In certain situations, it’s clear who to call when there’s a problem you can’t solve. When a pipe breaks in your home, you call a plumber. When your car breaks down, you call a mechanic. When your pet is sick, you call the veterinarian.
But what if you’re trying to determine how to invest your money? Who do you call then?
You could talk to an advisor at your bank about opening an investment account. You could also work with an independent advisor or fee-only financial planner to get his guidance about which investment company and type of account might fit your needs. You could also work directly with a brokerage company to open the account yourself.
There are many choices, so to help you find the retirement investing route that’s right for you, here’s a closer look at three options:
Investment account at your bank. If you want the simplicity of working with one financial institution vs. keeping track of several accounts and passwords, then you may like this option. In theory, consolidating everything in one financial institution may help ensure that you’re appropriately diversified and reduce the amount of mail you receive or the number of accounts you manage. Many banks now offer online tools to help you track various accounts with them or other financial institutions, which can help you monitor the big picture and your diversification needs. (Be sure to input the necessary information in order for the tools to work properly.)
However, keep in mind that the level of investment expertise and support you can get at a bank varies, according to Rob Weagley, chair of the University of Missouri’s personal financial planning department. “There are banks that have a financial planning or investment office, but there are a lot of banks that don’t offer that service,” he says. Find out if your bank has a Registered Investment Advisor (RIA) on staff, as he or she has a fiduciary responsibility to give advice that’s suitable to you as the client.
If you have more complex investing questions that your bank is not equipped to answer, Weagley says that you might want to consider other options.
Investment account with the help of an independent advisor or fee-only financial planner. If you want the advice of a professional or you have complex questions that can’t be answered at your bank, then hiring an independent advisor or fee-only financial planner might make sense. “Interview several advisors so you find one that fits your needs, “Weagley suggests. “You want somebody who works with people like you.” For example, a recent graduate who has $500 to invest would likely not want to work with a professional who focuses on high-net-worth clients.
“There are places where you could start an investment account with $500, and an advisor can get you to them faster than you’re going to be able to find them,” Weagley adds.
Be sure to ask the advisor how he makes money because you may get different recommendations from someone who works on commission vs. someone who charges an hourly fee. Understanding how the fees work is important. Even a fee of 1 percent of the assets under the advisor’s management can seriously eat into your retirement savings over time.
Investment account opened directly through a brokerage firm. Some people may feel more confident and comfortable working directly with a brokerage firm rather than enlisting the help of an advisor or financial planner. A brokerage firm facilitates financial suggestions, such as the purchase or sale of stock. Weagley says some people use their brokerage firm like a bank, carrying a brokerage-issued ATM card that reimburses ATM fees. “A bank may not give you some of those perks,” he adds.
This option may make sense for someone who prefers the flexibility of using any ATM rather than committing to certain ATMs in a geographic area.
Some mutual fund companies also have knowledgeable professionals answering their phones and offering advice. At some companies, says Weagley, you can even call and talk to a Certified Financial Planner (CFP).
Whichever option you choose, to get the most out of your retirement investing, it’s important to understand the fees involved and the compensation structure of the person advising you.
“Read a little bit to understand the difference between fee-based and fee-only,” Weagley stresses. “Know the difference between stock brokers and financial advisors.”
Susan Johnston has covered personal finance and business for publications including Bankrate.com, The Boston Globe, Entrepreneur.com, Learnvest.com, Mint.com, and USNews.com. Find out more at www.susan-johnston.com.