Money Talk: Tips for Finding a Financial Adviser
Question: We recently inherited some money. We’ve never had much. We want to invest our inheritance for our kids’ college education.
We asked around to find investment firms that people have had a good experience with. But how do we know they are honest and make sound investment decisions? How do we know if the rates they are charging are fair and reasonable?
For example, one charges a percentage of the value of the account. How do I know if their rate is a fair amount?
Answer: If you want to invest the money for college education, you don’t need to consult an adviser at all. You simply can use a 529 college savings plan. These plans allow you to invest money that grows tax-deferred and can be used tax free for qualified college expenses nationwide.
These plans are sponsored by the states and run by investment firms. You might want to stick with your own state’s plan if you get a tax break for doing so (check http://www.savingforcollege.com for the details of each plan).
If not, consider choosing one of the plans singled out by research firm Morningstar as the best in 2014: the Maryland College Investment Plan, Alaska’s T. Rowe Price College Savings Plan, the Vanguard 529 College Savings Plan in Nevada and the Utah Educational Savings Plan.
College savings plans typically offer several investment choices, but you can make it easy by choosing the “age weighted” option, which invests your contributions according to your child’s age, getting more conservative as college draws nearer. If you still want to talk to an adviser — which isn’t a bad idea when dealing with a windfall — you’ll want to choose carefully.
Relying on friends and family isn’t necessarily the best approach. Many of the people who invested with Bernie Madoff were introduced to him by people they knew.
Most advisers aren’t crooks, but they also don’t have to put your interests ahead of their own. That means they can steer you into expensive investment products that pay them larger commissions.
If you want an adviser who puts you first, you’ll want to find one who agrees to be a fiduciary for you, and who is willing to put that in writing.
Here are three sources for fiduciary advice:
∎ The Financial Planning Association at http://www.plannersearch.org.
∎ The Garrett Planning Network at http://www.garrettplanningnetwork.com.
∎ The National Association of Personal Financial Advisors at http://www.napfa.org.
Garrett planners charge by the hour with no minimums. Expect to pay around $150 an hour.
NAPFA planners often charge a percentage of assets — typically about 1 percent.
FPA members charge for advice in a variety of ways, including fees, commissions and a combination of the two.
Any planner should provide you with clear information about how he or she gets paid. You’ll want to check the adviser’s credentials as well. The gold standard for financial planners is the CFP, which stands for Certified Financial Planner.
An equivalent designation for CPAs is the PFS, which stands for Personal Financial Specialist. People with these designations have received a broad education in comprehensive financial planning, have met minimum experience requirements and agree to uphold certain ethical standards.
Each of the organizations listed above has more tips for choosing a plan on its website.
Question: My company doesn’t allow us to contribute more than 50 percent of our paycheck to our 401(k). This limits my contribution to far less than the IRS’ $18,000 annual limit because I’m low paid.
How can I tackle this situation, as I would want to contribute more but am being constrained by the 50 percent contribution cap?
Answer: Your zeal to save for retirement is admirable. Your company may not have anticipated that anyone in your situation would be able to save so much, so consider simply asking if the limit can be raised.
You can explore other avenues as well, such as contributing to an IRA or a Roth IRA. Many people incorrectly believe they can’t contribute to these individual retirement accounts if they have a workplace plan, but that’s not true.
You can contribute up to $5,500 to a Roth (plus a $1,000 catch-up contribution if you’re 50 or older) if your income is below certain limits. The ability to contribute is reduced between modified adjusted gross incomes of $116,000 and $131,000 for single filers and $183,000 and $193,000 for marrieds filing jointly.
Alternatively, you can contribute $5,500 (plus the $1,000 catch-up contribution) to an IRA regardless of your income, although your ability to deduct your contribution if you have a workplace plan is phased out for incomes between $61,000 and $71,000 if single and $98,000 to $118,000 for marrieds.
Question: You’ve been answering questions about ex-spouses and Social Security benefits. My first marriage was longer than 10 years, and I was the primary earner. My ex remarried but later divorced again.
Does his getting remarried nullify his claims forevermore — or is his ability to claim spousal benefits based on my income back on the table as long as he remains unmarried?
Answer: It’s the latter.
Your ex can claim spousal benefits based on your work record as long as your marriage to him lasted at least 10 years and he is not currently married.
Liz Weston is the author of The 10 Commandments of Money: Survive and Thrive in the New Economy . Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, Calif. 91604, or by email at liz@lizweston.com. Distributed by No More Red Inc.
