By contributor
updated 5/17/2006 5:07:22 PM ET 2006-05-17T21:07:22

If you don't have several hundred thousand dollars to invest and you ask for help from a no-commission financial planner, the reply has been usually this: "Sorry, we only work with high net-worth individuals."

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Basically, if you weren’t rich, you were on your own. Or, at best, you could only get help from people with financial products to sell. But the financial services business is now trying to fill the need for low-cost, no-commission planning.

Firms like the Vanguard Group, Charles Schwab and T. Rowe Price are offering a variety of ways for the less affluent to find out if their portfolios have the right asset allocation, if they can save enough for their child’s college costs, or if they are on track to a secure retirement.

They’re trying to dispel the adage that you have to pay a lot to get the best advice. But in some cases that may still be true. According to a recent Consumer Reports study, you can obtain solid investment advice for retirement planning, but don’t expect a comprehensive plan with lots of hand-holding and follow-up.

"What I saw was they had offerings that were good but not necessarily great,” said Bob Glovsky, President of Mintz Levin Financial Advisors in Boston and the financial planner who crunched the numbers on Schwab, Vanguard, Fidelity and other advisors in the Consumer Reports study. "Each one had both benefits and limitations."

His main criticisms: Inexpensive operators’ financial plans were primarily retirement analyses with some investment suggestions added in, and their recommendations were often based on improbable inflation and return assumptions. Many often glossed over critical issues, such as estate planning and long-term health care insurance.

"The pressure is really on the clients to ask themselves what they really wanted and then decide that for themselves," said Glovsky. "So basically it’s really up to you to decide what advice you need versus what you’re getting, and then determine how do you manage the advice you’re getting."

The ideal client for inexpensive financial planners, in Glovsky’s opinion: "Someone who wants to focus strictly on retirement and has a good hand on variables. A neophyte to investing might have a lot of trouble understanding what to do with the advice.”

But an investor with a solid grasp of finances and an eye on retirement is the exact person who wants these services, said many of the firms profiled in Glovsky’s study.

Ellen Rinaldi, Principal of Vanguard’s advice brokerage and retirement services group, said the mutual-fund company’s initial financial planning service covered everything from insurance coverage to college savings plans but when clients complained that it was too labor-intensive and detailed, Vanguard decided to scale it back.

"We found that all of our clients had a few key questions: Am I saving enough, am I investing appropriately, and when can I retire? And maybe the next question is, ‘Am I saving enough for [my children's] college?’”

Last month, the firm introduced its Vanguard Financial Plan (VFP), which focuses on investment allocation, savings sufficiency, retirement analysis, and college savings. VFP costs $1,000 for clients with $250,000 or less invested in Vanguard mutual funds and is free for new clients who invest $100,000 or more.

"You can still get advanced cash flow, insurance analysis, detailed education assessment, and estate planning in VFP Plus,” said Rinaldi. "But we find not all clients need that.” VFP Plus costs in a range from $500 to investors with over $1 million at Vanguard to $1,000 for those with $250,000 or less.

Coming soon is a "Monitor My Plan” online tool that lets investors see their plan online to view their financial targets, rebalance them if necessary, and connect with a planner on an annual basis. People who have done their own plan can also input it into the tool.

Rinaldi said both plans are geared towards people who want to manage their own assets, although Vanguard planners are there to offer the personal touch. "You can still talk to a financial planner at your convenience, you just book time on our online calendar.”

Because Vanguard has its own funds, it’s not surprising they are the only ones recommended in the VFP asset-allocation plans.  Rinaldi’s reply: "We recommend them because they’re low-cost, and they’re hard to beat.”

T. Rowe Price is similar in that it only recommends its own funds in its Investment Checkup, which costs $500 for those with less than $1 million in invested assets. But, according to Christine Fahlund, a senior financial planner at the firm, its planners are bullish on equities for clients who may spend up to 30 years in retirement. "Our lifecycle funds have a 55 percent equity ratio for a 65-year-old, which is a heavier concentration that our competition offers.”

T. Rowe Price also reviews a client’s situation every year and gives new recommendations to ensure their plan stays on track.

Fahlund is quick to admit that the firm can’t advise on insurance and estate-planning issues. "If you have other needs, we encourage you to see a comprehensive financial planner," she said.

She also said that the services are offered one-on-one, but most people do their assessment over the phone, which may not benefit brand-new investors.

"These services are targeted to those managing their own accounts who want validation and touch base with an expert.”

No free follow-ups
Schwab’s boast is that it recommends mutual funds over 1,000 fund families, focusing on no-load funds with no transaction fees. "There’s no incentive for us to recommend specific funds so we run the gamut," said Jeff Holzbach, a Schwab financial planner in Indianapolis.

Schwab’s free Goal Planner is a retirement assessment with a recommended mix of mutual finds and advice on how much to save to meet retirement goals. It’s designed for everyone but Holzbach said the plan is best for investors who want a quick assessment and guidance on where they stand. "If a person has more concerns or more complexities in their cash flow, sources of income or expenses, that’s when you pay a fee to find out what’s appropriate."

The two fee-based plans focus on retirement planning and comprehensive planning (life insurance, estate planning, Social Security disbursements). Retirement planning is $1,100, and the comprehensive planning ranges from $2,000 to $3,000, depending on the client’s financial complexity. Schwab clients who pay investment management fees get a 30 percent discount on both plans. For people with stock options who need advice on how to manage them, Schwab offers an Executive Compensation Consultation for $2,000 that focuses in the right strategy for exercising options.

Because it’s a one-time fee for a one-time fee, Schwab charges extra for follow-up advice, although they do receive a discount if they come back in the same year. After that, Schwab charges on an hourly basis. Schwab accountholders who want ongoing advice will pay a typical management fee of 0.75% to 1.25%, depending on assets.

One issue Glovsky had in the Consumer Reports study was that the financial planners often used off-base assumptions about rate of returns and projected life spans. If any of the assumptions in your plan are off the mark, you might end up not investing enough or assume you can retire earlier than you actually can.

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