Your financial `planner' may be giving loaded advice

As they wade through their tax forms, people may be thinking that now is the time to get their financial houses in order. After they've seen how much tax they'll have to pay, how their investments have performed, and how well they're planning for retirement, they may decide to get some help. Finding qualified financial advice can be difficult. But finding unbiased qualified financial guidance is much harder. At a time when even stockbrokers are calling themselves ``financial consultants,'' it's hard to tell the difference between who's selling a plan and who's selling a product that carries a fat commission.

In a report on the financial planning business last year, the Securities and Exchange Commission (SEC) suggested Congress take a look at ways to distinguish planners who simply charge fees and those who have a vested interest in the financial products and investments they recommend.

But any real action on that front is probably ``25,000 years down the road,'' jokes Kim Arfman, spokeswoman for the International Association for Financial Planning.

Assuming you can't wait that long, you should learn the differences among planners on your own.

The financial planning profession grew out of several disciplines, including insurance, brokerage, tax law, and accounting. Often the practitioners in one of these fields were asked to give advice that touched on another. Seeing an opportunity, many of them started to become familiar with other fields, wrapped up all their recommendations in a package that covered a lifetime of financial needs, and called themselves financial planners.

Some planners don't even have that much background; in this unregulated business, anyone can call himself a financial planner. If he gives investment advice, he must register as an ``investment adviser'' with the SEC, but there are no education reqirements for this.

The Consumer Federation says only about 10 percent of those who call themselves planners have completed a course of study like that offered by the College for Financial Planning in Denver, the American College in Bryn Mawr, Penn., or one of several other colleges offering a financial planning curriculum.

In many cases, the planner's original profession has often dominated the advice: Stockbrokers tend to recommend plans that include a generous helping of stocks or other brokerage products, while clients of insurance agents often end up with more insurance policies.

While many people can invest successfully in stocks with some professional guidance, and many others are often underinsured, these needs are too often met with portfolios or policies that carry fairly high commissions, while customers could find low-load or no-load products on their own.

No one knows exactly how many planners there are, but the Consumer Federation of America last year said it found approximately 400,000 individuals listed in the yellow pages of telephone books around the United States.

About 5 percent of them are strictly fee-only planners, who receive no commissions and charge an hourly rate, often around $75, for their time. A complete financial plan that includes tax planning, complicated investments, retirement planning, and estate planning may cost as much as $2,000 to $3,000. Many of these professionals are members of the National Association of Personal Financial Advisors, a group made up of just fee-only planners.

Most other planners charge commissions that are similar to those of a fee-only planner, but they are also licensed to sell securities and other financial products. These ``fee and commission'' planners presumably are less interested in pushing a commission-laden product, although they may say that implementing a plan calls for certain investments, which they conveniently sell.

For the rest of the other planners, financial planning is strictly a sales tool. Their rates are very low, sometimes nothing, but they or their companies expect to make up the cost of preparing the advice with the commissions that are part of that advice.

During the television broadcasts of the Winter Olympics, for instance, Merrill Lynch aired commercials showing someone identified as a financial consultant; that's the company's new name for a stockbroker. IDS Financial Services Inc., a Minneapolis subsidiary of American Express, charges only $150 for a basic financial plan. The company admits that the true cost of the plan is at least 25 percent higher. The difference presumably is made up by commissions on the company's products that are sold to implement portions of the plan, including insurance, mutual funds, and stocks.

Many life insurance agents, meanwhile, are picking up licenses to sell securities. This could make it even harder to tell if they are selling a financial plan, selling insurance, or selling investments like stocks or limited partnerships.

The next major industry to get into financial planning in a big way is likely to be banks. Many banks already have well-established trust and estate planning divisions, and they are starting to offer planning services to their more affluent customers.

This does not mean a customer can't get good advice on taxes, investments, or estates from someone who earns a commission. Many ethical planners know that if they spend credibility by trying to earn high commissions, they will lose the confidence of their customers.

But it does mean people who want a financial plan and don't want to pay the higher rates of a fee-only planner need to be aware that a planner who is earning a commission expects to sell financial products. This does not mean you have to buy all - or any - of them, but you can expect at least some subtle sales pressure.

People who can withstand this pressure and buy only those products that they need and that are competitively priced, may be able to get good financial direction, even if they can't afford the hefty fees that a doctor, lawyer, or owner of a small business might pay.