ó When I attempted to become a financial planner years
ago, I realized that a successful adviser has to be a
good salesperson first and an educator and adviser
second. Educating people to take control of their
finances on their own doesnít pay the bills.
her new book "What Your Financial Advisor Isnít
Telling You," Liz Davidson puts a twist on the same
idea. The problem with financial advisers, she writes,
is that they are typically not financially motivated to
operate in the consumerís best interest.
former hedge fund manager isnít against using a
financial planner. In fact, she spends a portion of the
book describing when a person should hire one and how to
find a good one. But she believes that people should
start their planning at the same place where most of us
make money ó our workplace.
employer is your best financial services provider,"
she said. Itís the source of 401(k)s, health
insurance, life-health-disability insurance, flexible
spending accounts, health saving accounts, dependent
care and tuition reimbursement and commuter benefits.
Employees may not even be aware of all the services
offered, Davidson said. Some even offer services that
can help in managing debt.
doesnít sell any investment products, but she does
have a dog in the fight. Her California-based company
Financial Finesse works with larger companies such as
General Mills and M.A. Mortenson to offer financial
guidance to their employees. She believes that before
consumers hire a financial planner, they should pay down
high-interest rate debt, set up an emergency fund, max
out their retirement plan, and consider an FSA, HSA, and
any other employer-sponsored benefits.
Fifer, a certified financial planner at Cahill Financial
Advisors in suburban Minneapolis, believes that such
advice is appropriate for most people. "Those
action steps are part of sound financial planning,"
doesnít expect an employer to offer all the answers to
savings and retirement. Her book offers a chapter on
getting out of debt with a DebtBlaster strategy that
pays off the highest-interest rate balances first. Itís
a time-honored strategy but not the only one. Author
Mary Hunt, who successfully dug herself out from a
$100,000 credit card debt without declaring bankruptcy,
advises paying off the smallest balances first
regardless of interest. Having fewer and fewer payments
because small bills are paid off faster can be more
motivating, she said.
what circumstances does Davidson believe that one should
consider a financial adviser? Those who receive a
financial windfall or have a complicated tax situation,
have money to invest after maxing out retirement plan
contributions, or want help choosing 401(k) or other
of the perceived advantages of using a financial
planner, Davidson said, is their ability to select
mutual funds or other investments that perform better
than average. According to one survey, there is some
truth to that. A study by Financial Engines and Aon
Hewitt showed those who received investment advice
typically get 3 percent higher returns than those who
Morningstar discovered that low fees are the single best
indicator of superior future performance in its own 2010
study, followed close behind by its star rating system.
Your Financial Advisor Isnít Telling You" is full
of tips that a good financial planner might also pass
along, including auto-escalation. Itís a simple
finance tip that says you should increase your savings
rate every year and every time you get a raise or bonus.
Some employers offer auto-escalation annually for
a 401(k) contribution rate by one percent or more each
year is nearly painless for most people. Itís a way of
combating the inertia that causes so many Americans to
save too little. With auto-escalation, "individuals
donít have the opportunity to let their busy lives
interrupt saving for retirement," said Matt
Cosgriff, a certified financial adviser at BerganKDV
Wealth Management in suburban Minneapolis.
too many of us struggle to find enough time to get
dinner on the table, help the kids, and open the mail,
let alone take time out regularly to think about our
financial future, he said. That may be a good reason to
seek out a financial planner, but Davidson suggests an
alternative. Give yourself a "Financial
Independence Day" at least annually where you take
a day off to tackle one big financial task, like a will,
or multiple small tasks, such as rebalancing your
401(k), setting up a spending tracker on Mint.com and
calling the insurance agent.
hiring a financial planner still sounds like a better
option, Davidson suggests asking them how they are
compensated. When I asked one planner about disclosing
the amount that he would be "paid" by a clientís
investments, he wondered why no one ever asks doctors
how much they benefit from requesting certain tests.
point. But after laying bare our finances for planners,
we shouldnít feel bad about asking how much weíre
paying them ó nor asking our employers to provide more