Your Money: Options for Hiring a Financial Advisor

NEW YORK — Before the turbulent economy sends you running into the arms of a financial advisor, make sure you know all your options.

In addition to the various types of financial advice on the market, there are myriad ways advisors get paid for their services. Among them: commissions, hourly or flat rates for one-time help, asset-based fees for ongoing money management, or some combination thereof.

“It’s a very densely populated spectrum in the ways you might pay,” said David Yeske, former president of the Financial Planning Association and managing director of Yeske Buie in San Francisco.

As you start your search, remember that “financial advisor” is a catchall term and doesn’t mean that the person has obtained any specific training. You’ll want to understand the different professional designations you may encounter and be mindful of potential fee structures.

Free Services

Many financial advisors, whether they work for a large brokerage or operate independently, offer free initial consultations that usually last about a half hour or more.

But don’t expect to walk out with a detailed list of ideal investments. What the meeting should give you is a sense of how your advisor plans to approach your portfolio. One way to guide the discussion might be to ask what issues she thinks need to be addressed most urgently.

Fees vs. commissions

Some advisors work on a “fee-only” basis, meaning they charge a pre-determined amount for their services. Others, however, may also earn a commission from a third-party for selling financial products.

If you’re going to a stockbroker, for instance, the prospect of earning a commission may influence him to suggest a particular mutual fund or an annuity, said Samantha Macchia, a principal of Summit Financial Strategies Inc., based in Columbus, Ohio.

“If you’re paying a flat fee, you’re clear about the relationship up front,” said Macchia who is also a member of the National Association of Personal Financial Advisors, an organization for fee-only planners.

Financial advisors are required to disclose whether they get any outside money from third parties.

Fees for one-time help

If you have a question about a specific topic, you may want to hire a financial planner on an hourly basis. This may be an optimal choice if you think your issue won’t take more than a couple of hours to address.

Rates vary widely, but typically range from around $150 to $300 an hour, according to the Garrett Planning Network, which has around 300 certified financial planners around the country who meet with clients on an hourly basis.

You can also find a certified financial planner in your area on the Financial Planning Association’s Web site.

Another option if you have a straightforward question is My FinancialAdvice.com, which lists planners who give guidance via phone or e-mail. Users can browse professional backgrounds and client ratings. Planners also list a range for their hourly rates.

For those looking for more expansive guidance, such as how to save for retirement, many financial planners charge a flat fee to help devise a big-picture game plan.

This arrangement usually includes periodic follow-up, so make sure you’re clear on exactly how much follow-up you’ll be entitled to, and in what form (meetings, phone calls, e-mails).

Depending on the issue, individual planner fees can range from $500 to several thousand dollars, according to the Garrett Planning Network.

Some brokerage firms may also offer one-time help. At Charles Schwab, for instance, people can pay $1,100 for a consultation to help them determine when they can retire and how to reach their retirement asset goals.

Fees for ongoing management

If you want ongoing portfolio management and regular access to a financial advisor, you may be asked to pay a fee based on a percentage of your assets.

This type of service typically costs about 1 percent of your investments, although the figure can go up or down depending on the size of your portfolio. Someone with more assets, for example, may be charged less than 1 percent. If you’re being asked for 2 or 3 percent, you may be able to find something cheaper.

Other advisors charge a flat fee to develop a plan, then ask for an additional asset-based fee for active oversight.

Be sure to ask whether the fee covers costs for transactions (such as investing in an annuity).

Some advisors and brokerages only take on clients with a minimum level of assets. At E Trade, people with at least $50,000 in investable assets can typically pay 1 percent or less for ongoing management.

If you don’t like the asset-based fee structure, you may be able to find a planner who charges an annual, one-time fee in exchange for ongoing management.

In the end, you don’t necessarily want to go with the cheapest advisor. “You want to find someone you feel comfortable with,” Yeske said.

Still, before you resign yourself to paying for guidance, see if you can find some clarity by using the wealth of online tools on the Internet. Various financial tools and calculators can help you get a better understanding of the issues and help make your conversations with a potential advisor that much more insightful.