Just wanted to highlight a point or two stemming from the Dave Ramsey post last week. In short, what Dave does is recommend financial professionals through his “endorsed local providers” (ELP) network, which is (I imagine) trumpeted on his show and is found here (you'll see the image to the right advertised around the web). The main issue here, again, is the fact the he refers people seeking investment advice to commission-based brokers. While this sounds innocent enough, those who have dealt in this arena know the kinds of pernicious conflicts of interest which arise when dealing with such people. First of all they’re paid on commission. Second, they’re paid on commission. Get it? They will sell you what makes them the most money instead of what is in your best interest. The two biggest problems with such a scenario is that they will sell you loaded mutual funds (wherein you pay a commission to buy something that’s usually free), and they will most likely try to churn your account as much as possible (i.e., they’ll encourage you to buy and sell your investments frequently so they get paid more). So, the basic lesson today is to simply avoid such jokers.
But what if you want a helping hand and don’t want to simply use a target date fund at Vanguard? Find a fee-only advisor. These guys and gals are doing what the public think stock brokers are doing (i.e., really taking care of you). Instead of being commission-based, fee-only advisors are paid by either an hourly fee, a simple financial planning fee (perhaps a flat fee per visit), or by a certain percentage of the assets they’re managing. Thus, the conflict of interest is greatly reduced compared to the way stock brokers function. Looking to find one locally? Check out the search feature on the National Association of Personal Financial Advisors website here.
After my dad died, his accountant tried to pull a fast one and sell Mom a worthless variable annuity (and thus bank a fat commission), so it’s not just brokers you have to watch. I’ll close, again, with a William Bernstein quote that puts you in the right mind-set:
“The prudent investor treats almost the entirety of the financial landscape as an urban combat zone. This means any stock broker or full-service brokerage firm, any newsletter, any advisor who purchases individual securities, any hedge fund. Most mutual fund companies spew more toxic waste into the investment environment than a third-world refinery. Most financial advisors cannot invest their way out of a paper bag. Who can you trust? Almost no one.” [italics are his]