Financial Planner, Financial Advisor, Weath Manager?

Hudson_Hawk · Jan 15, 2014

What's the difference?

FI and I would like to sit down with someone to talk about financial goals and how to get there as well as how to manage our money in general. We both work, FI owns a successful business and I'm a corporate drone. We make good money and the potential for increasing our earnings is high. We're both way behind in terms of traditional retirement savings, and I/we have a three year old.

1. what's the difference between a Financial Planner, Financial Adviser, and Wealth Manager?
2. which is the right person for us and how do we know?
2. should we be looking for commission based, fee for service, or no fee?
3. where should find this person? We don't know many people who use these resources so referrals are hard to come by. Do we just go with someone from our bank?

liaerfbv · Jan 15, 2014

This is a good article on the difference between a financial planner vs a financial advisor (slightly old but the info is good). Basically, a planner helps you create the outline for your finances and an advisor deals with investments.

http://www.marketwatch.com/story/a-financial-planner-vs-a-financial-adviser

So you would likely see a planner first, and then they could refer you to an advisor if necessary. I would be wary of someone who didn't charge for their services - as with anything life, you get what you pay for. A lot of FPs charge hourly rates while FA typically charges a percentage of the assets they are managing. Everyone is different and it's my understanding it varies from state to state as well.

If you have an estate planning attorney you've worked with, they should be able to provide you a referral for a FP. Otherwise, you could find someone who is a Certified Financial Planner (CFP) in your area.

http://www.cfp.net/utility/find-a-cfp-professional?utm_source=find-cfp&utm_medium=header&utm_content=homepage&utm_campaign=header

ETA: I would not go with someone from your bank. Typically, they are there to make sales of bank owned services and work on commission.

NovemberBride · Jan 15, 2014

Hudson,

I am an attorney in the financial services industry and my husband has an MBA in Finance. My/our opinion is that most educated people can do as good of a job (or better) as most financial planners. The truth of the matter is, unless you have millions to invest, you are not going to become a client of the top wealth managers. What you are likely to get at a bank or a brokerage is a young kid just out of college trying to build a book of business and if you have a few hours to do some research/reading you will have as much if not more knowledge than they will. Plus many of them are conflicted because they will recommend investments with higher fees and commissions because it benefits them even though those may not be the best investment choices.

If you have high earnings and are behind on retirement savings, the advice is very simple - maximize your tax-advantaged retirement space before doing anything else. If you both have 401k's, you can put away $35,000/year pre-tax. Anyone who tells you that they have an investment that they can guarantee will deliver the same or a better rate of return than those tax savings is lying and you should run far away as fast as you can. If you don't have access to 401ks or you want to save more than $35,000/year, you can look at your IRA options. If you have questions about how to invest the funds in your 401k or IRA, the brokerage that holds your accounts likely has free or very low cost advisory services.

Once you have maximized your retirement savings and are in a good spot there, if you want to save for your child's education you should consider a 529 plan. Any contributions may be deductible on your state taxes (this depends on your state), but most importantly any earnings are not taxed if the funds are used for qualified educational expenses (room, board, tuition, etc.). Again, anyone who tells you they can get you a better return than no taxes on your earnings is not to be trusted.

I would be happy to suggest some books/websites that may be helpful to you. If you would rather meet with someone in person, I suggest looking for a CF(certified financial planner) who will charge you an hourly rate or a flat fee for consulting services and who has no financial interest in what investments you choose.

crown1 · Jan 15, 2014

I think you were given some excellent advice here.

SB621 · Jan 15, 2014

BAM! I couldn't have said it better myself. My DH and I started to really get into finances, investment etc after we got married. It is overwhelming at first because there is so much out there but once you narrorw it down to what works for your family it will be easier. I too would say to concentrate on building up your retirement through either a 401k or IRA (or BOTH!) and then concentrate on other investments.

