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Good help is so hard to find these days. If the adjectives "high net worth" or "affluent" (euphemisms for "filthy rich" in professional money manager land) can't be used in the same sentence as your name, then much of the financial services industry will tell you: "Thanks, but you can't afford my advice, kiddo."
Don't worry. There are money pros who cater to those with limited capital (meaning anyone with less than six figures in investible assets). And their advice can change the entire course of your financial future.
There's the rub: The less you have, the bigger the impact of each financial decision. That also means the less you have, the more you have to lose. Still, no matter how much you have to gain -- or lose -- the quality of advice you get is crucial. And while good help may be hard to find, bad advice is everywhere.
Why your financial advisor is smiling
Car-salesman cliches may not be an accurate reflection of the way every dealership does business, but the stereotype has its merits: Because of it, we're much more vigilant consumers. When we shop for a car, we're predisposed to be wary of the hard sell, hidden fees, and advice based on the salesman's commission instead of our actual needs.
Maybe we should thank Bernie Madoff for triggering a similar "Spidey-sense" when we're shopping for financial products and advice. Sure, he's an extreme example, but if anyone wasn't actively searching for conflicts of interest in the financial services industry before, they sure are now.
My colleague Robert Brokamp, of Rule Your Retirement fame, once shared with me some quotes from an article about "Annuity University," where agents go to learn how to push products to the silver-haired set: "Show them their finances are all screwed up so that they think, 'Oh, no, I've done it all wrong.' This will make you money. ... Toss hand grenades into the advice -- to disturb the seniors. You're there to solve their problems, but you have to create those problems first. No problem, no sale."
If you haven't guessed already, selling annuities really brings in the bacon for these commission-based brokers (or agents).
Why your kid still has crooked teeth
The stink in the financial industry's fridge isn't necessarily the stocks, funds or insurance products it sells -- it's the way it pays its people to sell these products.
Commission-based financial advisors make money each time they sell you a mutual fund, stock, bond or insurance product. Need braces for the kids, a lump of cash to pay off the home equity loan, or a larger retirement kitty? So does the person on the other side of the desk. And the way they get paid means that you're definitely helping them achieve their financial goals.
It takes a strong will to steer a customer toward products that'll help you pay for orthodontia if it means their own kid will have to get by with an overbite for another month or two. If you're unsure whether you're getting advice that's unbiased, then you should seek the help of a pro whose paycheck isn't tied to the products he pitches or the amount of investible assets you bring to the table.
The right way to pay for advice
If you need to hire a professional guide, look for a fee-only financial advisor. Fee-only advisors are paid by the hour or by the project, which means their advice is free from the conflicts of interest inherent at firms with commission-based financial pros. At The Motley Fool, we've long been fans of the Garrett Planning Network -- a network of fee-only advisors in every state (click here to find one near you). We've lined up a limited-time 10% discount for new Motley Fool clients; just look for the Motley Fool icon to identify participating advisors.
That said, not all self-described "fee-only" planners are purely paid per hour or project. "Fee-based" and "fee-offset" are not the same as "fee-only." The fundamental basis of these relationships is a fee, but subsequent commissions are also part of the package -- either charged on top of fees ("fee-based") or subtracted from fees ("fee-offset").
You may also encounter planners that charge a straight percentage of your total assets on an annual basis -- either all assets (from your personal balance sheet) or just the assets they are helping you manage. This is a common fee structure for independent financial planners. However, if you don't meet the minimum asset requirements, you'll have a hard time finding a good fee-based planner. And, anyway, if you're only looking for occasional advice, an annual, asset-based fee is a pretty pricey proposition.
An hourly charge usually makes the most sense for those looking for affordable, unbiased help on specific issues (or even a full-blown financial plan). But no matter where you seek financial advice or whom you hire, remember that it is your money -- and you are an at-will customer and you call all of the shots.
Not everyone in the financial services industry is out to get you. But there is only one person who's truly got your back -- that's you. So for his timely, vivid and very public reminder about this important fact, thank you, Bernie Madoff.