The last article on Hiring a Financial Consultant brought a number of questions from readers so I thought I would add a few more points.

Several wanted to know how to find a financial planner locally. The first step, even before the interview, is to learn some of the jargon.

Fee-only refers to planners who do not receive any compensation from any source other than you, the client. That means there are no product sales, and no incentives such as trips or awards from investment companies. These planners may, and most do, receive their compensation based on the amount of money you invest, generally referred to as assets under management (AUM). Although I am in the minority, I believe that compensation using assets under management creates its own set of problems and potential conflicts of interest. Fortunately, some work on an annual retainer or project-based fee. It may well be worth the extra effort to search for a planner who is compensated in that manner.

Fee-based financial planners refer to planners who may receive compensation from the client and the investment company for product sales. This is often the case with stockbrokers or financial planners who work for the large brokerage houses or investment companies such as Edward Jones or Raymond James, etc. Unless you ask specifically about complete compensation, you may not be told that you’ll be paying a commission along with a fee. The statement in any ad or any communication with a financial advisor that begins, “Securities offered through….” means that person may be receiving a commission from a sale of products.

In reading a recent Sunday issue of the LA Times, I noticed an ad for a seminar on investing for women at a local college. The fine print at the bottom of the page started with “Securities offered though..” and ended with a statement that the seminar was in no way endorsed by the college. It would be easy to read the ad and attend the seminar thinking the presentation would be completely objective since it was held at the college which may not be the case. The fine print can provide some valuable information.

I received an e-mail from one reader about hiring a money manager. A money manager will manage your investment but generally does not offer an additional financial advice on other aspects of your financial life such as insurance, retirement or estate planning. Often stockbrokers will recommend a money manager in which chase you may be paying a fee to the stockbroker and an additional fee to the money manager, both of which are based on the amount you invest.

When evaluating a financial planner, it can be of great benefit to work with a planner who has a strong knowledge of taxes. I have seen many new clients over the years who worked with advisors who focused only on the before-tax return of investments instead of the after-tax return. Whenever any investment outside of a retirement plan is sold, the tax consequences need to be considered before the investment is sold. Consequently, I, along with other financial planners became Enrolled Agents, which is a designation granted by the IRS to those who passed competency examinations on tax preparation.

Now that some of the language is in place, let me provide drill-down resources for finding potential advisors

The overarching criteria is to be sure you're working with a Certified Financial Planner who is fee-only. While it is possible to earn other designations, the Certified Financial Planner designation is one of the most rigorous and certainly the most recognized of the various designations. The professional organization for fee-only Certified Financial Planners is the National Association of Personal Financial Advisors or NAPFA.

Although the vast majority of fee-only planners work with high net worth clients, there are two organizations of fee-only planners who work with people of more modest means.

You can find fee-only advisors through the Alliance of Cambridge Advisors. I was on the founding board of that organization which was started to work in a fee-only capacity with middle-income. Since then, many of the advisors prefer to work with higher net-worth clients but they still are compensated generally by an annual retainer fee as opposed to an asset under management fee. Most of the Cambridge planners provide tax preparation and the cost is included in the annual retainer fee.

There is also another organization called Garrett Planning Network. This is a group of fee-only planners who say they will work on a project basis. Unfortunately, many but not all, have instead chosen the far more lucrative path of annual retainers.

People can be well-served by working with a Certified Financial Planner who will work on a project basis. Unless there’s a specific and complex concern, Once the basics of tax, insurance and estate planning are in place, I think most people need only a good selection and appropriate allocation of index funds through a no-load (no commission) investment company. After that, only periodic meetings with a planner may be necessary as new situations arise.

The good news for you is that in this economic climate where advisors' revenues are down, more planners will work on a project basis, if you ask and are very clear about the scope of the project you have in mind. Keep in mind that all fees are negotiable, especially in this current economic climate.

As always, please contact me with any additional questions or concerns you might have. I love to hear from you.

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