EDIT: To add this was a great thread last year that talks about retirement savings if you want some reading.
[URL='https://www.pricescope.com/community/threads/on-track-to-save-for-retirement.186082/']https://www.pricescope.com/community/threads/on-track-to-save-for-retirement.186082/[/URL]

ame · Jan 15, 2014

also look for a fiduciary or a cfp willing to sign one. that makes them legally obligated to do whats best for you.

iLander · Jan 15, 2014

I look at it this way: mutual fund managers who manage billions of dollars in assets are the cream of the crop. Just pick a good mutual fund. Morningstar has ratings.

That being said, I personally know some mutual fund managers, and they're happy and bragging when they "beat the index" by 2 or 3 points. The index is the aggregate of all stocks in the S&P 500 (or whichever index that they are tied to). Meanwhile, their fees eat up the 2 or 3 percent gain.

So just invest in the index funds yourself. With an ETF (exchange traded fund) you can switch in and out quickly, just like a stock.

Or, if you're determined to invest in stocks, Yahoo Finance has a bunch of stock screeners and quotes that will help you pick a stock. But remember, over the long term, you will be very lucky if you beat the index.

For an easy read, try Peter Lynch's Beating the Street, it has the basics.

distracts · Jan 15, 2014

1. I don't know. We use a wealth management company.

2. My grandparents and everyone in my extended family all uses the same wealth management firm, and has for quite a while. Everyone really likes it. Plus my parents gave us a year of financial planning as our wedding present.

2 the second. Ours is a set amount per year for the basic financial planning service, plus more for other services depending on what you get, how much money is being managed, etc. She advised us to just do the one year to get a basic picture of everything and what we need/want to do, then come back if we hit a rough patch financially or decide to do a whole lot more investing.

3. ... I don't know.

vc10um · Jan 15, 2014

To add to what everyone else has said...Mutual Funds can be a really bad idea based on their fees. One viewing of this episode of Frontline was pretty much all I needed to scare me out of those. If you're going to invest, DH and I recommend Vanguard Index Funds. But really, it's probably better to just pay down all debts first and max out 401(k) contributions before looking to actually *invest*...which is precisely what we're doing.

ame · Jan 15, 2014

Thank you for posting this...I was going through their site desperately trying to find it and our work internet wouldn't cooperate today.

asscherisme · Jan 16, 2014

I agree 100%

Clairitek · Jan 16, 2014

I haven't read the rest of the posts after this one but I wanted to add that we have had a fantastic return on Vanguard Index Funds as well. At least that's what I think dh invested in with our RothIRAs.

ETA: I really liked NovemberBrides post. I agree that people as smart as you and your FI can possibly manage pretty well with some time to do some reading.

Karl_K · Jan 16, 2014

It is interesting what wealthy people who do a lot of their own management call mutual funds.
Stupid money.
They make a fortune from them anytime the market takes a downturn.
Stupid money is panic selling smart money is selective buying.

texaskj · Jan 16, 2014

Not to nag, but do you both have wills, power of attorney, DNRs, etc. etc.?

LLJsmom · Jan 16, 2014

Definitely this. I would say unless you're above $2MM in net assets, and expect on increasing your wealth significantly, wealth managers may not necessarily yield the greatest return based on their fees. If you are more and are only going to be accumulating more wealth, I would ask a local CPA who they would recommend as a money/wealth manager. Just know that if your investments get more complicated, so does your tax reporting. (CPA for 18 years.) But that may be a cost that is worth incurring if your earnings increase exponentially. Also, your estate planning needs to be done, especially since you have a child. After implementing all the basic strategies suggested by NovemberBride, I would focus on getting your wills, living trusts, marital and bypass trusts set up, DPA, and everything else so that in the event of your deaths, your child is taken care of, and you get the benefit of minimizing assets that would be subject to the estate tax in the future. You will need an attorney for that, but again a CPA can give you references. You may want to consider wisely purchased rental real estate. A good CPA can explain the benefits of that as well. Good luck!

