Should you hire a "fee-only" financial planner

[feeonly]

Does one ever need a ?fee-only? financial planner?

It is important to realize that a lot of investors can read and develop expertise to manage their portfolio. On this forum I find a lot of people who are very good and can for sure manage their portfolio for almost all need.

So when would one need a ?fee-only? financial planner.

If you are an emotional investor and tend to get away from your asset allocation by putting too much into very risky asset classes then you may be a financial planner will be helpful. To save you from yourself. Almost all investors get carried away but if you do too much harm to your portfolio then maybe the right professional is worth hiring.

When your interest in investment is not much then hiring the right financial planner to manage your assets could be a smart decision.

Lot of people do not realize that while they may be very knowledgeable, their spouse has no interest in the stock market or managing their portfolio. In an unfortunate event that one spouse passes away the financial planner can keep the finances steady especially considering the tough circumstances that they have to deal with.

When your situation is complicated a professional who deals with those issues on a regular basis would help you deal with them in the right manner.

There are more reason but these give you the idea.

I personally think that ?fee-only? are different from ?fee-based? (sounds similar) or commission based financial planners. A number of those who claim to be financial planners or financial consultants are just sales people. These sales people may not have much to gain by taking care of the investors as their earnings are based on commission when they get someone to be their clients and do not manage their assets.

?Fee-only? financial planners have no conflicts of interest and only get paid by their clients. Like doctors and lawyers ?fee-only? financial make sure that their clients interest comes first. Also, they are fiduciary and hold themselves to a higher standard.

It is possible that my views are biased and would want to hear from all of you guys.

[nand]

Go through the AAP's in this forum. There is enough valuable info for free out here. If you subscribe to the theory of index investing then ther is enough advice here on how to construct a portfolio and maintain it with low time investment. I dont see what a fee based planner can offer more than what you get here.

[feeonly]

It takes more to knowing a person than through blogs and creation of asset allocation and assessing one's individual situation.

A good "fee-only" financial planner will take the time, understand more than what you would reveal to everyone on the web and also follow your situation as it evolves and changes. For whatever reason if you do not take the time on a continuous basis it could cost you. If the financial planner charges you a very very competitive fees the services may well be worth it.

[RajanS]

OP

Are you a "fee only" financial planner?

[feeonly]

Yes. But I want this to be a discussion on fiduciary working for you. Why fiduciary because sales people have given this profession let us say a negative feelings to the average investor.

The investor thinks that all people who are related to investments are in the business of sales. I think that the average investor is right. But there are responsible professionals that I think have gone on to become "fee-only" financial planners who I will classify as fiduciary. The sales people from banks, insurance companies have made the task of a fiduciary very very difficult.

I have no doubt that there a number of people who can manage their investments and this forum has a number of them. On the other hand there are a number of those on this forum that I think should go to a "fee-only" financial planner.

Why would paying someone for hard work be a bad thing? If you do not know what you are doing and become emotional in times like the past couple of weeks.

Instead of investing being an expensive place to learn, pay somebody who will do you right.

[nand]

feeonly - I dont mean to rain on your parade. More power to you. Read this article:
http://www.marketwatch.com/news/story/quarterly-update-lazy-portfolios-still/story.aspx?guid=%7B33325373%2DCDCA%2D4A95%2D9937%2D301D1E3E7E8D%7D&siteid=yhoo&dist=yhoo

Even mutual fund mavens have a simple AAP of index funds which works for them - refer the article, index investing is a nobel prize winning concept - Modern Portfolio Theory, Efficent Frontier etc. More than 90% of active mutual funds fail to beat the indexes. Without knowing you I can say with 90% confidence that you will not beat an index portfolio.

I am not against planners. The question is what fee? If it is 1-2% regardless of performance then it is excessive. If it is a nominal fee plus a greater commission percentage for beating an index portfolio that is mutually agreed upon then I think that is good. Very few financial planners agree to that and generally I have found personal financial planners to be lay folks who taken some basic training - the CFP is not that difficult to pass. They are not typically CFA's or top school MBA's or some such - these types become private bankers.

I dont think I need a planner, but yes I think there are people who could use a planners services
if they are too busy or too ignorant. good luck.

[RajanS]

OP

If you are soliciting business - so be it. Best way to gain credibility with this group of members is to actively engage in finance discussions. We will be able know what your view points are. If you search through the finance/aap threads you will find the wealth of information ingrained.

