Serving Cumming, Forsyth County GA and surrounding John's Creek, Alpharetta, Milton, Duluth, Buford, Suwanee, Flowery Branch, and Gainesville
Questions to Ask Before Hiring a Retirement Adviser
- By Travis Echols
- •
- 11 Sep, 2018
When you are ready to clarify, simplify, and organize your financial life, partnering with an experienced financial adviser can be a great help.
A good adviser can help you define your goals, analyze your options, and make informed decisions. They can help you answer financial questions, reduce financial worries, capture opportunities, and decrease complexity.
You will want to find an adviser who specializes in the area of service you need. An adviser who is a generalist will be spread too thin to be an expert in every area. You want an adviser who does not do all things with mediocrity, but who does your thing with excellence.
For example, if you are retired, or close to retiring, you want an adviser who is an expert in retirement planning.
To discover a retirement adviser who is a good fit for you, you will want to know exactly how he or she will help make your retirement a success.
Before hiring an adviser, here are four questions to ask yourself:
- Do I like, trust, and respect the adviser?
- Will the benefits I receive exceed the cost?
- Do I understand and agree with their retirement planning and investment philosophy?
- Do their recommendations make sense to me?
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To help answer these questions, here are eight questions to ask your adviser:
The following questions are designed to help you see “behind the curtain” of any firm with whom you might entrust your financial future.
Imagine going to your doctor with a concern about your heart, and before running any tests, the doctor tried to sell you a pacemaker. The doctor then explained that you needed to act today before prices went up. Later you learned that the doctor was paid extra to promote this particular brand of pacemaker. While absurd for the medical profession, this scenario closely resembles much of the investment world.
You want to be sure to hire a firm who takes very seriously their Fiduciary duty to always act in your best interest (versus trying to sell you a product). Ask to see a written copy of their Fiduciary Obligation.In addition to a legal obligation, you'll want to hire a firm who has built their practice on a foundation of placing the client’s interest before any thoughts of their own compensation. Ask do they recommend for you the same investment strategies used in their personal accounts and the accounts of their immediate family members.
Click here to see a 3-minute video clip that compares Fiduciaries and Stock Brokers to Dietitians and Butchers.
2. Will your recommendations be primarily focused in one area, or will your recommendations be comprehensive in nature? In other words, will I need to find another adviser for advice in other areas?
One of the reasons you hire an adviser is to simplify your financial life. So you want an adviser who will serve as a single point of contact for all your financial needs. This ensures the coordination of every aspect of your financial needs, involving a financial plan detailing the actions needed to achieve your financial goals. As needed, these action items will be coordinated with accountants, attorneys and other professionals.
3. Do you have the knowledge and experience necessary to successfully navigate the complicated world of retirement planning? You'll want to know that your adviser has completed a course of study that covers retirement needs, asset management, estate planning and the entire retirement planning process using models and techniques from real client situations. Make sure your adviser has committed to adhere to Standards of Professional Conduct and is required to renew their designation by continuing education. Your prospective adviser should provide you with the information you need to learn about their credentials and associations.
You want an adviser who is dedicated to the study of his profession and has been applying that knowledge for many years with real clients similar to yourself.
4. How many clients do you serve and how does their situation compare to mine?
Knowing how many clients the adviser serves can help you get a feel for their experience in serving clients who have similar needs to yourself. It can also warn you if the adviser serves too many clients. Even with the best processes and assistants, an adviser can only effectively provide great service to 100 or so clients. If you are seeking retirement advice, ask if the majority of clients served are retired, or nearing retirement. Another great question in this regard is what is their ideal client for whom they do their best work.
5. How often will I hear from you?
It is good to set and understand expectations before hiring an adviser. There are usually several meetings required in the first year to get you on track to achieving your goals. After the first year, you want to at least meet annually. Sometimes meeting more often is necessary, but meetings are only as useful as the value they deliver. Meeting for meeting's sake is not value; it is a waste of your time. More meetings are necessary during periods of personal change or changes in the economic world that could impact your financial goals. Client education should also be a big focus. Find out what regular education pieces are distributed and what value-adds are for clients only, explaining what the headlines mean for you. In addition, your adviser should always be accessible for you to call or email if you have any questions or concerns.
6. What will be my total investment expense, how much will you be compensated, and where can I see this in writing?
Before working with an adviser, the client-adviser relationship should be clearly established in an agreement that is signed by both adviser and client. This agreement should provide details about the services and fees.
It only makes sense to hire a financial adviser, or any professional, if the services they provide exceed the fees being charged. In other words, the time and effort saved, plus the tax savings and potentially increased investment returns need to exceed the fee. Before signing, be sure that you understand exactly how you will benefit from the adviser's services.
