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Originally published February 26, 2007 at 12:00 AM | Page modified February 26, 2007 at 11:34 AM

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How to pick financial planner who's best for you

What a difference a few years make! In the late '90s, nearly everyone who invested in stocks was a winner. Investors watched their portfolios grow by double digits and gleefully planned for early retirement.

Special to The Seattle Times

What a difference a few years make! In the late '90s, nearly everyone who invested in stocks was a winner. Investors watched their portfolios grow by double digits and gleefully planned for early retirement.

Fast-forward to the humdrum 2000s. Those early-retirement dreams are as unrealistic as a near-term Microsoft stock split. Now we have to actually know something about risk, yields, rates of return, and a financial-simulation tool called Monte Carlo.

That leaves some people feeling over their heads and in need of a financial planner. But how do you find a qualified one who suits your needs?

Here are some questions and answers to get you started.

Q. What type of planner is best?

Red flag

The state recently issued a public warning about fraudulent practitioners holding themselves out as "senior specialists."

These so-called specialists, many of whom are not registered with the state, were found to target senior investors through seminars where the specialist reviewed seniors' assets, then recommended liquidating securities or other investments and using the proceeds to purchase investment products that the specialist offered.

A . That depends on what you want the financial adviser to do for you and how much you're willing to do, suggests Steve Juetten, a fee-only independent registered financial planner in Bellevue who charges by the hour.

Do you want help with estate or college planning, stock picking or advice on how to withdraw cash from retirement accounts without running out of money?

Will you need hand holding, or just a financial plan that you can carry out on your own with occasional checkups?

Once you decide what you need, ask people you trust for referrals. Seek someone you'll feel comfortable divulging your financial information to, suggests Kevin Schulz, a Bellevue fee-based independent financial adviser.

Research at least three professionals, asking questions about their education, experience, certificates, licenses, philosophy on investing and clientele, says Schulz, who also is board chairman of the local Financial Planning Association.

Here are a few things the experts say you'll want to check for:

• Are their typical clients similar to you in account size?

What's their investment track record? Ask for what kind of returns clients with your risk tolerance and investing timeline have achieved.

• Have they been in business at least three to five years? Everyone has to start with a first client — but it doesn't have to be you.

What did the professional do before offering financial advice? Someone's previous work experience might give you a clue to what kind of bent or tilt they would have in the advice they give you; for example, someone coming from the insurance industry might tend to favor insurance products, like variable annuities.

• Besides regular schooling, what financial education has the adviser undergone? Generally, advisers who pursue additional instruction receive a professional designation (such as CFP for certified financial planner, ChFC for chartered financial consultant or PFS for personal financial specialist). Find out what the designation means and what it takes to earn it, experts say.

"Some of them require a lot of educational training and have experience requirements, continuing-education requirements and very strict testing," says John Gannon, vice president of investor education for the National Association of Securities Dealers. "With others, you pay a couple hundred dollars and take an online four-hour course and get a certificate."

He cautions that anyone can call himself a financial planner — "that term has no legal meaning." For the lowdown on designations, check out the NASD's Web site at www.nasd.com. Look for someone who won't just leave you hanging after the plan is finished, Schulz says. "The biggest impact is ongoing follow-up with people. Helping people accommodate the changes in their lives.

Q . How do they charge?

A . Typically, some charge commissions on products bought and sold, like a stockbroker does, and others are fee-only — they charge by the hour or a flat fee, or receive a percentage of a client's assets that they are managing — or a combination of the two.

For a comparison of relative costs, which clients planners suit best and the services offered, see the accompanying chart.

While there are good (and bad) planners in any category, each method of paying for services may provide slightly different incentives for the people giving you advice.

Consumer advocates tend to favor fee-only advisers who don't have a financial incentive to sell clients' products. However, a full fee-only plan may cost about $2,000, so if your net worth is about $25,000, for example, that would be about 8 percent of your net worth.

You might be better off at your bank or insurance company, which usually offers free advice and sells products on commission.

Q . Is there a way to check them out?

A . "Investment advisers," or those who give advice on how one should invest their money for a fee, must register with the Washington state Department of Financial Institutions. They can register after they pass an exam or if they're accredited by a trade organization that offers such accreditations.

They must apply with the state, which will verify whether they've passed the test and will look at information and contracts they plan to give to clients, says Bill Beatty, the department's program director.

The public can then check with the state agency — by phone or online — whether an adviser is registered.

Also whether there are: complaints, legal judgments, government orders against them, bankruptcies or criminal charges.

Andrew Ledbetter, associate general counsel of the department's securities division, notes, however, that many larger investment advisers register federally with the Securities and Exchange Commission and not with the states. These larger advisers submit notice filings to the states.

"It would be a red flag if the adviser were not registered at all — either with our state or federally — or if the adviser had not made any filing with our state — either a registration application or notice filing," Ledbetter says.

 

Types of financial planners

Who provides what, for how much

  Commissioned Salaried Fee Hourly
How they're paid Paid when products are sold. They get commissions on products they sell to you, as well as fees from mutual funds they sell to you. Paid a salary by the financial institution that employs them, like a bank. They sell the financial institution's securities and products and they have an incentive to sell specific products related to that financial institution. Client pays a percentage of assets under management and/or a fee to produce a written financial plan. Client pays by the hour for the work done (like they would a lawyer or accountant).
Relative cost to the investor Generally the cheapest option for small accounts that have few trades; more expensive for larger accounts. Varies depending on the size of the account. Consultations are generally free but costs may be associated with product purchases. Annual fees range from 0.75 percent to 3 percent of assets under management. Rates range from $125 to $200 per hour. A good hourly planner will give clients a fixed fee and will not exceed that. Generally this is the second- cheapest option. Planners have to serve a lot of clients to make a living this way.
Client type Less-sophisticated individual with less than $50,000 in assets to invest. Existing customer of the bank or institution that employs the planner. Client pays a percentage of assets under management and/or a fee to obtain a written financial plan. Often the best choice for those with $1 million or more in assets under management. For those who want to invest and/or buy products on their own.
Services offered Provides financial services oriented toward investments. Comprehensive. Looks at a client's total financial picture, helps client develop an overall plan looking at retirement, life insurance, college education, taxes, estate planning. Comprehensive. Looks at a client's total financial picture, helps client develop an overall plan looking at retirement, life insurance, college education, taxes, estate planning. Comprehensive. Looks at a client's total financial picture, helps him or her develop an overall plan, looking at retirement, life insurance, college education, taxes, estate planning.
Sources: Steve Juetten, Juetten Personal Financial Planning; Kevin Schulz, Kevin F. Schulz & Associates; Robin Tan, KMS Financial Services Inc. Material from The Baltimore Sun was included in this report.

 

More resources

The Financial Planning Association:

Most members have earned the certified financial planner designation, which means they must pass a comprehensive examination and continue to meet the education, experience and ethics standards. Fee-only as well as fee-plus-commission and commission-only planners. 800-322-4237 or www.fpanet.org

The American Institute of CPAs will give you a list of the CPAs in this state who are also personal financial specialists, meaning they have at least three years experience in personal financial planning, have passed a test and have taken continuing education: 888-999-9256 or www.cpapfs.org

The National Association of Personal Financial Planners: Fee-only advisers; members must meet entrance and continuing-education standards and comply with the group's code of ethics. 800-366-2732 or www.napfa.com

National database on licensed investment advisers:

www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx

Washington state Department of Financial Institutions Securities Division:

800-371-8303 or 360-902-8760.

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