Financial planning for the average investor
St. Mary Cemetery in Northampton. KEVIN GUTTING
Of all the challenges individual investors face, one of the toughest is finding a good financial planner.
As a generation of do-it-yourself investors grows older and their financial lives get more complex, many people are realizing they want a human touch. Though they’re comfortable researching investments on the Internet, they want some level of guidance from a planner.
“People say, ‘Look, I know what I’m doing but I just had a kid’ or ‘I’ve gotten a bonus at work and money is now more important to me. It’s more serious,’” said Jon Stein, founder of investment website Betterment.com.
But while the wealthy have plenty of would-be counselors fawning over them, it can be difficult for regular investors to find a smart, objective and — perhaps most important — reasonably priced planner.
Fortunately, there are options for regular people through online-brokerage and mutual fund companies, fee-only financial planners and an emerging crop of Internet-based services, a few of which give access to advisors on the phone.
“We’ve heard loud and clear from clients that they need this type of help,” said Rodney Prezeau, head of advice offerings at Charles Schwab Corp. In fact, nearly 80 percent of the brokerage’s clients said in a survey last month that either periodic or ongoing help from an advisor would make them feel more confident about their ability to meet financial goals.
Most of the programs out there aren’t complete panaceas. Not surprisingly, less expensive services tend to offer less extensive assistance.
But many people don’t need elaborate financial planning or the hefty fees that often come with it. They have straightforward portfolios and need basic guidance or a second opinion on their investment strategies.
“The majority of Americans don’t need, nor should they pay for, full-time advice,” said Sheryl Garrett, founder of the Garrett Planning Network, a group of fee-only planners. “It just doesn’t make any sense financially.”
A good place to start is large investment firms such as Vanguard Group, Fidelity Investments or Schwab.
At Vanguard, investors with less than $50,000 at the firm can get a financial plan, with a slate of recommended retirement investments, for $1,000. The cost falls to $250 for people with $50,000 to $500,000 and is free for those with more than that. The plans include a 45-minute phone call with a financial planner.
Those with $500,000 or more get another notable benefit — the ability to talk free anytime to a certified financial planner.
Questions frequently go beyond basic investment advice to such topics as long-term care insurance or trust and estate planning, said Karin Risi, the head of Vanguard’s advice services group.
“We often get questions beyond ‘Which fund should I buy?’” Risi said. The queries “run the gamut of a client’s financial needs.”
Though $500,000 is a high threshold, it’s measured on a per-household basis. Separate accounts held by each spouse, such as individual retirement accounts, count toward the total. The same goes for holdings at 401(k) plans that are managed by Vanguard.
At Fidelity, clients can get basic investment advice in roughly hour-long conversations with counselors on the phone or in a branch. The firm follows up with a report recommending specific mutual funds.
Clients with $250,000 or more get a designated advisor who can provide extensive guidance on a wide range of topics, including college and elder-care planning, wills and estate planning, and life and disability insurance. People who need detailed legal or tax advice get referrals to Fidelity’s network of outside experts.
At Schwab, clients can get free 45-minute consultations over the phone or in a branch. The sessions involve a broad financial overview to assess current holdings and long-term goals. Full financial plans, including insurance and estate planning, cost $2,000.
One shortcoming of many of the services at brokerages and fund companies — especially the low-cost, no-frills plans — is that they’re primarily focused on non-401(k) retirement savings. They usually don’t recommend specific mutual funds in 401(k) plans or 529 college-savings plans.
That’s a problem for people who have worked at the same company for years, or whose children are nearing college age. They can have large sums in 401(k)s or college plans.
In these cases, investment firms sometimes suggest broad asset allocation, recommending in percentage terms how much an investor should put toward investment categories such as international stocks. That provides a general idea of where to invest. But the firms don’t assess specifics of the funds, such as performance or fees.
Investors looking for more extensive assistance should consider hiring a fee-only financial planner who works by the hour.
Most fee-only advisors charge “asset-based” fees determined by the amount of money in a customer’s account, often about 1 percent. That contrasts with traditional securities brokers who earn commissions on the products they sell, giving them an incentive to favor investments offering them the highest payoffs.
But asset-based fees can add up. An investor paying 1 percent on a $200,000 account would shell out $2,000 a year.
As an alternative, consider planners who charge by the hour.
Another option is a financial website with a human component.
Like other Internet-based services, Betterment.com deals with customers primarily online. However, customers with $100,000 or more can talk free to an advisor on the phone.
The 2-year-old New York website places customers in as many as eight low-priced stock and bond exchange-traded funds, six stock offerings from Vanguard and two iShares bond funds.
On top of the fund fees, Betterment.com charges 0.15 percent to 0.35 percent, depending on the assets held at the firm. It’s 0.35 percent for people with less than $10,000, 0.25 percent for those with $10,000 to $100,000 and 0.15 percent for those topping $100,000.
What sets Betterment.com apart is access to an advisor for customers in the top tier.
Customers can talk to Stein, the founder, or to a second adviser on the staff. There’s no pre-set limit on the number of conversations or their length.
“I haven’t had anybody abuse it yet,” Stein said. “Knock on wood.”
Betterment.com advisors will assess holdings in 401(k) and 529 plans and make general recommendations, but they’re based on just a brief review, Stein said.
“We’re not running a complicated statistical model on optimizing your 401(k) portfolio, but I feel most of that is hocus-pocus anyway,” Stein said. Most customers, he said, just want “some peace of mind that (they’re) not really screwing this up.”