Regard Financial Planners Skeptically

Filed in archive Financial Advisors on May 31, 2006

I was reading this article about mutual funds with front-end loads and how one financial planner told his client he needed to switch to one so the planner could get a commission, and I had to laugh thinking of my own experience with a financial planner.

I should preface this by saying I don't want to paint all financial planners as thinking more about themselves than about their clients. I've only worked with one, so that wouldn't be fair.

However, my one experience confirmed many of my skepticisms about the process.

After my first child was born, my wife and I decided to get our financial picture in shape, and have a financial planner work up some numbers. We very purposefully looked for financial planners that would charge us for the service, and we asked the few we were considering if it was worth their while to do it on a fee basis, because they probably wouldn't see us again. The guy we chose enthusiastically told us it was worth his time to help us.

And, to be fair, he did help us, at least partially. He worked up projections on college costs, some potential retirement savings numbers based on our goals, and gave us a big thick book with all these things spelled out. A lot of it was boilerplate, but there was plenty specific to us as well.

The thing that bugged me was he tried to sell us on a number of financial products that our subsequent research convinced us were not good for us, but would be good for him if he could keep us as a client.

He had some life insurance products that really weren't good for us, and he wanted us to put all our investments in certain mutual funds that would pay him a commission, and then do a "wrap" fund, which basically meant we would pay him another fee to "wrap" all these mutual funds together for us. The idea was that he could make sure we were well-balanced in terms of types of stocks, bonds, etc. But I had already told him we weren't looking for ongoing investment management--the mutual funds are already diversified, we didn't need an active manager once we picked out a few that gave us a broad enough portfolio.

I felt like he only wanted to see about getting our ongoing business and that his assurances that the flat fee would be good enough for him were horsehockey (as Colonel Potter used to say on M*A*S*H).

So I'm not dissing financial planners, but I would suggest that anyone thinking of using one should go in with a healthy dose of skepticism. Go through the process, but then do a little research (and God knows there's plenty on the Web) and see if what you're hearing in the planner's office jibes with your understanding of what experts with no financial stake in your future say about these same financial products and services.