Financial Advisor hiring

[rockford33]

I am looking into hiring a financial advisor. My wife and I met with one last night. I have some concern over the fees charged. My wife met with another advisor today (for work, she is in outside sales). She happened to mention that we had met with an advisor and the fees charged. The gentleman she was meeting with stated that the fees were fairly high. Is there any way I can compare fees? While I don't necessarily want to go with the cheapest, if the average is $400, I don't want to pay $1000. He might be worth it, depending on others fee structure (maintenance fee, etc.), but Iwould like to research it some more.

Thanks.

[vendigirl]

It's hard to answer your question because who you go to and how much you pay depends on your personal needs. You could go to a financial planner who doesn't sell investments. They can give you a plan and some references for people who can help you set up your estate, but they charge more. The upside to this is that they will usually give you objective advice because there is no comission involved for them. You could go to a full service planner/broker and pay fewer fees but have to factor in the commissions and always be aware that the commission aspect may be driving the advice they give you.
Decide how independent and knowledgable you are with your estate planning and investing and look for someone who fits that need. Then start to shop around and ask each person up front about the fees involved.
From personal experience, we have been through a number of different advisor/brokers. They seem to move around a lot or change to a specialized area and then we're out looking for someone new again. One thing we always found was the push to overinvest- which can only be attributed to the advisor's desire to earn a commission. We don't feel the need to leave a million dollar "estate" to our kids.
Dh and I are only into mutual funds and other fairly low key methods of investing, so we finally took our financial planning on ourselves. We invest directly online and have done numerous worksheets to help us determine where we should be with retirement planning. That may be a consideration for you as well. Good luck!

[terry1156]

Why do you need a finacial advisor?

I ask because there is a good chance you don't. There is this perception that financial advisors have special knowledge and you are going to have safer investments with them. I would opt for an stock index fund at 70%, bonds at 30% investing after your 401 K or IRA has been maxed over the advice of 95% of financial advisors if you are looking into retirement investing.

If you have estate or tax questions, then it may pay to hire a financial advisor. Here again, I would ask friends or people you trust if they have a good recomendation in this area.

If you haven't paid off your credit cards, student loans, mortgage in full, then there is no need for a financial advisor. Take care of those first.

Let us know why you need a financial advisor.

[rockford33]

Vendi and Terry,
Thank you for your responses. The reason I am looking into hiring a financial advisor is because I recently received a large inheritance. At this point, I have $70,000 to invest, with the final disbursement of approximately $20,000 due before Christmas (waiting on the lawyers to close the estate). All credit card debt and student loans were paid off from the initial disbursement (originally $108,000). Also paid off one car loan, wedding, and honeymoon. The only debt my wife and I currently have is our mortgage (bought our house last year, still owe around $188,000), and her car loan. Due to the significant amount of money received, I would like to make sure it works the most for me, my wife, and our future family (just got married this summer).I cuurently contribute to my 401(k) plan at work (7% of salary, unfortunately company does no matching), as well as having an IRA. At this point, I do not have a lot of time to do research in various investments options (wife is have surgery after Thanksgiving and I am studying for my Professional Engineering exam). We thought of hiring a financial advisor in order to provide a financial check-up and provide investment recommendations, as well as setting up the accounts necessary. In addition to the inheritance, we have some savings ($10k for emergencies, $4k in money market). The AmEX advisor was recommended by a friend of my wife whom she used to work with. Any advice is appreciated. Thanks.

[terry1156]

First, congratulations on doing the smart thing and using the unexpected money to pay off your debts. You have put yourself in a great positions to start building a a nice nest egg.

What is the rate you are paying on your wife's car loan? Depending on what that is, you might want to consider paying that off.

A financial adviser can be of help, but (in my opinion) what they really should be doing is making sure you haven't forgot something that you may not have considered. That is to say, the best way to use them is to come up with a plan that you think is a good way to invest the money and let them check to see if you have forgotten something that you should think about.

I also don't think finding a financial adviser (again my opinion) should be something that you rush into. If you are going to give someone the say over a large amount of you money, you want to have complete confidence in them.

If I were in your situation, this is what I would do. I would pay off your wife's car, but continue to make the monthly payments into a "car fund" (a very timely idea with Jeffrey's challenge today). That way the next time you need a new car, you'll be able to pay cash for it instead of take out a loan.

