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The Honolulu Advertiser
Posted on: Thursday, October 9, 2003

THE COLOR OF MONEY
Financial planner might be able to help you get more from your money

By Michelle Singletary

Samuel Johnson once said: "Money and time are the heaviest burdens of life, and ... the unhappiest of all mortals are those who have more of either than they know how to use."

So are you unhappy because you don't know what to do with your money?

Maybe it's time to hire a financial planner.

And lucky you, this is National Financial Planning Week. Why don't you use this week — contrived as it may be — to reflect on the merits of whether you need help planning your finances?

But first, what do you know about financial planners?

True or False. Financial planners are the same as stockbrokers.

False. The Financial Planning Association points out that the primary function of a stockbroker, insurance agent or other financial salesperson is to sell you a financial product.

It's understandable you might be confused because these days, just about anybody can call themselves a financial planner. Therefore, a stockbroker or insurance agent may also be a financial planner.

But a good financial planner's primary job is to help you identify your financial goals and work with you to develop a plan to reach those goals, according to Mark E. Johannessen, a national board member for the Financial Planning Association.

True or False. A financial planner is primarily an investment adviser.

False. Giving investment advice is just one part of what a financial planner does. Financial planners are supposed to help you look at your big financial picture — your debts, taxes, retirement savings, college savings for your children, estate planning and insurance needs.

Think of a financial planner as a custom homebuilder. He or she listens to your wishes then designs the financial house that best suits you.

True or False. Only the rich can afford to hire a financial planner.

False. Different planners have different requirements as to whom they will take on as a client. Obviously, many look for high income or high net-worth individuals. But an increasing number of financial planners are working with modest-income clients. "As we grow as a profession we are trying to bring our services to different income levels in society," Johannessen said.

To find a planner through the Financial Planning Association, go to www.fpanet.org.

True or False. Financial planners aren't worth the money.

False. Sometimes good advice comes with a price.

"The biggest roadblock for financial planners is getting people to understand we should be paid for doing financial planning," Johannessen said.

I had this roadblock. It seemed counterintuitive to pay good money to have someone tell me what to do with my finances. But my husband and I wanted to be sure we were doing the right things with our money, so we hired a financial adviser.

A financial planner can help you budget better or find ways to reduce your taxes or boost your investment returns or prevent a costly financial catastrophe, Johannessen said.

True or False. You should only hire a fee-only planner.

False, with a caveat. Generally, if you want a planner who has no incentive to sell you any particular financial product, then go with a fee-only planner. However, at hourly rates that can start at $100 or more, fee-only planners can be expensive.

Financial planners earn their money in a variety of ways. Here are several methods of compensation:

Fee-only. Compensation can include an hourly fee, annual retainer or percentage of assets managed. A fee-only planner does not earn commission or fees on products, investments or recommendations. To find a fee-only planner, check with the National Association of Personal Financial Advisors, which is the professional association of fee-only financial planners. Go to www.napfa.org or call (800) 366-2732.

Commission-only. There is no charge for the planner's advice or preparation of a financial plan. Compensation comes solely from the sale of financial products you agree to purchase. Be careful about planners paid based on what they sell you. You could be steered to higher-cost products that generate higher commissions for the planner.

Combination Fee/Commission. A fee is charged for consultation, advice or a financial plan. In addition, the planner may receive commissions from the sale of products.

Whichever way you go, just be sure you fully understand how your financial planner is paid.

True or False. I can develop a financial plan on my own.

This may be true or false. If you're good at planning your financial future, you may not need the help of a financial planner.

But, if you don't have the time or inclination to figure out how to best use your money, hire a planner.

Write Michelle Singletary, Washington Post Writer's Group, 1150 15th St. NW, Washington, D.C. 20071.