Dancing Fire · Jan 16, 2014

Don't mess around with ETFs b/c most of them the commission are too high .The mangers take too much $$$ out of the pot and put it in their own pockets....

You wanna built wealth? you don't need anybody to manage your money, just do the opposite of what I am doing in the stockmart...if I go long on a particular stock then you go short on that stock, and if I shorted a particular stock, then you go long on that stock. You will be rich in no time!..

TooPatient · Jan 16, 2014

THIS!

Worked for stock brokers for 8 (9?) years. Business cards called them "financial advisors" but they really did more along the lines of investment advising. Honestly, I couldn't tell you the practical difference between all the different titles. What a person does for you depends more on what they are used to doing. Some will do more and some will do less.

Now that I'm not working for them any more, I can share some opinions I formed (yay!):

The fees add up. Look for all the fine print stuff you may not even realize they are charging fees for. (If you work with an advisor of some kind, you should know that these fees ARE something they can waive (almost always) if they feel like it.)
The advisors have favorite clients. Friends/family and those with big accounts. Everyone else gets dealt with if they have a free minute or want to convince you to do something so they can get another commission.

Know about account insurance limits. Some places have only the basic SIPC and others have additional policies through Lloyd's of London. This could make a big difference to some people. There are also limits on how much is secured in a single account (I don't recall what (if any) limits are on multiple accounts at the same brokerage).

Talk to your tax advisor. Max out 401k and other retirement contributions as they advise. If you're looking at larger sums of money, consider talking to him about the possibility of forming a trust as being beneficial to you.

As to the topic people don't like to go near (death):

Make sure to set up beneficiaries on your accounts and keep them current. Keep account information along with your will, general durable powers of attorney, medical powers of attorney, and any life insurance documents. Your beneficiaries/executor need to know about accounts to take care of them. You can also set up your individual accounts with a beneficiary (transfer on death) to make things easier later.
Be familiar with federal and state tax law (or at least talk to someone who is -- your accountant or an estate attorney would be good) so that you know what happens. (if large enough estate, a trust may be much better this way)

Kid's accounts:
College savings are great (talk to your tax guy)
UTMA/UGMA are NOT -- PITA to deal with when the kid becomes an adult (depending on the company) AND the money is theirs upon reaching that age regardless of what they want to do with it. I've had to deal with some very upset parents as the "kid" took money and wasted it on random stuff. (BTW, your tax advisor can also tell you all about tax deductions for gifts to your children)
If you want an additional account to save for their futures, consider an account in your name that you can transfer to them when you feel they are ready.

loriken214 · Jan 17, 2014

DH and I have IRAs, with Fidelity, and we own two long term stocks that pay excellent dividends. We automatically reinvest the dividends and our portfolio is continually increasing.

US I Savings Bonds are paying 1.38% right now and that beats most money market accounts. We are buying them, too. They are great for a college savings plan.

We don't have a financial planner....I'm doing it for us.

Lori

loriken214 · Jan 17, 2014

Also, DH and I invest in a long term stock with Computershare. We deposit money toward the stock, via direct deposit, every month and the stock is purchased automatically. This way we have access to the money if we need it. We aren't old enough to access our IRAs.

Have you heard about SmartyPig? It is an online savings account that pays 1.00% interest and you can create as many accounts as you want for as little as $10.00 each. We have a bunch of accounts with them, too. The interest rate beats most savings/money market accounts and we can access the money, as needed.

Lori

diamondseeker2006 · Jan 17, 2014

I'll have to say, this is one of the most helpful and accurate posts ever posted here on a financial topic!

We have always managed our money ourselves. I try to keep it simple. We use my husband's 401k for primary retirement savings, but we also try to save in a ROTH IRA which will accumulate tax free and withdrawals are tax free after age 59 1/2. We both opened ROTH IRA's and a regular mutual fund account at Fidelity years ago. This was where we just put a little extra money when we could, and we call it our retirement travel/fun money (and it is over 6 figures). I think we honestly did as well as we would have done with a FP, and maybe better because of the fees we saved.

