Friday, March 30, 2007

Search for financial advisor kicking into high gear

Remember when I started looking for an advisor many months ago before I got buried in my job? I kicked my search back into high gear today by making appts with financial advisors over the next couple of weeks. For kicks, I'm throwing in a couple of interviews with high net-worth advisors highlighted in Barrons' most recent Top 100 list. I'll have a little fun with this, and see for myself if a "Top 100" advisor is really much better than any other advisor. I know all the questions to ask now, and expect to be fairly knowledgeable about evaluating advisors after this process.

I was initially impressed by one of the advisors in that she was actually suspicious of my cold call. She thought I was putting her on (thought I was trying to recruit her or obtain some competitive information), so didn't divulge much information about her accounts or sound very friendly at all until she verified me by Googling me. Someone careful handling my money, I like that.

She said she was suspicious because I sounded too familiar with the drill.

Feel free to leave comments on any burning questions you may have for a financial advisor. I blogged a while back about some questions I asked, will provide an update on the question list (it's longer now) and how each advisor answered.

8 comments:

frugal zeitgeist said...

Oooh! Oooh! Can I be first?

I'd like to know what the advisor thinks of paying off one's mortgage early instead of investing that money in the stock market. I suspect I already know the answer (e.g., it's not the smartest thing to do financially), but I'd like to hear it from a professional.

I'd also like to know whether investing in tax-free mutual funds trumps taxable ones once the 401(k) and IRA are fully covered. I've read that it's advisable to do that to reduce tax exposure, but with the Roth IRA (plus restriction-free conversions to Roth and no more income limits in 2010) and now the Roth 401(k), it seems that it's not necessarily as good a strategy as it once was.

These questions are pretty simple, but that's how I invest. I'll keep the question of covering my shorts strictly to running for the time being.

Thanks!

Rags 2 Riches said...

I know what the answers are:

1. The decision to pay off your mortgage early depends on your tax situation, your other debts, and your other investment opportunities.

Do you still get tax benefits on mortgage interest? In the past several years, my deductions have been limited due to income level.

Do you have other high-interest debt? Pay those off first.

Are you fully funding Roth IRA, Traditional IRA, and 401k? You get significant tax benefits form funding these.

Do you know of other better opportunities to invest your money?

I would also weigh the psychological benefits of paying off your mortgage. It makes you feel good. Feeling good is worth a lot.

I paid off mine because I was limited on the deductions, I have no other debt of any kind, I am fully funding all retirement plans that I qualify for, it made me feel good, and I thought my company stock had a great run (didn't realize it would more than double again).

2. Depends on your tax situation. Are you in the maximum tax bracket? Do you have losses to offset gains? What returns are you seeing from the tax-free vs taxable ones?

Rags 2 Riches said...

Also, do you fall into AMT year after year? There are funds that avoid AMT.

frugal zeitgeist said...

Thanks for your feedback. My deductions are limited due to income, I have no other debt, retirement accounts are fully funded, and although I know there's an opportunity cost to directing money against the mortgage instead of into investment vehicles, the peace of mind is worth it to me.

The AMT hasn't bitten me yet for some strange reason. Probably next year; '09 at latest, based on projected income and the fact that the mortgage is nearing payoff.

Thanks for your input.

Rags 2 Riches said...

I ran into this while researching financial advisors. This advises financial advisors what to advise their clients regarding paying down the mortgage. It considers more angles than I mentioned:

http://registeredrep.com/wealthmanagement/estateplan/finance_mortgage_maze/

frugal zeitgeist said...

That's a nice new look for your blog you've got going there. Well done.

Rags 2 Riches said...

Hi FZ,
Happy Easter!
Glad someone noticed :). Drat, I lost my site meter - oh well, it was only ticking up by 2 per day :P

I asked the question for you about tax managed funds to the first advisor I interviewed. She was in Barron's top 100 advisors nationwide for 2006. As I suspected, she leans towards performance of the fund rather than whether it is tax managed. However, she does like a tax managed fund offered by Dimensional because she claims its performance is almost par with the non-tax managed version. She claimed that other tax managed funds she's looked at underperform. I have not yet researched her claims...

I believe Dimensional is only available through financial advisors, you can't buy through on-line brokerages.

rocky said...

I am new to your blog and just catching up on your posts. Why have a financial advisor at all? Perhaps I have just met the wrong ones but I have met a couple from local banks and from American Express and they didn't impress me at all. I always felt like they were pitching products that they will get top commission off of vs. products that could really benefit me. What do you believe a financial advisor can offer you that you can't do yourself?