7. Where do you keep my money and how can I see it?
For your convenience and safety, be sure your adviser uses a reputable third-party custodian such as TD Ameritrade, Fidelity, Schwab, etc. Avoid advisers who take custody of assets themselves and print their own statements. A third-party custodian should hold your funds and provide reporting to you and the IRS. You should be provided with information on how to view your accounts any time. You should also receive monthly statements documenting all activity including holdings, trades, and fees.
8. What if something happens to my adviser?
Since your accounts are kept safe by the custodian, if something were to happen to your adviser such that he/she is no longer capable of fulfilling his responsibility, your access to your accounts would be unchanged. Just a call to your custodian and you can do anything you want. After all, it is your money. If another adviser has not already been identified to manage your accounts, most custodians have a policy to introduce you to other advisers in your area should the need arise. It would then be your choice to work with one of these advisers or find a different one. To help you find another adviser, you can use this questionnaire, the process on my website, and your experience as a client with your adviser. After working for a while with a good adviser, you'll be much better equipped to ask the right questions. In firms with multiple advisers, use the same process to interview the replacement adviser assigned to you. After all, the primary relationship of trust and value was with your adviser, not the firm. Don't settle for a replacement adviser who is not a good fit. Too much is at stake. Going back to the first of this article, be sure you can answer "yes" to all of the following questions.- Do I like, trust, and respect the adviser?
- Will the benefits I receive exceed the cost?
- Do I understand and agree with their retirement planning and investment philosophy?
- Do their recommendations make sense to me?
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- Liquidity--Retirement assets are not being locked up or annuitized such that capital is not available for emergencies.
- Income—Using an optimized withdrawal rate, an increasing income is produced to combat inflation (unlike many pensions, bank and insurance strategies that are not inflation-adjusted).
- Growth--assets that can combat inflation over a 20 to 30-year period, giving the retiree more income and upside potential under normal and good economic times.
- Safety--manages the myriad of investment risks like market risk, inflation risk, and credit risk. Under worst-case scenarios, if withdrawal amounts are adjusted by using guardrails, the portfolio can still provide a lifetime income.
Here is an executive summary of how to build up a portfolio for retirement in seven steps.
1. Values clarification and goal-setting . Figure out the income objective and capability of your retirement assets in lifestyle terms, then financial terms. In other words, set realistic, specific, financial goals based on your core life values.
2. Asset allocation glide path . Figure out how to diversify your retirement assets among stocks, bonds, and cash, based on your age, risk tolerance, retirement goals, and changing market values.
3. Valuation-dependent efficient frontier . Figure out which areas of the markets are historically inexpensive, and which are historically expensive. Don’t take on more volatility than you need to for the growth you need or desire.
4. Multi-asset class approach . Diversify one more step for more growth and less volatility. Put more money in the specific market areas that are less expensive and less money in the specific market areas that are more expensive.
5. Tax-aware asset location and distribution . Save as much on taxes as possible by figuring out which type of investments should be held in which types of accounts. If you are drawing an income from your assets, figure out the least-costly order for making withdrawals.
6. Investment selection based on account type (qualified, nonqualified) and asset-class propensity and magnitude of outperformance (passive, factor, managed, etc. ). Figure out what kind of investment to use (index mutual fund, factor mutual fund, actively managed mutual fund, single factor ETF, multifactor ETF, passive ETF, individual stocks, individual bonds, Unit Investment Trust, closed-end fund, etc.) based on the account type, asset class, and growth and income needs.
7. Rules-guided rebalancing based on retirement glide path and multi-asset-class approach . Readjust the investment mix based on your changing personal situation and changing market values.
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Here is a summary of the details backing this approach. Also, click here for more background information regarding my investment philosophy.
1. Values clarification and goal-setting
Investment planning for (or in) retirement starts with retirement planning. You start with thinking about your life goals...your dreams...your ideal life in retirement. It could involve doing no work, working part-time, or doing seasonal work. Your ideal life could be going back to school, spending more time with family, traveling, ministry, etc.
Ask yourself questions like, "What would I want to do if I
didn't need to work for money?" or "What are the most important
dangers, opportunities, and strengths I need to address?" or“Ten years from now, if I am looking back on a successful
ten years, what will I have achieved?”
This conversation allows you to create specific
goals around your most cherished values. And your goals will be unique to you.
You then design an investment plan to help you live your ideal life.
This kind of goal-focused, plan-driven approach minimizes the
chances of making bad investment choices based on current events and emotions.
