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The 'Advice Threshold'

Do-it-yourself investing was so much more fun during the big bull. New Internet research tools and surging stock prices made outside advice seem superfluous. Investors picked stocks and funds by themselves and watched as they went up and up. That was then. Today a plunging market is draining investor self-esteem, and last year's players are seeking not the hottest stock or fund but wise counsel and a hand to hold. Financial planners have the ringing phones to prove it. The National Association of Personal Financial Advisors (NAPFA) fielded a record 27,000 requests for help in the last year, a figure that has more than doubled in three years. "They've never experienced so much walk-in traffic to their offices," says Robert Veres, publisher of Inside Information, a trade newsletter.

Traditional no-load mutual funds have seen their direct sales erode and are turning to fee-based advisers, mutual-fund wrap account programs and bank trust departments to sell their funds. Some, like T. Rowe Price and Vanguard Investments, are answering the call with on-staff planners. T. Rowe Price will do a portfolio review for $250; Vanguard offers full-featured retirement advice at $500 a pop. Both are limited. While they offer state-of-the-art advice on how to balance investor portfolios, they stuff them with house-brand funds.

So what's new? Changing demographics. Even self-directed investors cross what Forrester Research calls the "advice threshold" as they get older (say, over 45), richer (earning more than $60,000 a year) and more confused about their product-packed portfolios. But the new financial-planning consumers are different in other ways. They're more independent and less well-heeled than yesterday's uninvolved coupon clippers (Here's my money, just keep the dividend checks flowing). The new advice seekers don't want to turn over their money. They just want a thoughtful review.

Until recently they would have had a hard time. Financial advisers don't actually make much money giving advice. Their income--an average of $185,000 a year, according to the Association for Investment Management and Research, a Charlottesville, Va., trade group--comes from selling products on commission or managing assets for people with enough of them ($1 million or more) to make a percentage worth their while. (No wonder the Jobs Rated Almanac said "financial planner" was the best job last year.) But this year there's synchronicity in the financial-planning marketplace: just as the masses are deciding they need help, a number of planners have adopted new practices designed for the masses. The new planners don't manage assets, they don't collect commissions and they don't become a permanent part of your life. They charge by the hour, tell you what to do and call it a day.

Sheryl Garrett of Overland Park, Kans., is credited by many of her colleagues with having started this new approach. According to the Journal of Financial Planning, one of the many trade publications to have written flattering pieces about her, she's "broken the mold" of traditional planning by giving up both commissions and asset-management fees and is still managing to earn a living. Garrett decided three years ago that she just wanted to serve everyday people who couldn't afford--or didn't want--money managers. She charges $150 an hour and bills in lawyerlike six-minute increments. Customers buy her time and ask her anything they want. Usually, though, they ask for a complete financial plan, which will run about $1,200, or a retirement plan, which costs about $500; for that, they'll get an analysis of how much they should be putting away and where they should be investing those savings.

That was exactly what Mike and Sarah Randolph of Prairie Village, Kans., were looking for. Mike works for a bank, but when he and his wife wanted a basic cash-flow analysis that would tell them how to live, save for college and invest for retirement on one income, they chose not to go to the planners in his own company. They were concerned about their privacy. And they saw bank-based advisers as "pushing product," because many work on commission. They paid Garrett $600 and walked out with a budget and investment plan that answered all of their questions.

Garrett's approach has been embraced by other financial planners. Those who don't want to deal with the masses are sending her their middle-income customers. Those who do want the same clientele have begun buying Garrett's business plan. Since September she's licensed 52 others to operate as part of her nationwide Garrett Financial Network (garrettplanningnetwork.com). Even planners who cling to the profitability of asset management see hourly consultations making up a larger piece of their business. Norman Boone, a San Francisco asset manager and financial planner, says his four-adviser firm is now seeing 12 to 15 new flat-fee clients a week, up from the one or two stragglers more typical just two years ago. Ft. Wayne, Ind., asset manager Greg Galecki sees more demand for what used to be a small part of his business: he offers a two-hour consultation for a flat $575.

All this advice-for-a-fee is good for consumers, who can benefit as long as they remember that affordability and lack of conflict of interest are just two qualities of the ideal financial adviser. The other is competence. What good is cheap and honest advice if it's lousy? To find a financial planner who can offer all three qualities, look for two designations. The Certified Financial Planner (CFP) notice after a planner's name means he or she has had extensive coursework, practical experience, testing and continuing education. Membership in NAPFA (napfa.org) means the planner has agreed not to take any commissions, is committed to full-featured planning and not just asset management, has met core competency requirements and peer reviews, and has taken a fiduciary oath to put clients' needs first. If you find a quality asset manager who wants fatter cats than you, chances are he or she will refer you to an hourly planner.

It's worth a shot. With the right fit, you'll get a comprehensive plan, some good investment advice and a sounding board for your own decisions. At worst, you'll have somebody to blame besides yourself for all that red ink on your statement.

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