Please help me interview a financial planner

[Kelley]

Here's the situation: We need a financial planner. A friend has given us two names.

One is young and new with an office far from us (about 60 miles). But, he comes with a more enthusiastic recommendation. He works under his FIL.

The other is nearer and more convenient. He's more established. And, although he's a quality guy, his reference didn't "shine" like the newbie's.

We'll meet with each (separately) and choose to stick with the one that seems to fit us best.

What "job interview" type questions should we ask? Prior to our first meetings each one will have a snap shot of our financial situation. So, do we probe about our own finances? Or, stick to questions about his qualifications and philosophy?

Our financial situation is quite healthy, maybe even enviable, for "regular people." I think both these guys will want us as clients.

Any suggestions? Thanks.

[sweeps]

First I would ask *you*, do you really need a financial planner? Mutual fund companies like Vanguard, Fidelity, and T.Rowe Price have made investing cheap, simple and effective. Just a suggestion.

The FPA (Financial Planning Association) has a checklist you may want to use. Good luck!

[Kelley]

Thanks for the checklist. We'll use it during our meetings.

Is there a simple litmus test to determine whether we really need a planner? We have accounts at both Fidelity and TRP. So, if they can meet our needs, I'm willing to look into it.

[sweeps]

I don't think there is a litmus test per se, but I think most people do not need a financial planner. There are exceptions -- I don't know your personal situation of course -- but what you don't want to do is hire a FP as a substitute for getting educated on your finances. Why? Because you can't be sure the FP is performing with your best interests unless you know and understand what they are doing. (And then if you know and understand what they are doing, why not save the fees and commissions and do it yourself?)

I think this blogger says it well.

Even people who don't want to be bothered with retirement planning have a simple choice. Open an IRA at V/F/TRP, auto-deposit money in a lifecycle fund, and then just watch your statements once a quarter. Piece of cake. And expenses are less than a penny on the dollar.

And if someone needs a cheerleader for saving and investing, then simply come here.

[Kelley]

OK. I read the blog. And, maybe I'm dense or scared, but I still think we need a planner. I think our situation is complex, which seems to be one of the reasons to use a professional. I'll describe our situation briefly here. If you don't think this is complex, please say so.

Husband and I are 43.
He's successfully self employed; I'm middle management at a $6B company.
$650,000 saved for retirement (my "portable" pension, my 401k, his SEP, Simple, Ind 401k, and a 401k rollover.)

2 kids (13 & 15) possibly heading to Ivies
Each has about $60K for college: three 529's, kiddie savings, and some inherited stock

I just inherited 1200 shares of stock in a financial services co. Mentally, this is earmarked as extra college $$.

We have cashed out a $30K CD (at maturity) in order to put it someplace better. It's our "emergency fund in case of a really really really bad emergency." Where to put it? (The first-line emergency fund is a MM/checking.)

Our term life ins is about to expire. Husband may need to rebalance his VUL policy.

I want to remodel the kitchen and the rear deck then add a patio. ($75K project) Husband and I have agreed that I can go forward with it as long as we don't incure debt. Other than a monthly savings plan, how can this be accomplished?

We have no debt other than one mortgage. 50% equity. No HEL or HELOC. No CC debt.

Husband's little company is highly solvent and has at least a year of his salary in reserves.

So, are we complicated enough for a planner? Or are our needs basic enough to go it alone?

Really, I'm not trying to be flip. I'm actually struggling here.

ETA: We have 5 parents. 3 of them will need our financial assistance in old age.

[sweeps]

Yup, I admit, that's complex. (That's the first time I ever heard of someone having a SEP, SIMPLE and Individual 401k all at the same time. ) If you need the help of a pro, you need the help of a pro. In your interviews with the planners, try to get an idea of what they have planned for you.... I just hope they don't make your situation more complex. If they try selling you more VUL's, I would walk.

[Scanner]

I'd find a CPA/CFP and pay them the fee. If one of those you chose had the credentials, I'd go with them.

The reason they both "want you" as clients as opposed to the average Joe is many financial planners are reimbursed on assets under their control/management.

So, they'd rather have someone with a $650,000 net worth vs. a person with a $65,000 net worth.

I think most of the forum would forward that if you need advice, "fee-based" is the best vs. mutual fund loads or other products. Given your situation and complexity, I'd expect to pay $800 to $1500 for a full financial analysis and plan. I edit this reading Sweeps blog in saying yes, I agree with the blogger - what I mean by fee-based is an hourly fee for his expertise.

As I said in the other thread, most financial advisors are really not more than mutual fund salesmen. I'll except the above credentials.

[anonymous_saver]

Actually, while your situation may sound complex. I really do think you can handle this with the two of you and just educating yourselves. You only have one piece of debt (the mortgage) so that makes this a bit easier to work with. May I ask what your goal(s) will be with a financial advisor?

Also, as far as your $30,000 earmarked for an emergency. How much of an emergency fund is your goal? For example, if your monthly expenses were $2,500 and your goal was to have 8 months of an emergency fund then you would have a $20,000 emergency fund. If it is the case that you have more than your goal emergency fund then I would use the extra $10,000 to go towards your new deck or your 529 plans. Also, as an emergency fund, your money should be in a high interest online account like EmigrantDirect where you can earn 4.75% interest currently (there are many other options online though, I just wouldn't have it in a CD). By the way, you have $30,000 set aside plus one years worth of your husbands salary set aside? I think this would be too excessive of an emergency fund, I would think of cutting this down to at least one years worth of expenses.

As far as all of the retirement accounts, I would probably start consolidating some of the accounts within an IRA. In particular, I would put your rollover 401(k) into a Traditional IRA immediatley, since typically you can have much better mutual funds to choose from when you leave an employers plan.

Just my thoughts anways...

[kv968]

I don't think your situation is that complex. If anything, it sounds as if a good tax consultant would be more beneficial in your situation than a financial one (ie. he/she could make sure your kids' educational money will be distributed in the most tax-efficient and penalty-free way).

However, if you would like to consult a financial planner, I agree with the others and would say to get a fee-based one and not one that's going to take a commission from your overall portfolio or sell you loaded or high expense ratio funds. Even if you do get a fee-based consultant, it definitely couldn't hurt for you to learn a bit about investing and the products involved so you know what they're talking about and know whether or not it's all on the up and up.

[Kelley]

Thanks for all the input, everyone. This has been very helpful.

[Ima saver]

I agree with most, Kelley, I think you can handle this on your own by using a good mutual fund company. Get some good books on financial planning and start reading them. That is what I did.

[kv968]

And remember, if you've got any other questions about certain mutual funds, mutual fund companies or just investing in general, feel free to ask here and you're sure to get some opinions on them as well.