Retired Or Nearing Retirement? Here Are 3 Tips On How To Find And Work With A Financial Advisor.
If you’re retired or nearing retirement, this post is for you.
You’ve finally decided it’s time to seek help from a financial advisor but have no idea where to start.
How should you go about finding the right advisor? Do you perform a Google search, do you ask friends, do you trust the ratings that you see on airline magazines for top advisors? The list goes on.
Finding a financial advisor you can trust and understanding the types of financial advice available can be overwhelming.
Here are 3 tips you can use on finding and working with a financial advisor
1: Seek Referrals From Trusted Sources
Be very wary of any commercially available information. Financial advisors are solicited to be on paid lists, etc., all the time. We recommend don’t pay any attention to that stuff.
Start by asking people (family members, friends, colleagues) that you think are well-grounded, whether they use an advisor, how it works, and who they use.
You can also check professional organizations. A good one to use is the National Association of Personal Financial Advisors (NAPFA). It’s a professional association of financial planners in the United States. The financial advisors registered with NAPFA provide comprehensive financial planning and wealth management versus just investments. They have to meet certain continuing education requirements and hold certain certifications in order to be a registered NAPFA member.
2: Use Fee-Only Financial Advisors
A fee-only advisor is going to work for you and in your interest. Most of all, you want a financial advisor to be a fiduciary, to be fee-only, to be independent, and to be a Certified Financial Planner (CFP).
Fee-only advisors have a fiduciary responsibility to choose investments that are in your best interest. So it’s transparent, it’s understandable, you’re in control, you’re not crippled with conflicts of interest or commissions to be concerned with. You have somebody working in your best interest and legally bound to do so.
There’s a distinction between the financial planning industry and the financial planning profession.
The industry is a production model where the advisor you’re talking to will be successful because they drive you to buy certain things.
The investment recommendations and the risk management recommendations, and everything else, all come back to a product sale of some sort. The advisor is not rewarded for the outcome produced in terms of your financial security or your happiness. They’re rewarded by virtue of what you sign on to and buy.
For example, if an advisor is a non-fiduciary that works for a big broker they might have strong incentives to sell annuities.
Once you buy that annuity and give them your $250,000, that advisor can make 7.5% commission in one check the day you walk out of the door.
Going forward, there’s no further incentive for them to have interest in the relationship with you and what your needs are, and what your outcome is in the future.
We have many clients come to us because they are unhappy in their current advisory arrangement. Typically, these clients are migrating from a sale and commission based firm or an investment management firm to an advisor focused on wealth management and who works as a fiduciary on a fee-only model.
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They discovered by their own experience, due diligence, and reading, that their interests were not being put first, and they weren’t receiving the service level they were paying for. Their questions were not getting answered about the planning issues that are important to them.
There are a lot of professionals in financial and personal financial matters that position themselves as capital management. Meaning they manage your investments, charge you a fee and run your portfolio.
As an example, let’s say you approach a broker and say, “So I have money in my regular account, and my IRA account, and a little bit in a Roth, and I need to take some out. 2018 is going to be the first year that I need to withdraw funds, where should I take it from?”
The firm whose focus is simply capital management will tell you “Go ask your accountant.”
Clients often get lip service to the financial planning process but they don’t really learn what to do. Many advisors don’t scan your whole set of circumstances for opportunities applicable to you or help drive smart decisions ongoing in your retirement.
Also, the other thing that clients discover sometimes through their own research is the fees they’re paying are excessive relative to the services that they’re being provided.
Typically, the average range of a fee from a fee-only financial advisor depends on the advisor and the level of assets that you have. For an average retiree, it’s probably going to be about 1% a year of investable assets, maybe a little bit lower.
3: Do Your Due Diligence
Interview some financial advisors before choosing one.
Having a financial advisor can be a really important relationship in your life. Think of it like hiring a CFO for your family. So not rushing into picking one without talking to a few first is a good idea. You want to make sure that you’re comfortable with the folks that you’ve decided to trust with these responsibilities.
Real Due Diligence:
The best starting point for real due diligence is to skip the hype and read the advisor’s regulatory disclosure ADV Part II Brochure which will describe:
- Advisor’s background
- How the advisor is compensated
- Types of service agreements offered by the firm
- Types of clients served
- Legal and disciplinary history
Additional questions to ask before you hire an advisor:
- Are you held to a fiduciary standard?
- Are you independent or affiliated with an investment company, bank, or insurance company?
- How are you compensated?
- Do you have access to institutional investment products?
- Do you work with a reputable third party custodian?
By reviewing the disclosure brochure and asking these questions, you should be better able to discern the true colors of any advisor relationship you are contemplating.
Many advisors have different areas of specialization, different compensation structures, different ways in which they work ongoing with clients. You really want to talk to a few to see which one best fits your needs.