Tips from a financial planner

Sheryl Garrett runs a nationwide network of financial planners catering to an underserved market: middle-income people who want to pay an hourly fee for unbiased, occasional advice on things like college, retirement and tax planning.Garrett of Shawnee Mission, Kan., is promoting her new book, "Personal Finance Workbook for Dummies." Most people calling themselves financial planners or advisers make money one of two ways. They either sell investments or insurance products on which they earn a commission or they manage clients' money for an annual fee, usually based on the size of their portfolio.The first business model has inherent conflicts of interest. Salespeople have an incentive to sell you whatever will earn them the most commissions. Garrett firmly believes that the higher the commission, the worse the product. "If a product was flying off the shelves, they wouldn't have to pay people to push it," she says.The second has fewer conflicts but is less accessible to the average American. Most investment managers require you to hand over at least $500,000 in investable assets; many require $1 million or more. Garrett worked for both types of companies but felt as if they were failing middle-income Americans who can manage their own financial affairs with a little unbiased help now and then. In 1998, she started her own financial planning practice, providing advice to all comers for an hourly fee. In 2000, she formed the Garrett Planning Network, a group of like-minded planners nationwide.Planners who join the network work for themselves but pay a fee -- $7,500 the first year and $1,200 a year thereafter -- to use the Garrett name. They also receive training and marketing advice and can seek help from planners in the network who might have expertise in areas they don't. There are 290 people in the network, mostly in one-person offices. Members must be fee-only planners, meaning they can't earn commissions; and they must be fiduciaries, meaning they are legally obligated to put client interests ahead of their own. Not all planners are fiduciaries.They must be registered as investment advisers with their state or the Securities and Exchange Commission. They must be certified financial planners or earn that designation within five years.Garrett planners generally let clients manage their own portfolios. They can't draft estate or other legal documents. They can help with tax issues, but most don't do tax returns. Garrett says her members' offices are not unlike dental offices, where you schedule an appointment once or twice a year, come in for service and pay on the way out. "There are no long-term contracts," she says.Her members usually charge $150 to $300 per hour, depending on location and experience.Garrett planners must have at least 51 percent of their client engagements on an hourly basis accessible to anyone. They can charge the rest of their clients an annual retainer or asset-based fees, but most do not.A planner network similar to Garrett's is the Alliance of Cambridge Advisers in Highland, Mich. It has 135 members.Its members are also fiduciary, fee-only planners, but most charge an annual retainer rather than an hourly fee. The retainer, which entitles the client to unlimited advice, varies widely, but $2,000 to $20,000 for the first year is not uncommon, says Cathy Stegmaier, the alliance's executive director.Garrett says having a financial planner on retainer is like having a live-in nanny. It's nice, but most Americans can't afford it.Here are Garrett's answers to some of my questions:Q: What is their most common question?A: Am I saving enough? They won't phrase it that way. They might say, "I want to make sure I am on the right track for retirement."Q: How do you answer?A: There are only so many variables: What are your assets? What is your return? How long are you going to work? How much do you need to live on in? When are you going to die?We try to control the things we can. We can't do much about the stock market. We can control expenses and taxes (in a client's portfolio). We can control what we spend, how long we will work.Q: What is the biggest financial mistake people make?A: In general, Americans are too damned optimistic. We think the economy is going to continue to be fine, the stock market will be fine. I am going to continue working. We have gotten pretty comfortable not having too much strife on our homeland.We are suckers for a sales pitch.A broker says, "You qualify for a mortgage." We hear, "You can afford this mortgage." That's how we got into this housing problem.A healthy dose of pessimism, a shaky stock market, is sometimes a good thing. E-mail Kathleen Pender at kpender(at)sfchronicle.com. (Distributed by Scripps Howard News Service, www.scrippsnews.com.)