Chicago Tribune Gail MarksJarvis column

May 08--It's a typical reaction: You don't think you have the slightest idea how to invest your money for your future, so you figure you'll go to an expert and get it right.

The trouble is that the investment business is full of conflicts of interest. And naive individuals, who go blindly for help, often end up getting dinged in the process. The more you need help, the more chance you will get taken.

"Financial advisers are more likely to target less sophisticated and less affluent investors with products that are higher-cost or otherwise substandard," a broad range of groups ranging from the Consumer Federation of America to the CFP Board and AARP wrote the Securities and Exchange Commission. The groups want regulators at the SEC and the Department of Labor to protect consumers, because most Americans can't tell the difference between a reliable adviser and one posing as one.

True financial advisers are required by law to do what's best for a client. They live by what's called the "fiduciary standard." But most people who get advice go to "financial consultants," or brokers, who are really paid to be salespeople, not to give the best advice.

The brokers often have incentives to sell clients expensive funds, annuities and insurance rather than the best, and cheapest, products for the person.

So Americans throw millions of dollars away rather than ending up with money for retirement or sending children to college.

"This is a problem that needs to be addressed," said Barbara Roper of the Consumer Federation of America. But since 1999, regulators have been dragging their feet, as the insurance and securities industries have fought rules that would make it tougher to prey on unsuspecting people.

Government regulators have taken the position that you, as the customer, should beware. You are supposed to be smart enough to ask a so-called adviser if he or she is a "fiduciary" and realize when you are paying excessive fees needlessly. But few Americans realize that "loads" can be unnecessary sales charges, and that mutual funds charging high fees usually perform worse than cheaper ones.

Most Americans don't realize that salesmen may steer people into complex annuities like "equity indexed annuities" because the fees are higher than cheaper, simpler products.

Nor do many individuals realize the power of small numbers. Take, for example, someone who invests $10,000 in a mutual fund with modestly low expenses, or an "expense ratio" of 0.5 percent. If the investment gains 8 percent a year, the person will have about $86,580 after 30 years. If, instead, the expense ratio is 1.5 percent, the person will only accumulate about $63,940. Check the impact of your expenses at tinyurl.com/FundFees.

Before working with a financial adviser, ask how they make their money. If they get commissions, there may be an incentive to push certain products. Also realize that if you don't have at least $250,000 to invest, you won't likely interest a top quality adviser.

Even with that amount, you have to watch whom you employ. Choosing someone who is a "certified financial planner" or a CPA who is a "personal financial specialist" will help, but you still need to discuss fees upfront and check for regulatory abuses in the past at brokercheck.finra.org/Search/Search.aspx.

If you don't have a couple of hundred thousand and are looking for basic advice, you have options.

For hand holding. A person can get a one-time piece of advice by paying roughly $150 to $250 an hour with a certified financial planner at the Garrett Planning Network (garrettplanning.com). Know in advance how much time the planner expects to spend, what the fee will be and if he or she also gets commissions on certain products. Some mutual fund firms, such as Vanguard, will provide free advice by phone, and 401(k) plans at work may offer basic advice.

The McDonald's of planning. If you don't need full service, like a waiter at a restaurant, consider one of the new Internet sites that help with basic financial needs like setting up a simple portfolio of index mutual fund investments that is appropriate for your age. Among them: Betterment, LearnVest, Wealthfront or WiseBanyan.

Pre-packaged help. If you are simply investing money in a 401(k), a low-cost "target date fund" can be all you need. These funds choose stocks and bonds for you based on your age. But note the funds' "expense ratio" can vary a lot.

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