Funds' financial advice affordable but limited

Your Money


Retirement advice keeps getting cheaper, but it still could cost you.

Baltimore's T. Rowe Price Group Inc. is the latest of the mutual fund supermarkets to roll out or expand financial planning services aimed at managing baby boomer retirement dollars. Competitors Fidelity Investments and Vanguard Group - as well as myriad other investment firms - have already trotted out advice products, ranging from free to about $1,000.

But is the advice any good, and just how much can you expect from the services?

Experts say the products have some value, particularly for investors with smaller balances who are largely ignored by the major financial-services firms. But you need to watch closely for conflicts of interest and overgeneralized retirement advice, they warn.

Using a few volunteer investors from Consumers Union, a senior editor with the group's Consumer Reports magazine in February published a review of the financial planning and retirement services offered by the big fund companies, as well as offerings from independent data services, other investment firms and a bank. The editor, Tobie Stanger, also looked at what the volunteers received from a certified financial planner on an initial visit.

(For more information, go to ance/bargain-finan- cial-advisers-206/overview/index.htm.)

"For the most part people got good advice" that went beyond what investors can find with Web-only tools, Stanger said. "I think they're worth the cost because to use a lot of the do-it-yourself Internet calculators you have to be very computer savvy."

There were some caveats.

Several of the services, including T. Rowe Price and Vanguard, only recommended their own mutual funds. Some have inexperienced advisers working with clients. Some had allocations that many consider too conservative for retirement investors with long time horizons. And despite promises of "comprehensive" advice on issues like tax and estate planning, the services are not robust enough to take the place of an attorney, Stanger said.

The revamped T. Rowe Price service cost $250, half of what the company's previous Retirement Income Manager offering cost. New or existing clients who bring or add $100,000 or more in assets to manage receive the advisory services free.

For the money, investors receive a financial review and an asset allocation plan approved by a certified financial planner, as well as ongoing free annual checkups.

"Our service focuses on the relationship with the client," said Christine Fahlund, senior financial planner at T. Rowe Price and architect of the new services. "This is not a do-it-yourself platform, but an ongoing relationship."

In a sample retirement savings plan, the firm considered a married couple, ages 44 and 43, with two kids. Their combined annual income of $100,000 puts them in the 25 percent tax bracket, and they have already saved $256,971 for retirement. They save $13,240 a year, which would replace 38 percent of preretirement income, T. Rowe said.

But the company recommends they instead save $18,185 per year to replace 50 percent of pre-retirement income. If they do that, according to the company's Monte Carlo simulation process, they will have a 70 percent chance of not outliving their money over a 30-year retirement.

The company recommends a portfolio of 80 percent stocks and 20 percent bonds.

Within that mix, planners recommend specific mutual funds to fill the new asset allocation recommendation. And guess which fund company sells all the recommended funds?

"We will only recommend T. Rowe Price funds, but we will not recommend selling non-T. Rowe Price funds," Fahlund said.

In other words, the planner will recommend tweaking your existing portfolio to fit the various targets they identify within sub-asset classes of investments, such as different stock capitalizations and alternatives such as real estate. Then the company offers T. Rowe Price mutual funds that invest in those particular asset classes.

While the T. Rowe Price program emphasizes the human touch - clients fill out paper questionnaires and then go through them with investment advisers - Vanguard recently automated its services.

Cutting out paper forms and having clients fill out a simpler questionnaire on a secure Web site has cut the typical planning services cycle time down to two weeks from two months, said Catherine Gordon, principal of Vanguard Advice Services.

Since the streamlined service was launched in mid-April the company has responded to 40,000 requests for the questionnaire link.

Janet Kidd Stewart writes for Tribune Media Services.

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