| NEW YORK, July 30
NEW YORK, July 30 The financial advice business
is changing dramatically in every aspect, from how advisers
spend their time, to what they charge, to how they label and
The result? Further confusion for consumers who probably
sought help to find clarity in the first place.
"Brokers" who used to pick stocks and sell mutual funds at
firms like Morgan Stanley and Bank of America Merrill Lynch are
now more likely now to call themselves "financial advisers" and
manage portfolios for fees instead of (or in addition to)
Independents who used to offer comprehensive advice are now
more likely to focus on investment management and call
themselves "wealth managers."
Charles Schwab, the online brokerage that made its name
catering to do-it-yourself investors, now is pushing its own
stable of are "financial consultants" and preaching the value of
face-to-face (or at least Skype-to-Skype) connections.
New to the scene are "robo-advisers" - algorithmically
driven online money management firms that will automate your
Further complicating consumer choice is the fact that most
firms have a variety of ways in which they offer financial
advice to clients.
At Vanguard, for example, a firm which promotes simplicity
in investing, there are nine different advice platforms. They
vary, based on whether a client is investing through a
retirement account or directly, how much advice a client needs
or wants, and how much money the client has to invest.
How can someone seeking financial advice navigate their way
through this complex field and make sure they get the right
advice? Here are a few things you should know now:
Assess your own needs. The first step is to figure out what
you want a financial professional to do for you. Do you want
comprehensive investment management? A whole-life plan that
includes everything from how to pay for college to tax reduction
to retirement planning? Just a reality check on your retirement
PAY FOR WHAT YOU EAT
Once you know what you want, it's easier to find the right
adviser. For a spot check or limited amount of planning,
consider hiring a by-the-hour adviser - you can find one through
the Garrett Planning Network (www.garrettplanningnetwork.com).
Want a comprehensive soup-to-nuts life financial plan? Look
for a fee-only certified financial planner (CFP) through the CFP
Board of Standards (www.cfp.net) or the National
Association of Personal Financial Advisors
LEARN THE LINGO
"Fee only" means that the adviser is not paid to sell
products and, if that person is a certified financial planner,
it also means she doesn't even own a small share in a financial
company that does sell products.
"Fee-based" is a meaningless term of art, typically used by
advisers who charge fees and reap commissions.
WATCH YOUR WALLET
There's a huge discrepancy in the amount of fees advisers
At Vanguard, investors willing to stick with Vanguard funds
can get basic fund choice advice for free and a comprehensive
financial plan for 0.3 percent of the assets they invest with
Traditional brokerage firms will offer broader portfolios
and go fee-only but at costs that can top 2 percent a year.
In the middle are most independent financial advisers, who
tend to charge fees near 1 percent of assets, more for small
accounts and less for bigger ones.
An extra percent or two, pulled from an account every year,
can cost a long-term investor hundreds of thousands of dollars
at the end of the day, so fees do matter.
CONSIDER GENERIC ADVICE
A lot of lip service is given to selling the idea that
everyone needs personalized and customized financial advice.
That's true for people who have ultra-high net worth, with
businesses, estates, tax issues and the like to manage. It's
also true of people who have very special situations, such as
handicapped children who will need lifelong care.
But it may not be true of the average Joe and Jane, who
simply need tips on how to invest their 401(k)or IRA fund.
Companies like T. Rowe Price, Vanguard and Fidelity will
give you basic fund guidance for free, or close to it.
REMEMBER THE ROBOTS
Companies like Wealthfront, Betterment and Hedgeable will
invest your money for you in diversified portfolios regularly
rebalanced and managed, if you need that, to minimize taxes.
They will charge pennies on the dollar of what a
face-to-face individualized money manager will charge, and in
some cases offer that for free.
They offer a reasonable solution for investors who know how
much they have to invest, don't need hand-holding, and are
comfortable turning their finances over to an algorithm and
sticking with passive index-linnked investing.
Here's encouragement: Over long swaths of time, those
passively-managed portfolios tend to beat the active investment
(Editing by Bernadette Baum)