Investing? Buy Sound Advice First

Q.Is it worth hiring a financial adviser if you don’t have a lot of money to invest? And if it is worth it, how do you pick one?

B.U .

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A. It is always worth getting the best advice you can possibly afford--and sometimes you can’t afford not to get the best help available before making your first move into uncharted territory. After all, if you are successful, your small nest egg won’t be small for long.

But before you rush off to consult a financial planner, take some time to understand the subject. This can help ensure that your questions are on target and that you understand the answers.

The shelves of libraries and bookstores are jammed with books that describe how to build an investment portfolio. Many of these primers are quite good and worth reading before you embark on any investment strategy.

Another initial step is to enroll in a course at a local junior college or university extension, both of which typically offer classes in personal finance and investing.

Once you are ready to consult a planner, you should realize that these advisers come with a variety of qualifications and methods of conducting business. Basically, anyone can claim to be a financial planner, so the consumer must be careful. Finding a good planner who understands your goals and investing temperament can be difficult, but it is not impossible.

As with choosing any professional, the best recommendations often come from friends or relatives who can share their experiences and advice. The family lawyer and accountant are also important referral sources. Ask these professionals whom they use for their own financial planning and to whom they refer their clients.

Here are some questions to ask planners you are considering hiring: How long have you been in this business? How have you prepared for this job? What job did you have before becoming a financial planner?

You might also ask the planners to give you the names of some other clients. Of course, they are not intentionally going to pass on the names of dissatisfied people, but you can learn a lot from clients who profess to be pleased with the services they receive.

Here are some sample questions: Would you select this planner again? What are his or her strengths and weaknesses? Are you faithfully following the advice given? What would you do differently if you had a chance to do it all over again? How has the planner’s advice made a difference in your financial affairs?

County courthouse records are another source you should check before hiring a planner. Search the criminal and civil filings for the names of the people you are considering, to make sure they haven’t been sued by a disgruntled client or, worse, charged with a crime.

Also ask to see copies of the disclosure forms the planner files with the Securities and Exchange Commission. Anyone selling registered securities and giving or selling investment advice must file an ADV Part II with the SEC.

Obviously, a planner who advises you to buy investments that pay him a commission has a built-in bias toward such investments. Many so-called financial planners are little more than salespeople who steer you exclusively to products of their company. You are not told about the full range of choices available--only those that would get the representative a commission. Typically, you don’t pay for the services directly; rather, the planners are compensated by the commissions they receive on the products they sell.

Advisers who charge a flat fee generally do not stand to benefit from recommending one course of action over another; however, their advice doesn’t come cheap. According to one study last year, the median price nationwide of a short-term financial plan was $300, while the median price of a comprehensive, long-term plan was $950.

In addition, a fee-only adviser may not be able to help a client carry out his or her recommendations. Clients may face additional fees for stockbrokers or insurance agents or others who must be consulted in order to execute the planner’s advice.

To determine that recommendations are not given merely to generate commissions, ask the planner to disclose how much money he or she would make if you followed the recommendations.

If you need help finding a fee-only financial planner, the National Assn. of Personal Financial Advisers in Buffalo Grove, Ill., can provide its members’ names and addresses. Call the group at (800) 366-2732 and leave your name and address on the automated response line.

You will be sent a list of the names of NAPFA members working in your area. In addition, members working near you will be notified of your interest and may contact you directly to follow up on your inquiry.

You can also find a fee-only financial adviser through the Licensed Independent Network of CPA Financial Planners. Call (800) 737-2727. Leave your name and address, and an association member in your area will contact you.

Real Estate: Are We in the Basement Yet?

Q. There are so many repossessed homes for sale in Southern California these days, and with interest rates rising, I am wondering if this is going to get worse. *

F.M .

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A. The most recent economic news out of Southern California has been somewhat encouraging, leading many to conclude that we have hit bottom and are slowly improving. However, there are still layoffs coming in the defense industry in Los Angeles and Orange counties. These could hit some neighborhoods quite hard, causing a spate of price-depressing sales.

Overall, however, experienced and savvy real estate buyers may find that today’s market offers many potentially great deals that could be scooped up before interest rates jump again.