With the decline of the traditional pension and the rise of self-directed retirement plans, we seniors have become more responsible for managing our own savings and investments. So have our children. If they are going to send our adorable grandchildren to college and then move on to a secure retirement, they are going to have to build up a considerable nest egg of their own.
We could all use the services of a reliable financial adviser. We know, of course, that we don’t want one who makes his money by selling us financial products on which he or she earns a commission. We want an adviser who works for us and in our own best interests. That means looking for a “fee only” certified financial planner, certified financial analyst, or certified public accountant, whom we will have to pay. These are people who have undergone rigorous training and passed difficult exams. They have to earn a living.
Therein lies the rub. I’ve been looking at the website of the XY Planning Network, which specializes in linking younger financial advisers with people of Generation X and Generation Y — that is, anyone born since about 1965 or 1966. In the city where my own Generation Y offspring lives, a very youthful-looking planner is asking $500 up front plus $125 per month for all-inclusive services as CPA, insurance adviser, investment adviser, and financial planner. That’s a lot of money for people who are still in the early stages of their careers, may have student loans to repay, and could be starting families and buying their first homes. Some advisers at this site are charging less, and rather than taking cash, most are willing to work for a percentage of assets under management, usually charging in the range of .9 percent to 1.5 percent. But that charge eats into the nest egg.
The Garrett Planning Network is regarded as a reliable site for people of all ages to find independent financial advisers. The fees there seem to be broadly similar to those at XY Planning. I found one firm in the general neighborhood of my Gen Y’er that would prepare a comprehensive financial plan for $1,700 to $2,700, followed by a real-time consultation for $600. Again, a lot to pay.
Vanguard, meanwhile, will provide personal financial advisory services for a fee of .3 percent annually of assets under management. This includes investment coaching, advice on minimizing taxes, help in selecting low-cost funds, and periodic re-balancing of your portfolio to conform with your investment goals.
That sounds like a pretty good deal — the charge for advising on a $250,000 portfolio would come to $750 per year. To be eligible for this service, however, you must have $50,000 invested at Vanguard, which would leave many young people out. In any case, they may need more than Vanguard is offering. Young people in particular would very likely benefit from having an independent financial adviser go over their entire financial situation, including student loan debt, credit card and mortgage debt, assets, and their hopes and dreams for the future.
Most financial planners seem to offer an hourly rate in the $200 – $250 range. Perhaps the best course, if you’re looking for affordable financial advice, would be to buy a couple of hours every couple of years to go over your financial situation and keep yourself on track. Meanwhile, you could try to follow the many “rules of thumb,” offered so widely on the web and in how-to books. Keep three months worth of salary in the bank, in case your job goes away. Save north of 10 percent of your income each month. Invest only in diversified low-cost index funds. Don’t spend more than 30 percent of your income on housing. Use common sense, and you should come out all right.