Money Coach: How to Choose a Financial Planner

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Finance expert Alvin Hall offers listeners tips on how to pick their own financial "dream team" on the road to stability.

MICHEL MARTIN, host:

And now it's time for the Money Coach, where we check in with our personal finance guru, Alvin Hall. Last week we talked about the importance of estate planning - putting your financial plans into writing before you get sick or experience some other debilitating change. But how do you go about finding the right person for that job, or can you do it yourself? And what about financial advice in general?

We hope our man, Alvin Hall, has the answer for us. He joins us now from our New York bureau, as he does just about every week. Welcome, Alvin.

Mr. ALVIN HALL (Financial Expert): Hello, Michel. I hope I have the answers too.

(Soundbite of laughter)

MARTIN: Let's walk through this. Have you know if you need a financial professional?

Mr. HALL: Most people need a financial professional. When you get to the point where you really have money to invest in the stock market or buy bonds, you often need help in structuring a portfolio so that your money will be diversified, so that you can have protection against the inevitable downturns in the market.

MARTIN: But what about - like the financial software on the market, something like - and obviously we're not in the business of endorsing any product over and other, but there are lots of products on the market, something like, you know, Quicken is something, is a name that a lot of people know. And doesn't that sort of tell you, you know, how much money you can put in one place or another?

Mr. HALL: If you're putting money away and saving, absolutely, Quicken can enable you to drop it in the right slot at the right time. The program can tell you that you have money ready for investing. I say it's all right if you're trying to fly it alone and you don't have a lot of money to lose. But if you're getting up to significant money, talk to a professional.

MARTIN: And what kind of a professional, and how do you find this person, Alvin? I mean, as you've discussed, the reason some people went into financial difficulties is they weren't raised with money. They don't know who these people are. How do you find these people?

Mr. HALL: And I am one of these people. You know, I was raised on a farm, where the idea of a financial planner didn't even exist.

MARTIN: Yeah. That was a coffee can - it was the coffee can.

Mr. HALL: Exactly.

MARTIN: And…

Mr. HALL: Savings account...

MARTIN: And the jar, and the mason jar.

Mr. HALL: That's exactly what it was. And when I first came to Wall Street, I made the classic mistake. I was told by a friend of a friend that this guy was great. And I should have known there was something wrong when the first thing he wanted to talk to me about was life insurance. I'm a single guy. The only person who's going to be unhappy when I die is American Express. I guarantee you. Okay. So the idea that he was talking to me about insurance and then made these recommendations of these stocks that I really didn't understand, all of those should have been warning signs. And I made that mistake.

But now I've recovered from that mistake and I know you should talk to somebody who is willing to listen to you. They should be willing to present you a theoretical portfolio of some ideas about how they would manage your money, or the types of recommendations they would make. If they are talking to you about the types of securities that you don't understand, that you are clueless about, run in the other direction.

MARTIN: Let's talk about the difference, though, between a financial planner and a broker.

Mr. HALL: A financial planner is someone who will sit down and structure a full financial strategy for you long-term. They can earn their money one of several ways. One, they can charge a fee. Generally, this fee is a percentage of the assets under management, which can range between one and two percent per annum. Some people do it on a transaction basis, i.e., they'll earn a fee by recommending a certain mutual fund to you and they'll earn money that way. So that's the way a financial planner works.

A broker typically recommends stocks, bonds or mutual funds. And they only earn money when you actually do a transaction. When they're doing individual transactions, there's what's in the industry called the five percent rule for mark-ups and mark-downs on stocks. But five percent is just a guideline, so it should be significantly less than that on individual transactions depending upon whether you're doing stocks or mutual funds. I tell everybody when you're dealing with the broker, occasionally go online and look at fees of what competitors are charging and make sure that your individual is in that range.

MARTIN: And finally, Alvin, I have to ask, as you know - of course you've been very generous with your time - we've been putting out fillers all summer long for the money train. We had been looking for listeners who want to get advice on reducing their debt, buying a first home, starting a first business. We've had incredible response. But a lot of people, they send us these, you know, plaintive messages talking about how much they need the advice or they need the help. When you pursue it further and get deeper into their situations, they seem to fall back for various reasons. And I'm assuming that some of it has to do with public scrutiny, that talking about this publicly isn't very comfortable for some people. But what do you think this is about? What do you think the hesitation's about?

Mr. HALL: People think that you can separate money from lifestyle and emotional issues. They want somebody who will just deal in black and white with the numbers and leave the craziness, or as they say in Yiddish, the mishigas, the free-flow in the air. In reality, people don't want the mirror held up to the full picture of their financial situation. That's why people drop out.

And I think about all the people we've spoken to, the lady in the Midwest who was having some relationship problems because of her spending habits. Or the lady who had a dream about buying a house, but didn't want to accept the fact that her dream had flaws in it. That's because I was holding up a picture to the full range of their problems and their ideas. And people want to deal with money as numbers only. It's not practical, but they'll always try to do that. As soon as I or anyone starts to expand the playing field, bringing in other things, they'll all just say, oh, I can't deal with that right now, I'll just call you later.

MARTIN: Well, I think there are still some people out there who want to have that mirror held up. Let's see what we come up with.

HALL: Yes.

MARTIN: Okay. Alvin Hall is a financial expert. He joined us from our New York bureau. Alvin, as usual thanks for joining us.

HALL: You're most welcome. Thank you.

MARTIN: Keep the conversation going at npr.org/tellmemore. And yes, we are still plugging away with the Money Train. If you are still reducing debt, buying a first home, or starting a business, send us your comments at npr.org/tellmemore.

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