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Originally published Saturday, February 2, 2013 at 8:01 PM

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Scott Burns: The value of having a plan

Syndicated columnist

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Just pick a retirement date index fund. MORE

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Investing

Q:Is there a wealth threshold at which you recommend hiring a financial adviser rather than going it alone with investing my own money?

I found a few financial advisers through the National Association of Personal Financial Advisors (NAPFA) to meet with. How do I evaluate the value added by these guys? Is a financial adviser likely to better my investment returns with his fee included?

A: There are two kinds of services that most people need. One is investment management. The other is financial planning.

All too often, both are mixed together. This tends to inflate the cost of managing your money.

If you can, you should work with your fee-only NAPFA adviser on a fee basis for financial planning, telling him or her that you want to focus on low-cost index funds for your retirement portfolio.

Here’s why: Let’s say your adviser offers financial planning and portfolio management for 1.5 percent a year of a $500,000 retirement portfolio.

That means their annual bill will be $7,500. Invested in a low-cost index fund portfolio, the actual management of your portfolio will cost about 0.1 percent a year, or $500.

Equally important, this portfolio is likely to provide a better after-expense performance than 70 percent of the actively managed portfolios.

The cost difference here is $7,000 a year. You should be able to get a whole lot of financial planning done for $7,000.

Questions: scott@scottburns.com

Copyright, 2013, Universal Press Syndicate

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