Your Finances: How to choose a financial adviser

The financial advice business is changing dramatically in The financial advice business is changing dramatically in every aspect, from how advisers spend their time to what they charge, to how they label and promote themselves. Photo Credit: istock

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The financial advice business is changing dramatically in every aspect, from how advisers spend their time to what they charge, to how they label and promote themselves.

The result? Further confusion for consumers who probably sought help to find clarity in the first place.

How can people seeking financial advice navigate this complex field?

Here are a few things you should know now:

Needs assessment: Assess your own needs. The first step is to figure out what you want a financial professional to do for you. Do you want comprehensive investment management? A whole-life plan that includes everything from how to pay for college to tax reduction to retirement planning? Just a reality check on your retirement readiness?

Pay for what you eat: Once you know what you want, it's easier to find the right adviser. For a spot check or limited amount of planning, consider hiring a by-the-hour adviser -- you can find one through the Garrett Planning Network (www.garrettplanningnetwork.com).

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Want a comprehensive soup-to-nuts life financial plan? Look for a fee-only certified financial planner through the CFP Board of Standards (www.cfp.net) or the National Association of Personal Financial Advisors (www.napfa.org).

Learn the lingo: "Fee only" means that the adviser is not paid to sell products, and if that person is a certified financial planner, it also means she doesn't even own a small share in a financial company that does sell products.

"Fee-based" is a meaningless term of art, typically used by advisers who charge fees and also reap commissions.

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Watch your wallet: There's a huge discrepancy in the amount of fees advisers charge.

At Vanguard, investors willing to stick with Vanguard funds can get basic fund choice advice for free and a comprehensive financial plan for 0.3 percent of the assets they invest with Vanguard.

Traditional brokerage firms will offer broader portfolios and go fee-only but at costs that can top 2 percent a year.

An extra percent or two, pulled from an account every year, can cost a long-term investor hundreds of thousands of dollars at the end of the day.

Consider generic advice: People who have ultrahigh net worth, with businesses, estates, tax issues and the like need personalized investment advice. It's also true of people who have very special situations, such as disabled children who will need lifelong care.

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But it may not be true of people who simply need tips on how to invest their 401(k) or IRA fund. Companies like T. Rowe Price, Vanguard and Fidelity will give you basic fund guidance for free, or close to it.

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