Question: My wife and I are 60 and plan to retire in a couple of years. She has a pension of about $700/month and about $100,000 in a 401(k). I will have about $8,000/month of pension income and roughly $850,000 in a 401(k)-like account for federal employees. We own two homes, one of which is almost paid off and the other about 20 years out.
Rationally, it makes sense to me to retain an adviser to help us protect our assets and navigate the future. But for the (irrational) life of me I can’t pull the trigger. I am not financially savvy, and I am paralyzed with fear that I will pick the next Bernie Madoff, or at best, a mediocre adviser who will erode our hard-earned retirement savings by chasing the market only to lose ground and security, while they pocket their fee and we lose out. What can I do to make a choice I won’t regret forever?
Answer: Fear of picking the wrong adviser is normal — and smart. You should be extra careful about who you choose. You can use this free tool to get matched with an adviser who might meet your needs, as well as resources such as the Garrett Planning Network, National Association of Personal Financial Advisors (NAPFA) and the Certified Financial Planner Board of Standards, Inc., or CFP Board — but be sure to vet everyone you come across, no matter the source. Here are some strategies and tips for finding an adviser you can trust:
Baby-step into the relationship: One way to ease concerns is to baby-step into the adviser relationship. Maybe start with hiring an adviser to create a one-time financial plan for you. This person would develop the plan for you to implement yourself. This would include budgeting, goal setting, a savings plan, investment risk tolerance, cash flow, emergency funds and more. The main difference is they would not be managing your money for you.
Have an issue with your adviser or looking for a new one? Email questions or concerns to [email protected].
You could also hire a planner on an hourly basis to give ad hoc advice, suggests James Daniel, a certified financial planner (CFP) at The Advisory Firm. In either case, “once you feel comfortable with the recommendations, then consider asset management,” Daniel says.
It could be helpful for you to find a firm that will do a written retirement transition plan for a one-time fee with no obligation that you give them your money to manage, says Jim Hemphill, a CFP at TGS Financial. “Many NAPFA advisers will do that and you should be able to make some judgment based on the quality, clarity and objectivity of the plan,” says Hemphill.
You also don’t have to invest your full nest egg all at once, notes Matt Bacon, a CFP at Carmichael Hill & Associates. “Many advisers will tell you not to move your TSP plan anyway assuming that’s what you have for your $850,000,” Bacon says.
Ask this list of questions: It’s also essential to fully vet anyone you are considering. Ask every adviser you meet – and you should interview at least three (most give you a free consultation) — these 15 questions.
Consider how the adviser is paid: This will help ensure you are getting as unbiased advice as possible. Some advisers are paid on commission, so they might be motivated to recommend products that aren’t that great for you. So instead, search for advisers who are fee-only, which means they have far less economic incentive to churn and chase, says Hemphill.
To find advisers who are fee-only fiduciaries, meaning advisers who should put your best interests ahead of their own, look at NAPFA or the Fee-Only Network.
Joey Casolaro, a CFP at Highland Financial Advisors, says his firm recommends asking advisers whether or not they’re fiduciaries. “When an adviser is a fiduciary, he must act in your best interest by law or he could be held liable,” Casolaro explains. “Ask what services they provide and if they say they do financial planning but only talk about investment management, that should be a red flag.”
You’ll also want to get to the bottom of an adviser’s fees and how they charge clients. “Ask what fees they charge and what the dollar amount is that you’ll pay to work with them,” says Casolaro. “It’s difficult to find a firm that has their fee schedule on their website, so it’s important you ask them.”
Finally, get some clarity on what custodian they’ll use to hold your assets,” he adds. “When you work with an adviser, they must arrange for a custodian to hold your assets,” says Casolaro. “The reason Bernie Madoff was able to pull off his Ponzi scheme was because he was not only the investment adviser but the custodian as well.”
Dig into their credentials: Credentials matter, too, as you want someone who knows what they are doing. Restrict your search to advisers who have completed formal training and certification.
Consider a CFP — these professionals earn their designation after completing extensive education requirements, thousands of hours of work-related experience, passing exams and adhering to a fiduciary duty, meaning they’re required to act in their client’s best interest. Chartered financial analysts (CFAs) and chartered financial consultants (ChFCs) are also worth considering as they too must meet stringent requirements.
Match their experience with your needs: You also want to look at their experience, as you likely want someone who has years of experience helping clients make their way into retirement. “Given your specific retirement-centered concerns, the retirement management analyst credential would certainly be a plus, though relatively few advisers have done the study and testing required to earn the RMA [Retirement Management Advisor] designation,” says Hemphill.
Note, too, whether prospective advisers start a discussion about your two houses. “The cost at the margin of maintaining two residences can make a profound difference to your financial security over what’s likely to be a thirty-year retirement,” says Hemphill. “A really good adviser will initiate a discussion around something you would prefer not to talk about, even at the risk of losing your business.”
As for your concern about polished profiles, keep in mind that everyone markets themselves to be very good at their job, says Joe Favorito, a CFP at Landmark Wealth Management. “Some are more knowledgeable than others and the degree of client satisfaction somewhat depends on what each client is looking for,” Favorito says. “Some advisers are more focused on investment selection or insurance products while others are more comprehensive in their approach by addressing areas such as estate planning and taxes in addition to investing and insurance. What might satisfy one client may not be enough for another.”
Do a background check: Experts also recommend checking an adviser’s background using FINRA’s BrokerCheck service or the SEC’s Investment Advisor Public Disclosure tool. “Find someone with a clean track record and avoid excessive trading in your accounts which you can check each month from your brokerage statements,” says Bacon. “Look for cheap, low-cost index funds to use in your portfolio where available and avoid expensive or complicated products. Be weary of products and funds that require you to lock up cash for years.”
Interview multiple advisers: “This is your life savings and the last you want to do is pay someone to squander your money,” says Josh St. Laurent, a CFP at Wealth in Yourself. “The two things I tell people getting ready to retire while feeling the way you do now is to interview at least three advisers and get details about how they’re paid. This will do two things for you: You’ll be able to quickly weed out the advisers who get paid based on what the market does so you don’t hire an adviser paid to chase the market, and you’ll be able to get answers to specific questions relating to your situation. It’ll be very obvious who has worked with clients in your shoes and who hasn’t and if you’re not sure, ask for a story or case study they’ve worked with in a similar situation to yourself, what was done and what the outcomes have been.”
Have an issue with your adviser or looking for a new one? Email questions or concerns to [email protected].
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