Confused about which stocks and bonds to buy? Need retirement planning advice? Don't know which mutual fund to invest in?
You might want to hire a financial planner, broker, money manager, accountant or other adviser. You may even want several advisers: an accountant to handle tax returns and tax planning, a money manager to handle stock and bond investments and a financial planner to coordinate your overall
Of course, tapping such expertise has drawbacks. Good advisers are hard to find and not cheap. Also, advisers are not a cure-all. They can't replace your need to understand financial strategies and devise your own financial goals.
And advisers cannot make you rich quick. If an adviser tries to sell you something that sounds too good to be true, it probably is. "Some of them are real frauds," said Stephen R. Jones, vice president of law and policy for the Council of Better Business Bureaus.
The following will help you pick the right advisers:
Financial planners. A good financial planner can be your overall investment coach, providing general advice on taxes, budgeting, insurance and investments. He or she will write up a plan to help you achieve your financial goals in the broadest sense, followed by periodic meetings to monitor your progress.
Unfortunately, the field is laden with potential traps. The profession is relatively unregulated. Almost anyone can call himself or herself a financial planner; one man even registered his dog as one.
Richard Williams, spokesman for the International Assn. of Financial Planners, the field's largest trade group, estimates that only half of the up to 100,000 individuals calling themselves planners are qualified, having passed certain tests.
The field is also full of conflicts of interest. Many planners are primarily insurance agents or stockbrokers and may be biased toward those products.
Fees can also be expensive. Most planners are compensated through a combination of fees and commissions, although some are paid one way or the other exclusively. Those depending on commissions tend to charge less, but their advice is more biased.
Fee-only planners usually charge between $1,500 and $3,000 for devising a financial plan, depending on the complexity of your financial situation, said Merle E. Dowd, author of "A Consumer Guide to Financial Planning."
"There are not a lot of really good ones, and the really good ones are expensive," Dowd said. The minimum annual family income needed to make a planner worthwhile is $80,000, Dowd said. Otherwise, you're better off reading personal finance books and devising your own plan.
The best way to secure a planner is through referrals from trusted friends, accountants, lawyers or other experts.
A free directory of planners can be obtained from the International Assn. of Financial Planning at 2 Concourse Parkway, Suite 800, Atlanta, Ga. 30328. A list of certified financial planners is available from the Institute of Certified Financial Planners, 2 Denver Highlands, 10065 E. Harvard Ave., Suite 320, Denver, Colo. 80231-5942.
Interview at least three planners. Make sure they have some type of certification. Among the most respected are the certified financial planner designation, or CFP, and the chartered financial consultant, or ChFC.
Also ask them about their strengths and weaknesses, and whether they have experience in dealing with clients with financial situations similar to yours. Ask for references of clients and copies of plans they have prepared for people like you. And ask how they are compensated. Have them show you their sources of commissions. If they won't, find another planner.
Accountants and tax practitioners. Accountants and other tax practitioners not only can help prepare your tax returns, but can also provide year-round tax-saving advice.
If your income is relatively low and your returns are generally simple, you could get adequate advice from any of several tax-preparation books on the market. Or go to a storefront tax-preparation chain such as H&R; Block. Its fees average about $50.
For complex returns, see a certified public accountant specializing in taxes. Their hourly fees range between $50 and $150, although fees are generally lower at smaller firms, which also are more receptive to serving individuals with lower incomes.
As is the case with finding other experts, the best referrals for accountants come from friends or other trusted associates with situations similar to yours. Lacking such referrals, you can flip through the Yellow Pages, although the listings won't indicate which CPAs are experts in tax preparation.
Interview several accountants before selecting one. Find out about their background and experience, their fee structures and their tax-planning strategies.
Also find out who will actually prepare your return. At many larger firms, the person who works on your return often is a lower-ranking employee, not the CPA you initially talked to.
Another alternative is to use a so-called enrolled agent. They are tax practitioners who have worked at least five years for the Internal Revenue Service or who have passed a demanding test administered by the IRS. They tend to charge less than CPAs, although they may have less expertise in tax planning. The National Assn. of Enrolled Agents has a toll-free referral service at (800) 424-4339.
If you have troubles with the IRS or special tax problems, a tax attorney may be for you. Their rates are steep, however, usually $200 an hour or more for good ones.
Brokers. A good broker can give you advice on individual stocks, bonds, options, limited partnerships and other investments, and then execute the transactions.
Such service has its drawbacks. Because brokers depend on commissions, they may try to get you to trade more frequently than is best for you. Brokers also may push securities that their firms are underwriting or trying to unload from their own accounts. Complaints filed with the Securities and Exchange Commission against brokers for such abuses have more than doubled since the current bull market began in 1982.
If you can make your own investment decisions and don't want such potential conflicts of interest, you may be better off with a discount broker. Their commissions are as much as 90% less than those at full-service brokerages, but their service is often just as good. Or use a discount broker for trades when you don't need advice and a full-service broker when you do.
Because you are paying full-service brokers largely for their advice, the key to selecting one is the quality of that advice. Use referrals from friends or associates, particularly those with investment styles similar to yours.
Interview several brokers before choosing one. If you don't have names of individual brokers, call the manager of a firm for a referral.
Ask each broker how long he or she has been in the business and whether he or she is expert in the investments you are interested in. Also ask for the firm's commission schedule and for copies of specific recommendations it has made recently. Determine how well those
recommendations have performed.
"Be wary of brokers who prom-
ise to make you a lot of money fast or who don't answer your questions responsively," Jones of the Better Business Bureaus warned.
Money managers. A money manager can be the ultimate in advisers. He or she will personally manage your portfolio of stocks and bonds, providing expertise and relieving you of day-to-day worry.
Such personal service has definite advantages. Good money managers can individually tailor your portfolio to your investment goals and risk tolerance, said Heidi Steiger, managing director of individual asset management at Neuberger & Berman, a New York-based investment firm.
But such service does not come cheaply. Most managers charge fees between 1% and 1.5% of assets under management. That's as much as $1,500 for each $100,000 you entrust to their care. Commissions generally come on top of those fees.
And money managers don't bother with small sums. Most gen-
erally require minimum assets per client of $100,000, and the best ones generally don't bother with sums less than $500,000, said Michael Stolper, a San Diego consultant who evaluates money managers. "If your choice is between a rookie money manager or a no-load mutu-
al fund, you're better off going with the mutual fund," Stolper advised.
Money managers also can be your financial undoing if you are not careful. Many star entertainers and athletes have lost large sums to poor investments or questionable practices by their money managers. Make sure that a bank or brokerage firm acts as custodian for your account, so the money manager does not have direct access to your funds but merely directs investments.
Many money managers work for brokerage firms, banks and money management firms. To find a good one, ask for referrals from your financial planner, broker, lawyer, accountant or other trusted associates. Brokerage firms will also help you find one, but be wary. Many will refer you to their own managers or to managers who direct trades to that brokerage.
Consultants such as Stolper will help you find a manager, but often for a hefty fee. Stolper, for example, charges $1,500 or more.
Interview at least three or four managers before choosing one. Ask them about their investment philosophy and select one that specializes in your investment style.