I would take the rest and place it into an stock index fund. These give you the breath of the stock market and have minimal fees and historically have done better than the vast majority of "expert managed" funds and make sure that you continue to contribute the maximum you can to your IRA.

Do you need a financial adviser? I'm not sure you do unless there is a specific area you need help with. You seem to doing the right things on your own so far and I don't know how much better a financial adviser would have been.

Another option would be to put a portion of the money to your house loan. This would take a nice chunk off of it and save you quite a bit in interest. The issue there is that you don't have much liquidity if an emergency comes about and you need to use the money.

[rockford33]

Terry,
Thanks for the compliments. I learned a few years ago to "pay myself first" by paying off my high interest credit cards. After paying them off, I had them reduced my annual APR, and always paid off my balance in full every month (usually, I just tried to pay cash for everything).

I certainly don't want to rush into anything with a financial advisor. Given the amount of money I have available, plus what an advisor would charge, I am trying to be very cautious. On the other hand, I also want to be proactive and not adopt the "I'll figure out what to do next week" attitude. I have actually had the initial disbursement sitting in an account since September, collecting dust. I want it to start working for me. Being fairly young (30), time is on my side. But there are a lot of things I want to do with this money. For instance, set up a college fund (even though we don't have kids yet they are in the not-too-distant future, and it is never too early to start). I am always concerned with tax implications of what I choose to do. My wife has no retirement savings at the moment, so we are going to get her started (especially at work with a 401(k)).

I seem to have been fairly smart up to this point with what I need to do, but I have also been dealing with smaller amounts of money. This is a large chunk of change. Could I do better than a financial advisor? Maybe. It would cost less. Do I need one? I think I am going to meet with some others, including NAPFA approved fee-only advisors, and make my decision then.

[robby]

How much did you put down when you bought your house? If it was less than 20%, you may want to make a payment to get under the 20% so you no longer need to pay PMI insurance. I had a friend do this and it saved him alot of money.

[rockford33]

Robby,
I thought about that and I don't think it makes sense in this case. We got an FHA loan and only put down $3000. On the FHA loans, the MIP goes away once you have paid off 22% of the original loan. In our case, we would need to pay an additional $38,000 to get rid of the MIP. I think I have read the re-appraisals do not count towards anything (in other words, any equity doesn't count towards the the 22%, from what I understand), so increased home value would be of no help. Our MIP is about $200/month if I recall correctly. This is a starter home for us and we plan on being here only another 5 years (long enough to be fully vested in my company ESOP, which costs me nothing but is free money). So 60 months x $200 is $12,000. I think I would rather invest the money so on our next house we can put 20% down and not worry about MIP. Plus, houses in our area have been selling for around $240k, a 21% increase since we bought our house. I plan on using the extra when we sell our house to put down on the next house. If we had put down 10% or so originally, I would think about it more seriously. Thanks for the input.

[rockford33]

I just want to say that there has been some really good discussion as a result of this post. I am glad I found this website and appreciate everyone who has offered advice. Thanks.

[vendigirl]

If you plan on selling your house in the near future, you're better off not investing that money into the house. You're on the right track. It sounds like you really should go with a fee only planner. Investments can be made after you have a plan. With that amount of money you really need objective advice.
No matter which way you look at it, investing the cash at least for the short term is the only way to go. I think you and your spouse really need to decide on your priorities before you go to any advisor. For example, I am a firm believer that one should pay off mortgage debt before going full out into retirement planning- if you have the luxury of the time to do that- which you do. Then again, many others disagree with that stance and prefer to put the whole lot of cash into a good diversified portfolio and let the compounding interest work for you. It depends so much on your own personal values and philosophies. You need to determine those first and go from there.
It sure is a nice "problem" to have!

[terry1156]

It looks like you have thought things through well. Absolutely go with a fee based financial adviser. And approach you first meeting as if you are interviewing them. Let them give you advice and see if it matches up with what you think is correct.

Before you go, sit down with your wife and plan out your financial goals. If you can go in saying "these are our financial goals - how can we reach them?" you will be much better off than saying, "I have $xx - what should I do with it?"

Good luck.