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Many people, whether from lack of knowledge, time, or interest, don’t wish to bother with personal finance. They no more want to design their retirement portfolios than they want to prepare their own tax forms or cook their own food. A lot of these people, including many Legal Times readers, seek outside help. According to the paper’s most recent readership data, 37 percent of Legal Times subscribers use a broker, and 30 percent use a financial planner. Hiring an outside adviser brings risks. Previously I warned about problems that can arise. Fortunately, good advisers do exist, and some simple criteria can help you find someone honest and capable. PAID ONLY BY YOU Focus first on how the adviser is paid. Advisers are compensated in different ways, and — surprise! — these compensation mechanisms can influence the advice you receive. The key term to look for is “fee-only.” This means that the adviser is compensated solely by you for providing what should be disinterested advice. Fee-only advisers do not receive any funding from outside sources such as mutual funds or insurance companies. (By comparison, commission-based advisers are compensated through “loads” and “12b-1 fees.” Basically, they get paid for selling you certain products.) Some advisers charge fees and receive commissions, essentially getting their customers both coming and going. They may call this system “fee-based” or “fee-plus,” which sounds confusingly similar to “fee-only.” Because of the variety of terms, it’s good to clarify explicitly how your adviser will be paid. Among fee-only advisers, most will charge an annual fee that is a fixed percentage of your assets being managed. Typically, this runs about 1 percent. But you can do even better. Look for a fee-only adviser who charges by the hour. The billable hour isn’t perfect, as lawyers know all too well, but especially for those with larger portfolios, it can be cheaper over the long run. Once you have an investment plan, the annual work of maintaining your portfolio is often something that you can easily do yourself. It’s just not worth 1 percent of your money every year. SIGNS OF COMPETENCE Of course, disinterested advice isn’t necessarily smart advice. How do you judge an adviser’s competence? One way is to look for credentials, but be careful. Some acronyms after an adviser’s name don’t actually mean a whole lot. It’s not like a J.D., M.D., or CPA, where the degree indicates a substantial intellectual achievement. The program leading to the designation of certified financial planner, or CFP, does set reasonably rigorous requirements. Applicants must first meet an education requirement in one of three ways: taking a series of approved courses, submitting a transcript showing the completion of equivalent classes, or holding certain professional credentials (licensed attorney included). Applicants then sit for a test on financial planning principles, ethics, insurance, employee benefits, investments, income taxes, retirement planning, and estate planning. In 2006, the pass rate on the test was around 58 percent (as compared to 67 percent for attorney bar exams), so the exam is not a joke. Those with the full CFP certification must also have at least three years of full-time relevant experience. To renew their certification every two years, they must complete another 30 hours of continuing education. Last but not least, certified financial planners must agree to follow the ethical rules of the Certified Financial Planner Board of Standards. The board has a disciplinary system, which can issue a private written censure, make a public rebuke, or take away the individual’s CFP designation. Increasingly, it seems that the financial planning industry is moving toward the CFP standard. Nonetheless, other designations have merit, including chartered financial consultants and CPAs who have chosen to specialize in personal financial planning. And some excellent advisers don’t have any of these qualifications. Another way to check up on an adviser’s basic ability is to look at the record of complaints against him. The Financial Industry Regulatory Authority, formed in July by NASD and the New York Stock Exchange, provides a “BrokerCheck” through its Web site. The absence of complaints is not proof of honesty — angry clients are usually more interested in getting their money back than in making a lot of noise — but the presence of complaints should be a warning. FINDING A NAME How do you actually find an individual adviser? The CFP board provides a searchable directory on its Web site, and the National Association of Personal Financial Advisors will list local fee-only advisers. If you specifically are looking for fee-only advisers who charge by the hour, you can go to the Web site of the Garrett Planning Network, which lists its members, who will meet these fee criteria. Network members also are either CFPs or actively working toward that designation. Network members focus on providing financial advice just “when you need it,” according to founder Sheryl Garrett. She likens getting financial advice to “going to a dentist or a lawyer”: You obtain professional services as required but don’t need to hire the adviser full-time. (Garrett also says that lawyers were among her main personal clients. They apparently appreciated the use of an hourly billing rate, she says.) With the Garrett network advisers, you can ask a small-dollar question or get a second opinion about your own (or another adviser’s) plan. According to Sheryl Garrett, rates may run from $150 to $300 an hour for the adviser’s time and are commonly billed in six-minute increments. Most of the Garrett advisers work as solo practitioners or in small firms. The Garrett network has around 290 members, as compared with about 56,000 CFPs (and, according to 2004 government statistics, 158,000 personal financial advisers overall). They are clearly a minority, but I think their approach has a lot to recommend it. (But, of course, no guarantees.) BUILDING YOUR PLAN Beyond someone who is fee-only and knowledgeable, you want an adviser who will explain things clearly, who will help you become better informed, and whom you’ll be comfortable with. Remember that we’ve all known first-rate lawyers who lack a rainmaker’s personality. Flash and charm aren’t critical. A good adviser should assess where you are financially and where you want to go before suggesting how best to get there. Good words to hear in that initial meeting include “broad diversification,” “balanced portfolio,” “low cost,” and “index funds.” In developing a comprehensive plan, issues of taxes, insurance, and estate planning — not just investments — should come up. Most importantly, listen and learn and think before acting — and don’t hire anybody who discourages that. With or without an adviser, you do need to understand your personal finances.
Robert L. Rogers, associate opinion editor at Legal Times , writes the Legal Tender column on personal finance. E-mail Rob with comments or suggestions for future columns.

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