When It's Time to Pick a Planner

The down market has plenty of folks looking for professional help in setting up their retirement plan. Here are tips for finding it

By Ellen Hoffman

A broker I know passed on this bit of bear-market humor: You know what they're calling retirement accounts now? 201(k)s.

The joke reflects a sobering reality: Many people who were heavily invested in stocks have seen their retirement savings diminish substantially -- or even disappear -- because of the market meltdown.

Around the time I heard that joke, two people from the college pool where I swim approached me with questions about planning for retirement. One was the lifeguard, a 30-ish student who started college after a disability ended his brief military career. He'll have a military pension, but he has no money saved for retirement -- and no plan. He says all the news about people's retirement accounts being decimated by the sluggish economy made him realize he needed to start thinking about planning for the future.

The other was a civil servant in her 40s whose retirement account, which she has directed, is "all over the map." She confessed she doesn't really know whether her investments are up or down. This woman has decided, for the first time, to go to a financial planner for advice. Like the lifeguard, she was motivated by the barrage of bad news about the effects of the bear market.


  The kind of interest in retirement planning that my two acquaintances are showing isn't surprising or unusual, according to Randy Oldenburg, a certified financial planner (CFP) in Scottsdale, Ariz. "A year and a half ago, a lot of people were saying: 'Why would I hire a financial planner? All you have to do is buy 10 or 15 stocks,'" he says. "Now, people are coming to me from a brokerage environment, saying they've been hurt enough in the last year and they're looking for a new way of handling their financial affairs."

A case in point is a woman in her mid-50s who called Steven Wightman, a CFP in Lexington, Mass. "She was in tears, extremely depressed. She and her husband, also in his mid 50s, had planned to retire when they were 60. They put almost their whole nest egg into Nasdaq stocks -- it was worth $480,000 -- and they lost, on paper, pretty much everything," he says. "For the first time in her life, she was thinking about going to a financial planner."

While using a professional financial planner can't completely insulate you from market conditions, it can help you develop a long-term, comprehensive strategy for the future. That includes figuring out when and how you can retire comfortably, formulating specific financial goals, and plotting realistic investment and savings strategies that will generate the money you'll need to retire at a specific time.

There are tools that can help you figure these things out on your own, such as BusinessWeek Online's "Guide to Retirement Planning." Here you'll find calculators to help you estimate your retirement expenses and basic information on such issues as how to manage your IRA or 401(k). Even if you intend to use an expert, these tools can help you get started or give you a second opinion if you're working with a planner.


  When it comes to finding a planner, you can ask your lawyer, accountant, or a colleague or friend for references, but you probably shouldn't hire the first person whose name you get. Two professional organizations have Web sites that let you search for a planner in your area: the Financial Planning Association (FPA) (www.fpanet.org) and the National Association of Personal Financial Advisors (NAPFA) (www.napfa.org). Once you have some names, you should "talk to at least three different planners, go to their Web sites, go to their associations, and find out everything you can about them," advises Wightman. For a list of questions to ask an adviser you're considering, visit the Web site of the CFP Board of Standards (www.cfp-board.org/cons_10qs.html). The site also explains how you can find out if the planner -- whether a CFP or another type of adviser, such as a broker -- has ever been disciplined for professional misconduct.

Another question relates to how the planner is compensated. Members of the FPA -- which includes stockbrokers, insurance salespeople, and other advisers, in addition to CFPs -- charge an hourly or flat fee for developing and monitoring your plan. They also may try to sell you financial products, including stocks and other investment vehicles, and insurance. You'll be charged commissions if you buy these products.


  These planners may call themselves "fee-based." Experts point out you shouldn't confuse this with "fee-only" planners, who don't sell financial products to their clients. Fee-only planners make a conscious decision that this is how they want to operate, believing that it inspires more trust and confidence on the part of their clients.

The advantage of using a planner who sells products is, once your plan is in place, you're relieved of the need to find someone else to trade your stocks, buy insurance, or do whatever else your plan dictates. Of course, you should feel confident that a planner isn't crafting a strategy that requires you to invest or buy more products than you feel comfortable with (even though that would be against the CFP code of ethics). That's why it's so important that you check out anyone you're considering working with.

The trade group for "fee-only" planners is NAPFA, whose members charge only for developing and monitoring your plan. Oldenburg, a fee-only planner, charges his clients an hourly rate to develop the financial plan. For clients who want to continue to work with him to monitor and implement the plan, he charges a retainer of about 6/10 of a percent of the portfolio value, which comes to $6,000 on a $1 million portfolio, or $600 on $100,000. The client maintains the investment account (usually at a discount brokerage) but consults with Oldenburg as much as he or she wants about buying and selling investments, as well as other issues that may affect the plan -- such as whether to sell a house.


  Bob Barry, president-elect of the FPA and a financial planner in Hackettstown, N.J., estimates that for a family with an income of about $85,000 to $115,000, the cost of having a plan drafted would be in the range of $250 to $1,000.

In this era when almost everyone has a 401(k), an IRA, or the equivalent, it has become easy to equate two fundamentally different concepts -- investing and retirement planning. For most people, both are probably necessary. Once you have a retirement plan in place, you can concentrate on your investing. What the plan will do is give you value added in a volatile environment: an unflinching measure of whether or not your investment choices are bringing you closer to achieving your goals.

Hoffman writes Your Retirement every other Thursday. An excerpt from her new book, The Retirement Catch-Up Guide, appeared in the July 17 issue of BusinessWeek. You can reach her to comment or suggest story topics at ellenshof@hotmail.com

Edited by Patricia O'Connell