Whether you’re retiring and rolling over your 401(k) or just starting to build your financial future, it pays to get trusted financial advice.
The key word here is “trusted”! There’s plenty of financial advice around, but does it come from someone who is “on your side” — working to build your retirement — not theirs?
Choosing a planner
You cannot tell by a person’s title — whether it be “financial adviser” or “financial planner” or some other trust-building description. And you can’t even tell by their “credentials” — whether it be CFP (certified financial planner), ChFC (chartered financial consultant) or CLU (chartered life underwriter) — or any of the alphabet soup of designations, since the credentials don’t guarantee they are a fiduciary.
Bottom line: A “planner” can use any title or designation, but it tells you nothing about his or her motivation! And keep in mind that even the most impressive credentials or slick marketing programs mean nothing if the adviser has a personality flaw. You can’t legislate morality.
The key questions you need to ask of a prospective planner are:
—Are you a fiduciary 100% of the time, promising to put my interests ahead of your own, and will you put that in writing on your company letterhead or an official email from your company? (Fiduciaries have a higher standard than simply “suitability” or “best interests” when recommending securities.)
—How are you compensated? Do you receive commissions on products you sell, ongoing fees from the investment itself, or free vacations and trips based on sales contests?
—Do you charge a fee — and if so, how is it calculated — based on hours spent planning or assets under management? (Annual fees based on the total assets under management might be a disincentive to let you set some money aside in safe investments such as T-bills, on which you should not pay fees.)
The odds are on your side if you choose a fee-only, fiduciary planner, with fees based on a set hourly or annual rate, depending on the help you need. That can only be determined after a first meeting to set the scope of advice and evaluate your situation. There should be no cost for that first meeting.
What advice to you need?
You may think you only need investment advice — about how to invest a retirement plan rollover or the inheritance you received. But a true financial planner should only give advice in the context of your larger financial situation.
Inherent in every investment decision is the need to understand your financial goals — whether they be income or more gains — and your time horizon for needing the money, as well as your personal risk tolerance. If you’re planning as a couple, it becomes even more complicated.
There are always tax considerations, so the best planners either have a tax service or will work with your own accountant. As well, there are estate issues to be dealt with now — even though your likely death may be years away. A good plan includes a review, or help with a new estate plan, working with your attorney.
As you enter retirement, you’re probably looking at turning your investments into a stream of income. That takes careful calculation to avoid running out of money before you run out of time! And making the correct decisions about taking Social Security will affect your future lifestyle.
A competent planner will look into your insurance situation — everything from your property and liability coverage to life insurance, and perhaps the benefits of long-term care insurance. After all, the need for uncovered custodial care could wipe out a lifetime of savings and investment.
In short, whether you’re just starting a family or staring down retirement, a good planner will do more than give you his or her opinion of tech stocks! Your job is to be prepared to discuss all these issues, in brief, at your first meeting — as a prelude to deciding if this is the planner for you.
And if the planner doesn’t touch on all these topics and express interest in your situation and concerns, you know right away that you do not have a comprehensive financial planner. Find someone else!
The planner search — and cost
It’s fine to take planner recommendations from friends, but do they have the same needs as your family? It’s OK to respond to advertisements, but first ask yourself how they get the money to pay for those slick commercials. The only service I know that guarantees you will be matched with a carefully vetted, fee-only fiduciary adviser is Wealthramp.com.
Pam Krueger (from PBS’ “MoneyTrack” and my fellow podcaster at FriendsTalkMoney.com) created Wealthramp to keep people from falling into the traps set by so much of the financial services industry.
As for the fees, in each case it depends on the complexity of your finances and the breadth of your needs. So spend the initial meeting openly discussing your situation — and then ask what their service will cost, on an annual or project basis.
If a good financial planner saves you from one expensive mistake, the fees will more than pay for themselves. And that’s The Savage Truth.
(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)
