How to find brilliant, affordable financial advice

Today’s era of do-it-yourself retirement planning has created a booming market for financial advice. From bankers and brokers to a cacophony of advisors bearing a befuddling array of professional designations, there’s no shortage of professionals willing to help when you don’t want to go it alone.

But beware. Financial advisors are not all alike. And where a good advisor can help you calmly amass the money you need to fund precious goals, a bad one can fritter away your funds on inadvisable investments and hidden fees.

How do you find the right advisor? The answer starts with you.

Start by considering what type of services you need. Do you require help with just investing choices, or do you want someone to draw up a comprehensive plan that would look at your insurance needs, the adequacy of your savings, and your investments?

If all you need is help with investments, you can generally get that help cheaply, possibly through an advice website such as Financial Engines or Jemstep. In some cases, you can also get help from your mutual fund company.

For instance, mutual fund giant Vanguard Investments has a financial planning division that will help you set up appropriate investments to fund different goals. If you’re not a Vanguard client, the service costs $1,000. But if you have $50,000 or more in Vanguard funds, the fee drops to $250. And if you’ve got more than $500,000 in assets, it’s free.

However, these plans are basic in nature and really focus on retirement planning — recommending savings levels and specific investments that will help ensure you have enough. If you need to talk about more complex goals, like planning for a potential disability or for a disabled child, of if you need someone to call on a regular basis to help you make financial decisions, you need to go beyond the basics.

At that point, you should be considering a live (versus virtual) planner. There are mainly two types of planners: those that get paid just by you through fees you pay by the hour or as a percentage of the assets under management, and those that earn commissions from fund companies and insurers for selling you products.

While many experts say you should always choose the fee-only advisor to avoid conflicts of interest, that’s not always the best advice, says Chuck Jaffe, author of The Right Way to Hire Financial Help.

First, fee-only advisors often won’t work with clients of modest means. Because they usually get paid based on a percentage of assets under management — say, 1 percent of the $250,000 you have them invest — they don’t take clients who are just starting out and haven’t amassed a substantial nest egg.

Besides, there are many great planners who get at least a portion of their income from commissions on products that they sell, some of which may be products you need to buy. In some instances, these planners will offset the cost of drawing up your plan when you end up buying these services.

However, it’s incumbent on the client to understand where the conflicts arise and determine whether they’re comfortable evaluating recommendations that might be tainted by the planner’s economic interest. By and large, the biggest commissions are generated by whole life insurance policies and so-called “load” mutual funds. If a planner is recommending these, you’ll need to understand how much he’ll be paid if you buy and then evaluate his recommendation in that context.

If you come to a conclusion that your planner is too busy selling you things to understand your goals, you need a different planner. However, if what he’s selling fits well with your needs, you may have found a way to get good advice at a lower price.

How do you know whether your planner earns commissions? Here are two ways to find out — and you should use both, says Jaffe. 1: Ask. 2: Verify by looking up your planner through the government’s broker-check website.

The question should serve as a simple honesty check, notes Jaffe. Any decent planner will be happy to explain how she’s paid and provide a copy of her ADV form, which spells it out in writing. This should be the same form you get by going to the broker check website. If the form you get from your planner is different than the one on the government site, or if the planner balks at the question, walk away.

It’s also important to note that regulators require planners to provide a copy of the second half of their ADV — the ADV, Part II — to anyone who asks. That part of the form explains their compensation schedule. But you want both parts of this form, Jaffe says.

Why? Because the first half tells you whether the planner has a disciplinary history and/or client complaints and settlements. A settlement or two doesn’t necessarily mean you should eliminate that planner from consideration, but it should cause you to ask more questions. Numerous complains, of course, are a red flag that should wave you elsewhere. Make sure you see the whole ADV.

How do you find a planner in the first place? The best way to start is to ask for referrals from friends and relatives. Realize that planners tend to specialize, so if you’re a middle-income teacher, you probably don’t want a planner who works primarily with high-end investment bankers. He or she is simply less likely to be familiar with the issues that pertain to you. You can also ask for referrals from trade groups such as the Financial Planning Association and the http://www.napfa.org/National Association of Personal Financial Advisors.

You should personally interview at least three planners. Even if you think you love the first one, interview two more, Jaffe says. Because the more people you interview, the better you’ll understand the industry and the right questions to ask to make sure the relationship is a good fit.

The first planner almost always sounds great, Jaffe explains, partly because it’s a relief to hear that he’s going to provide an array of services that will take the worry off your shoulders. But after another interview, you’ll realize they all do that. By the third interview, you’re capable of looking more deeply at how the partnership between you and a planner might work. At that point, you can go back to the planner you liked most with more specific questions and if the answers are right, your business.

“There are planners who just run the numbers, and there are planners who really want to know about your goals and what they can do to accomplish them,” Jaffe says. “You want to see how they answer your questions, but you also want to pay attention to what they’re asking you.”

Someone who isn’t particularly interested in your goals isn’t going to be able to help you make them real. In the end, this is about forging a long-term partnership.

Says Jaffe: “What you want is to hire a planner who you’ll want to keep for the rest of your life.”