You are correct to say that fee only planners are better than 'regular' financial planners who sell based on what commission they will get. "Fee only planner" is not a sufficient condition. It is only a necessary condition.

[feeonly]

1. We completely believe in Indexing and unless there is a very strong reason to use a non-index mutual fund we use index funds.

2. I do not want members here to think I am soliciting business. My objective of this discussion is to understand the objection to work with a financial planner and educate them about the benefits of a good financial planner - someone who is a "fee-only" financial planner.

3. While most people worry about fees their worry should be their capability of handling their own retirement money.

4. I don't think that everyone can follow lazy portfolios or advice from experts on R2I to build the right asset allocation or understand their own risk tolerance in every life situation or not get carried away.

5. If the fees are fraction of the 1-2% and the financial planner does the following then they may be worth considering:
- interest completely aligned with the clients interest
- devotes time to understand your investment needs in every stage of your life

On the other hand I do agree that some people with a lot of interest and discipline in this topic will manage their money very well.

If everyone reading money magazine or following lazy portfolios could do it then how come so many got carried away in 2000 - 2002.

If you did the right thing in the late 90's then you should not have gotten hurt in the 2000-2002 period. Your portfolio should have held up even in those years.

Everyone thinks they are brilliant in a bull market - the more important question is how brilliant are you in a correction or bear market.

[layman]

1.
5. If the fees are fraction of the 1-2% and the financial planner does the following then they may be worth considering:
- interest completely aligned with the clients interest
- devotes time to understand your investment needs in every stage of your life

On the other hand I do agree that some people with a lot of interest and discipline in this topic will manage their money very well.

If everyone reading money magazine or following lazy portfolios could do it then how come so many got carried away in 2000 - 2002.

If you did the right thing in the late 90's then you should not have gotten hurt in the 2000-2002 period. Your portfolio should have held up even in those years.
[/quote]
Isn't this timing the market.
[quote]
Everyone thinks they are brilliant in a bull market - the more important question is how brilliant are you in a correction or bear market. [/quote]
When you say 1-2% fee, does it apply for loss also? If an investor had a finanacial planner and the portfolio went down in an year by 10%, will the financial planner pay 1-2% of the 10% loss to the investor?

How many fee only financial planners were managing portfolios with profits in 2001-2002?

Will a fee only planner use investment instruments not known to the common man (stocks, bonds, annuities)?

I am not against a fee only planner. But, these are logical qns any smart investor would ask.

[Desi]

Clearly, there are people who are savvy with their money and can manage their own money.

However, there are 14000+ mutual funds out there and the amount invested is trillions. What this says is that not everyone is indexing and in fact only a small percentage does.

If indexing is the winning approach, then certain financial planners may bring value to those people.

Just as there are people who do not need financial planners, there clearly are people who need financial planners. These are people who do not want to figure out on their own, their retirement needs, their tax optimization, their investment AAPs and funds (even if index).

Sure most people can invest well if they put in a little bit of effort and bought into the right advice such as provided in this forum and by Vinod and others.

But yet, there are people who have read "Total Stock Market" many times here but yet can't name a fund or do not understand the difference between SPY or VFINX and so on.

So, there is no question that there are people who either are unwilling to put in even a little bit of effort to manage their own money (those that need spoon feeding and yes there are people like that). These people will benefit from a financial planner.

The big question then is which financial planner. Of course, without question it should be the one who is well aware of his fiduciary responsibility and executes per that.

A financial planner that gets paid from the load on the funds, from commisions on annuities and life insurances, etc clearly has a conflict of interest. So no question, that if one needs a financial planner then it should be a fee only planner.

The net of it:

1. There are investors who can well manage their own money.
2. There are investors who with right guidance can manage their money fairly well - it would require some effort on their part.
3. There are investors who need a financial planner to help them manage investments. They either do not have the aptitude and / or even a little bit of time or inclination to put in effort to manage their own money.
4. People who fall in the category of #3 above, should select a fee only planner.

Lastly, for the people in category #3, the fee charged by the fee only planner becomes important and should be negotiated well.

A fee only planner should be viewed as a guide, who charges for guiding the investor. Guiding does not mean assuming losses of the investor. We know that both RRK and myself have been approached by members to provide them investment counsel for a fee. So clearly there are members and investors willing to pay for investment counsel and especially the ones that fall in category #3 above, such counsel should be fee only planners whose fee should be well negotiated.