Questions to Ask Your Financial Planner

BEFORE you hire a planner, ask some tough questions. That's the best way to separate the crack advisers from the quack advisers.

Be sure to ask how the planner earns his or her money. As mentioned, many planners charge fees of $75 to $200 an hour. Others give free advice but earn commissions by selling you mutual funds, insurance or other financial products. The advantage of hiring a fee only planner is that you know he or she will not recommend an investment to you just to collect a commission. But fee only planners are costlier than those who accept commissions. Most planners combine fees and commissions. Planners should be Registered Investment Advisers. As such, they must initiate disclosure of their fees and other compensation.

Always ask how much money a planner makes on everything he or she tries to sell to you. If you know that someone stands to pocket a 10% commission on one investment and only 3% on a less expensive alternative, you will have reason to ask why you are being steered toward the costlier one.

Most consumer complaints about planners involve those who earn their keep solely by commissions, especially those who peddle just one line of goods. The biggest beef is against salespeople who call themselves financial planners to disguise their true calling.

A conscientious planner should channel your assets into a variety of investments so that your returns will be stable despite market or interest rate fluctuations. Ask your planner to draw up a pie chart of his recommendations. If one type of investment swallows more than a quarter of your pie, request an explanation.

Ask the planner how much wealth you can reasonably accumulate in five years. Most investors do well if their returns consistently outpace inflation by 4% or 5% a year. If your planner claims to be able to top those rates, he or she may be misleading you or steering you into high risk ventures.

If you are within 10 years of retirement, ask your planner to estimate how much money you will need to meet your retirement goals. He or she will estimate how much you can expect from Social Security, company pension and savings plans and your own investments. With this information in hand, your planner should tell you whether you will need to save more or work longer to meet your objectives. He or she should also suggest a schedule for gradually shifting your investment priorities to increase your monthly income.

At this point in your life, a planner should concern himself as well with planning your estate largely a euphemism for reducing death taxes. He should total up your net worth, and he should ask to see your last will and testament. The heirs of people who leave assets in excess of $600,000 must share 37% or more of that excess with federal and often state tax collectors unless something is done to head them off.

For married couples the refuge involves rewriting their wills. And it may require a reshuffling of their assets. Each spouse should own in his or her name a large enough share of the family wealth to take advantage of that $600,000 limit on untaxed bequests.

Ask how much time the planner will spend with you, and who will write your plan. In large firms, your case may be consigned to junior staffers, and you may not get the experience you want. Expect a planner to spend three or four hours with you, gathering facts and discussing ideas. Take time to consider the planner's recommendations before you buy any financial products. And do not feel you have to buy anything. What you need may well be insights instead of new investments.

The final clue to a financial planner's caliber is commitment. Your planner should be ready to work over the long term with other professionals you may hire, such as a lawyer or tax accountant. No one person can master all of the technical information that goes into preparing a well designed financial plan. Have your planner arrange for you and all your advisers to sit down together at least once. That way everyone will know what everyone else is supposed to do.