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Q:Is there a wealth threshold at which you recommend hiring a financial adviser rather than going it alone with investing my own money?

I found a few financial advisers through the National Association of Personal Financial Advisors (NAPFA) to meet with. How do I evaluate the value added by these guys? Is a financial adviser likely to better my investment returns with his fee included?

A: There are two kinds of services that most people need. One is investment management. The other is financial planning.

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All too often, both are mixed together. This tends to inflate the cost of managing your money.

If you can, you should work with your fee-only NAPFA adviser on a fee basis for financial planning, telling him or her that you want to focus on low-cost index funds for your retirement portfolio.

Here’s why: Let’s say your adviser offers financial planning and portfolio management for 1.5 percent a year of a $500,000 retirement portfolio.

That means their annual bill will be $7,500. Invested in a low-cost index fund portfolio, the actual management of your portfolio will cost about 0.1 percent a year, or $500.

Equally important, this portfolio is likely to provide a better after-expense performance than 70 percent of the actively managed portfolios.

The cost difference here is $7,000 a year. You should be able to get a whole lot of financial planning done for $7,000.


Copyright, 2013, Universal Press Syndicate

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