Fee-only planners can help keep investment costs low / Using a fee-only planner and opting for index funds and exchange-traded funds can keep investment costs low, making a big difference in what you accumulate.

Liz Weston for the LA Times writes:  Dear Liz: You always mention fee-only financial planners and I'm not sure about the true meaning. My husband and I have a financial planner who charges us $2,200 per year, but we got a summary of transaction fees in the amount of $6,200 for last year. Is this reasonable? We have $625,000 in IRAs and are adding $1,000 a month. In addition we have over $700,000 with current employers, adding the max allowed yearly. The planner gives advice on allocations for these employer funds as well. Are we paying too much for the financial planner? The IRAs seem to be doing well, but the market is doing well (today!).

Answer: It appears you're paying both fees and commissions, so you're not dealing with a fee-only planner. Fee-only planners are compensated only by the fees their clients pay, not by commissions or other "transaction fees" for the investments they buy. One big benefit of fee-only planners is that you don't have to worry that commissions they get are affecting the investment advice they give you.

You're paying about 1.3% on the portfolio you have invested with this advisor. That's not shockingly high, but once you add in all the other costs associated with these investments, such as annual expense ratios and any account fees, your relationship with this advisor may be costing you 2% a year or more. That's getting expensive, unless you're getting comprehensive financial planning — help with insurance, taxes and estate planning, as well as investment advice — from someone qualified to provide such planning, such as a certified financial planner.

What you pay makes a big difference in what you accumulate. Let's say your investments return an average of 8% a year over the next 20 years. If your costs average 1% a year, that would leave your IRAs worth about $3 million. If your costs average 2%, you could wind up with $2.5 million, or half a million dollars less.

Keeping your expenses low would mean you stop trying to beat the market with actively traded investments. Instead, you would opt for index funds and exchange-traded funds that seek to match market returns. These funds typically come with low expenses, often a small fraction of 1%. Using a fee-only planner can be another way to reduce what you pay for advice.

At the very least, consider bringing a copy of your portfolio to a fee-only planner for a second opinion. He or she can give you a better idea of whether what you're paying is worth the results you're getting.

Avoid estate planning with in-laws

Dear Liz: My father-in-law's spouse recently died. He is 89 and not in very good health. He has assets of about $3 million and lives in a state (Pennsylvania) that has an inheritance tax. What can he do to avoid state taxes and make sure his assets go where he wants them to go? He does not like to talk about these things but I'm trying to help. I have no interest in benefits to myself but I would hate to see his assets go to the state.

Answer: It's one thing to encourage a parent or in-law to set up estate documents that protect them should they become incapacitated. Everyone should have durable powers of attorney drawn up so that someone else can make healthcare and financial decisions for them if they're unable to do so.

It's quite another matter to urge a potential benefactor to make sure the maximum amounts possible land in inheritors' laps, especially if he or she doesn't want to discuss the matter. You may need to accept that not everyone is interested in minimizing taxes for his heirs. Your father-in-law's resistance to talk about these things is a good indicator that you should back off.

It's not as if the majority of his assets will wind up in state coffers anyway. Although Pennsylvania is one of the few states that has an inheritance tax, the rate isn't exorbitant for most inheritors. (Unlike estate taxes, which are based on the size of the estate, inheritance taxes are based on who inherits.) In Pennsylvania, property left to "lineal descendants" — which includes parents, grandparents, children and grandchildren — faces tax rates of 4.5%. The tax rate is 12% for the dead person's siblings and 15% for all others. Surviving spouses are exempt.

If he were interested in reducing future inheritance taxes, your father-in-law could move to one of the many states that doesn't have such a tax. He also could give assets away before he dies, either outright or through an irrevocable trust. He may not be interested in or comfortable with any of those solutions. If he is, it's up to him to take action. If he needs help or encouragement, let your wife or one of her siblings provide it. In estate planning matters, it's usually best for in-laws to take a back seat.