kickbacks and are paid solely by client fees. Most use an “assets under management” model where they manage their clients’ investments and charge an annual fee of about 1 percent. To make the math work, these financial planners usually require people to have hundreds of thousands of dollars to invest. Otherwise, the advisers would reap too little from their fees to justify the hours spent creating financial plans.
This is obviously a problem for people who don’t have enough assets. It also can be a problem for those who do, since the advisers collect their fees year in and year out, regardless of how much advice they’re actually dispensing. Plus, not everyone wants or needs an adviser to invest their money.
It’s even becoming a problem for the planners themselves. A client with a small portfolio may have more complex needs, and require more time, than one with a larger portfolio, but the fees won’t reflect that.
Plus, what these planners are technically charging for — investment management — can be had for much less from robo-advisers. These digital investment services use computer algorithms to invest and typically charge one-quarter of one percent.
Planners are essentially giving away the valuable part of what they do, the financial advice, while charging premium prices for the commodity that a machine can essentially do for much less.
Advisers increasingly are recognizing the flaws in this approach and some are exploring alternatives, such as charging flat monthly or quarterly fees, says financial journalist Bob Veres, owner of Inside Information, a site for advisers.
If you’re looking for financial advice that’s not based on the size of your portfolio, here are a few places to check and what you can expect to pay.
XY PLANNING NETWORK. This is a network of financial planners who typically focus on clients in Generations X and Y, or millennials, who don’t have a lot of assets to invest. There’s no age limit, though, and some of the planners specialize in helping baby boomers as well. Advisers must be certified financial planners, or CFPs; swear to uphold a fiduciary client-first standard, which means they put their clients’ interests first; and offer flat monthly fees (although they may offer other options, including hourly or assets-under-management fees). Monthly fees are typically $100-$200, with some planners requiring an initial or setup fee of $1,000 to $2,000.
GARRETT PLANNING NETWORK. Planner Sheryl Garrett’s network represents planners willing to charge by the hour, although many also manage assets for a fee. Members are either certified financial planners or they are on track to get the designation, or they’re certified public accountants who have the personal financial specialist credential, which is similar to the CFP. Garrett also requires its planners to be fiduciaries. Hourly fees usually range from $150 to $300. A consultation focused on one subject, such as a portfolio review, may take two or three hours. A comprehensive financial plan that covers taxes, insurance, estate planning, college planning and other relevant topics could require 20 hours or more.
ADVICE-ONLY FINANCIAL. Financial blogger Harry Sit started his service to connect people with fee-only advisers who just charge for advice and don’t accept asset management fees. Sit’s concern is that advisers who do both will be tempted to push people toward asset management, since it’s more lucrative. Sit charges $200 to help people find fiduciary CFPs who are either local or, if none are available, willing to work remotely. The planners typically charge $100 to $400 an hour.
ASSOCIATION FOR FINANCIAL COUNSELING & EDUCATION. Not every tax return requires a CPA and not every financial situation requires a CFP. An accredited financial counselor or financial fitness coach can be a more affordable alternative. Coaches and counselors in private practice typically charge $100 to $150 an hour, although many work on a sliding scale, says Rebecca Wiggins, executive director of the association, which grants both credentials. Others are employed by the military, credit unions or other organizations and offer their services for free or at reduced charge, she says. These counselors or coaches focus on issues relevant to middle- and lower-income Americans, including budgeting, debt management and retirement planning.
“The main thing is that these professionals are affordable, unbiased, and highly trained,” Wiggins says. “Their focus is on the needs of the clients and establishing healthy financial management.”