We used no-load, low fee Fidelity funds. Easy to rate them and determine your risk tolerance. Plus they have advisors who will help you for free (yeah, I know they are getting paid when they have your money!). We keep some emergency and general savings we need to easily access (like for car repairs, taxes, vacation, etc.) at our local credit union.

I agree with the 529 plan, too. Those came about a little late for us, but Fidelity has those, however, you must check and see what your state has because my state has it's own 529 plan.

Oh, and the 401k is invested in mutual funds as well (although we have moved some of ours to safer investments because my husband wants to retire early in a few years and we can't take a hit at this point). Never put all (or even a lot) of your money in the company stock.

urseberry · Jan 17, 2014

I would love to hear book and website recommendations from NovemberBride, or anyone else.

I personally found The Only Investment Guide You'll Ever Need by Andrew Tobias to be illuminating.

rosetta · Jan 17, 2014

Can anyone recommend any long term stocks that pay good dividends, from experience? My money is festering in a no interest account (which I keep spending on shoes, so I need to make it less accessible!) I'm already paying into a pension, and we plan to get our first mortgage soon.

They only stocks we own are Royal Mail, which we made a little money on, but am planning to hold long term.

I'd only be happy starting with a few thousand to invest initially, am not looking to pour in millions.

Thanks!

sweet_blossom · Jan 17, 2014

Sounds like some good considerations to think about above.

Lots of great knowledge on the Bogleheads site as a start. One can read up on the various pages for free. Low pressure to read at one's convenience.

+1 on the index funds (is comprised of what is in an index so not dependent on who the fund manager is to buy and sell within the fund, little turnover if you are worried about taxes in a taxable account, very low fees). Fidelity, Vanguard, etc. has them -- what you are comfortable with or what your plan has available.

+1 on the I bonds through Treasury website (currently Federal tax when cashed out, no state tax, no taxes if meets requirements of income threshold and if monies go towards education currently, holding period, electronic purchases, paper bonds only available through tax refund currently)

+1 maxing out tax-deferred/Roth/etc space

+1 accountant for taxes and financial advice re taxes of doing things (e.g., gifts etc)

+1 attorney to draw up what is appropriate for you - wills (guardianship etc) and trusts, POAs, etc.

TooPatient · Jan 17, 2014

HH --

If you are more comfortable having someone do this for you, you need to talk to different people and find the one who is right for you. Ask lots of questions and don't commit to anything until you've had time to go home and think about it.

Do they do flat fee or commission?
Can you get a copy of the schedule of fees? (Don't panic -- they list all fees for all accounts on one page so it (usually) isn't as bad as it looks)?
Who do they clear with?
Can they deposit your checks directly (some allow scan/upload and others still require paper physically sent)?
How many accounts do they manage? (400+ is still not huge -- keep in mind that lots of people have 2-3+ accounts and married couples routinely have 5+ between the two -- but you don't want to get lost if the guy has 10,000+ accounts!)

Plus the usual stuff about how they suggest stuff to you, are they willing to talk to your FI (or not depending on your preference)?

How long does it take them to make a trade if you call in and request something? Same day (assuming during market hours)? Next day?

Also -- take a look around their office. Is it tidy? Do they have loose client info around? If someone needs a file while you are there, do they unlock the drawer or is it just open?
Basically, does the office feel secure or do you feel like your personal info is at risk?

Dancing Fire · Jan 17, 2014

Be your own financial advisor ...

why let some one else go to Vegas with your money?..

Hudson_Hawk · Jan 17, 2014

We do, however they're out of date. Thanks for the reminder!

Hudson_Hawk · Jan 17, 2014

Thank you everyone, so much.

Financial Planner, Financial Advisor, Weath Manager?

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