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Marketplace Features
For cassette copies of our special series, "The Gelt Trip,"
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Stories in the series:
Kids and Money
Reality Checking
Not Your Mother's Budget
Financial Planning
High-Tech Money Management
Financial Planning
Kristian Foden-Vencil
Host: Not long ago, anyone who consulted a financial planner was either born into money or pulling down six figures. Nowadays, it seems nearly everyone's phone is ringing off the hook with offers of financial advice. But does it make sense to pay some suit a hundred dollars an hour to be told you should pay off your high-interest credit cards? As part of our continuing series on personal finance, Kristian Foden-Vencil reports from Portland, Oregon.
Two years ago, Cecily Quintana opened her own art gallery in the bustling center of Portland, Oregon. It was a bold venture -- who knew if Oregonians would be willing to pony up hard cash for fine Chicano art? And like many bold new ventures, the start was shaky, mainly because of Quintana's financial naivete.
Quintana: If money was in the account, I spent it. It wasn't as if I budgeted for the future. It wasn't as if I was saving for the future. I was living life, which is fine, up to a point.
Quintana knew she needed advice. But earning only $35,000 a year, she balked at the idea of paying for help.
Quintana: I was thinking, why do I want to pay $125? She's giving me advice that I already know in my own heart. Why do I want to pay this amount of money?
But Quintana buckled and now says her visit to a financial consultant was like finding a wise new friend, one that was willing to listen to her money miseries. Quintana is not alone. A 1998 study by the International Association for Financial Planning says 64 percent of middle- to high-income consumers now pay for financial advice. But is the use of financial advisors for everybody? Most emphatically yes, says financial planner Karen Sheridan.
Sheridan: I say, "If you don't think it's worth your money, I'll give you your money back." I mean that's one thing that I say. I've not had that experience though, because it's too helpful to sit down with somebody and have them understand what it is you really want out of life and how you're going to get that by managing your money.
It seems women are more convinced by her arguments than men. A study by the Dreyfus Group last year found 48 percent of women rely on advisors compared to only 32 percent of men. But can't any old Joe, or Josephine, work out the value of secure investments and compound interest themselves? Sheridan says no.
Sheridan: You can virtually figure out, I believe, and I've seen it happen, figure out any financial goal that you have -- if you're willing to put it down on paper. But I believe that you cannot figure this stuff out in your head.
It's clear the financial services industry thinks everyone can benefit from professional money advice. Glitzy television ads push various financial products and advice on viewers who may not be all that familiar with either. Gary Schatsky of the National Association of Personal Advisors says that could set investors up for trouble.
Schatsky: You're constantly hearing stories of individuals who have been put into inappropriate investments. People in retirement whose IRA accounts put into annuities which either had extraordinary fees or commissions or were inappropriate because the investors were somewhat conservative. Stories like this, while not the norm, are abundant enough that people should be vigilant and protect themselves.
So how do you protect yourself? The National Association of Personal Financial Advisors has developed a 'fiduciary oath.' It ask money managers to promise to act in the best interest of their clients, and not push investments for which they receive compensation. Schatsky says consumers should ask their advisor to sign the oath. he also suggests going with a financial planner who charges a set fee. (Note: for copies of the fiduciary oath, call 1-888-FEE-ONLY.)
Schatsky: When someone's a fee-only financial advisor, they're compensated only by the client. They don't work on commission, they don't get a kick-back, they don't sell products, they don't get a referral fee. There's a dedication exclusively to the client.
But not everyone agrees on what is and isn't in a client's interest. Financial consultant Karen Sheridan is putting together her own money management company, into which she aims to channel some of her client's assets. Even though she will benefit financially from recommending clients to invest in the company, she says, the plan doesn't present a moral dilemma.
Sheridan: I think that it could be construed as a conflict of interest if that's how you construe it. I don't consider it myself, in that I wouldn't tell every person to invest with me. I mean I think index funds are great, it depends on what the client needs.
But headlines about insider trading and Wall Street excess have made may people wary of the financial service sector.
Outside a downtown Portland shopping mall, Oregon's older folk seem the most skeptical.
Person: I had relatives who were wiped out by the Depression when the banks went under. And I like FDIC. And I think Roosevelt was the best damned president we ever had.
Do you have a financial planner that you work with?
Person: No, I do not. I had to do the best I could for myself. And there isn't much more I could do now. I think probably the majority of people plan on retirement with a pension or social security. But the way I look at it, you might as well work. Ha, ha, ha. So as far as financial planning, I just haven't thought about it.
Not everyone may be ready for a financial advisor, but there are other ways of getting advice. Computer salesmen are happy to tout the benefits of a $50 personal finance program.
Salesman: There are quite a few choices you can make.
But money manager Karen Sheridan says software doesn't do the same job as a professional advisor.
Sheridan: I have a lot of people who come in here who have a lot of data -- but they don't have much information. I mean they'll have a two-inch thick computer report of what they've spent their money on in the last 10 years. But they've still got a whole bunch of debt because they're not managing the money.
Meanwhile, Gallery owner Cecily Quintana says there's one piece of advice her money manager gave her that really helped.
Quintana: She told me, "Stop spending money." (Laughs.)
It's hard to tell if the use of financial planners really works. One industry study finds over 80 percent of people using advisors think hiring a professional is worth the price.
The cost of a financial advisor varies by location. Some times it can be as low as $75 an hour. But the average is closer to $125 an hour. And with prices like these, even the professional advisors themselves suggest consumer really consider the cost of a financial advisor varies by location. Sometimes it can be as low as $75 an hour, but the average is closer to $125 an hour. And with prices like these, even the professional advisors themselves suggest consumer really consider what they want to get out of the relationship before they go hiring someone to get their fiscal house in order.
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| Our series was reported by: Scott Horsley, Kristian Foden-Vencil, Amy Eddings, Jessica Smith and Michelle Brier; edited by Eve Epstein and Michelle Brier; engineered by Neil Rauch; with production assistance from Sara Ivry, Ben Donovan and Julie Hantman. |
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