If you need less than a full-blown plan, consider these lower-cost alternatives
Your financial plan seems incomplete, and you could use some help. Perhaps you’re facing a marriage, divorce, retirement or other life change, and you know your plan needs adjustment. Maybe you have no financial plan at all, but like a lot of folks, you’re concerned that full-service financial planning advice doesn’t fit your budget.
You may be right. Financial advice, like legal or medical advice, isn’t cheap. Some financial planners simply charge a flat fee, often ranging from $2,000 to $7,500 per year. Others charge according to the amount of assets under management (AUM). Their fee, usually between 0.25 percent and 1 percent, is based on the amount of money they manage for you. If you have a $250,000 portfolio and the adviser charges 0.50 percent, for example, your fee would be $1,250 per year.
Financial advisers would argue that their advice is worth the money, and in many cases it is. On the other hand, those are hefty fees for the average person. So let’s look at what financial advisers offer, and how you can get good advice at somewhat lower prices.
What you pay for
Both financial planners and financial advisers may be registered investment advisers (RIAs) who work for financial services companies. Or they may work independently.
What’s the difference between financial advisers and financial planners? Generally speaking, a financial planner helps individuals identify and achieve a broad range of long-term financial goals, including tax and estate planning, budgeting, debt management and retirement planning. Financial advisers and RIAs tend to lean more heavily on investment management, although they may also offer expertise on life insurance, real estate or accounting services and help place short-term trades.
All are licensed and authorized to provide investment-related advice. You should look for advisers who are fiduciaries. They must consider your best interests rather than their own, avoiding any conflicts of interest. In contrast, licensed investment brokers can advise you on stocks to buy and sell, and often receive commissions. They are not fiduciaries.
“The value of working with a CFP [certified financial planner] is that they have done this many times before for many different client scenarios, and they know the questions to ask,” says Jan Valecka, CFP, owner of Valecka Wealth Management in Dallas.
You also get “an objective-thinking partner who knows what’s important to you and can help you navigate important decisions as your life and needs evolve,” says Brett Koeppel, CFP, founder of Eudaimonia Wealth in Buffalo, New York.
Cost-effective alternatives
Just as you may not need a full-body scan when you go for a checkup, you may not need full-service financial planning advice. Maybe you need help with one or two issues, such as figuring out when you can afford to retire. Maybe you want someone to review your existing financial plan one time or annually, or someone to help with your investments.
Fortunately, there are many services and planning tools available “à la carte” at various price points to meet your needs. Some are even free. “The challenge can be filtering out what’s useful and relevant to your particular situation,” says Koeppel. They include:
1. A financial planner or adviser who charges per hour or per plan
Hourly fees may range from $200 to $400. The planner will review your investments and give recommendations. A complete plan may cost between $1,000 and $3,000. Valecka estimates that it may take a planner a minimum of 10 hours to produce one.
You can search for experts in your area and learn their about certifications, specialties and compensation at letsmakeaplan.org, plannersearch.org or napfa.org/find-an-adviser, which are run by the Certified Financial Planning Board of Standards, the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA), respectively. These organizations impose stringent educational and ethical standards.
2. Free portfolio management services
You may have accounts at major financial institutions such as Schwab, Vanguard or Fidelity Investments. Most offer complimentary advice to customers who have invested a certain amount of assets. The company will assign someone to review your finances with you, follow up and ask objective questions that you might not think of.
At Schwab, clients with accounts of $500,000 or more can work with a dedicated financial consultant at no charge. Vanguard clients need $500,000 to qualify for Vanguard Personal Advisor Select. Fidelity clients qualify with a portfolio of $250,000 or more. Another option might be to have your financial institution take over the management of your portfolio using their research team and technical tools. But you’ll pay an AUM fee that may range from 0.50 percent to 1.50 percent per year.
3. Robo-advisors
If technology is your thing and you’re looking for a free or low-cost way to manage your portfolio, consider a robo-advisor. In some cases, you’ll have little or no interaction with a human. Based on your individual circumstances, these programs use algorithms and software to build and manage your portfolio and may automatically rebalance and optimize it for taxes.
Some, including SoFi Automated Investing and Ally Managed Portfolios, charge no management fee. Others may charge an AUM fee of between 0.25 per cent to 0.50 percent.
Both Fidelity Investments and Schwab offer robo-advisors. Fidelity charges no fee for its Fidelity Go robo-advisor for balances up to $25,000, but 0.35 percent a year for balances over $25,000, which includes an unlimited number of one-on-one coaching calls. Schwab charges no fee for using its Schwab Intelligent Portfolios robo-advisor, but you will pay a fee if you want to talk with a CFP.
4. Online financial planning
These services offer customized planning, along with investment management sessions conducted over the phone or via a video service. They may charge you an AUM fee, or a flat fee that starts at about $1,000 a year. You may be asked to pay for financial planning and investment management separately.
Betterment Premium, for example, provides unlimited phone access to CFPs. The account minimum is $100,000. Empower and Facet Wealth offer a dedicated CFP who works with you to build your investment portfolio and create a complete financial plan, and their fees reflect the cost. Empower’s management fee ranges from 0.49 percent to 0.89 percent, and a minimum balance of $100,000 is required. Facet’s fee starts at $2,000 per year, with a free initial consultation included.
For an all-in-one approach, Range offers a menu of services, including financial planning, investments, saving for college, taxes, estate planning, retirement and insurance optimization. You can purchase a membership for $2,400 per year or $4,800 per year for various services. The investment management fee is 0.25 percent.
5. Target-date funds
Your main goal is to invest for retirement, you want to keep it as simple as possible, and you know when you want to retire. Consider a target-date retirement fund, also known as a target-date fund or a life cycle fund.
These funds are designed to be long-term investments for people with a retirement date in mind and are named as such, for example, Portfolio 2030, Target 2030 or Retirement Fund 2030. They are often mutual funds that offer a mix of stocks, bonds and other investments that gradually shift according to the fund’s investment strategy, becoming more conservative as the target date approaches.
In the end, target-date funds, which are often available through 401(k) plans, may be the cheapest way to go for those who are simply worried about where to invest their money.