Instead, you can choose and maintain the
specific mix of investments that can best deliver the results you need--using a
disciplined, research-driven approach.
2. Asset allocation glide path
The next major question is what kind of investments do you need to meet your goals. All investments have risk. Even "safe" investments over long periods have inflation risk. No single investment delivers growth, high income, and safety of principal. The key is designing a portfolio that balances them in a way that supports your retirement objectives.
And this mix may change over time. For example, for most people, it makes sense to gradually decrease their exposure to high-growth, high-volatility assets like stocks (i.e., equities) as they approach retirement. In retirement, it is usually best to maintain a flat equity glide path, dynamically adjusted for valuation. This approach protects you from the retirement-danger-zone risks of portfolio size effect and sequence risk, while allowing you to take advantage of bear markets and market corrections. See How to Navigate the Retirement Danger Zone .
Protecting your lifetime retirement savings from excessive taxes is a crucial part of holistic financial planning. This involves protecting your IRA, 401k, lump sum pension rollover, Social Security, and any other type of retirement account or income stream from crushing tax rates.
So let's be sure to differentiate tax preparation
from tax planning
.
Tax preparation , also called tax return preparation, looks backward, one year at a time, to get the numbers right to accurately calculate your tax liability (and how much you owe or overpaid).
Tax planning on the other hand looks at taxes in the context of your overall financial picture. A tax planner not only looks in the rear-view mirror but will look forward 20 to 30 years at your projected tax liability and ask what can be done to lower your lifetime tax bill.
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If you have savings outside of pretax retirement accounts invested in capital assets (like stocks, bonds, ETFs, mutual funds, precious metals, jewelry, and real estate) which have large unrealized capital gains, this article is for you. You may be missing the opportunity to pay zero taxes NOW instead of 15% or higher rates in the future. Sign up to receive my free monthly email articles on retirement planning--no cost, no obligation
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Originally written on Aug 2, 2018 and updated for tax law changes.
If you are no longer working and have reached the age of 72,
you probably know about Uncle Sam’s rule for you to take a Required Minimum Distribution
(RMD) from your traditional and rollover IRA(s) each year for the rest of your life. You can always withdraw more,
but this requirement is the minimum
you must take or be severely penalized. Fortunately,
this rule does not apply to Roth IRAs. (The SECURE Act of 2019 changed the starting RMD age from 70½ to 72 starting in 2020, but fortunately you can still make a Qualified Charitable Distribution (QCD) starting the year you turn 70½.)
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If you have delayed paying taxes in your pretax IRA, 401(k), or 403(b), etc, there comes a time when the IRS wants their taxes. And if you don’t give them their taxes based on their required withdrawal schedule, you'll get hit with a 50% penalty on top of what you owed.
Along with Social Security and other retirement income, this RMD can significantly raise your tax rate. Also read How to Dodge the Social Security Tax Torpedo . There are not many ways to reduce this tax burden. In the past, retirees have used various deductions including charitable cash contributions and gifting of highly appreciated assets to charities. (The latter not only gives you, the donor, a deduction but also avoids a long-term capital gains tax bill.)
However, with the passing of the Tax Cuts and Jobs Act of 2017 (TCJA) , with its almost doubling of the standard deduction, itemizing deductions won’t make sense for near as many retirees. Ah, but there is still a strategy. But first let’s better understand the RMD.
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The latest book I am reading is “ The Psychology of Money ” by Morgan Housel. Chapter 3 is entitled “Never Enough”. In this chapter, Housel talks about when rich people do crazy things. He tells stories of wealthy people who never had a sense of enough and wrecked their reputations, families, freedom, and happiness because of it. I have also talked to older couples who tell me they once had a much better retirement in view, but the quest for more led them to make unwise investment decisions that left them financially crippled in retirement. The importance of knowing when you have enough is not only vital to when you retire but also how you retire. It can affect how you invest, how you withdraw, and your overall satisfaction before and during retirement. Be sure to read to the end where I summarize a few key takeaways. Housel makes the four following observations in chapter 3 of his book. Sign up to receive my free monthly email articles on retirement planning--no cost, no obligation
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Whether you do mini-Roth conversions over several years or big Roth conversions in a few strategic years, the Roth conversion strategy could save you tens if not hundreds of thousands of dollars over your retirement. This article will get deep into the issues of Roth conversions for retirees and the ten steps to take to be sure it is done properly. Be sure to scan or read to the end where I will give you the simple answer to getting your Roth conversion questions answered. Sign up to receive my free monthly email articles on retirement planning--no cost, no obligation
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Making big financial decisions immediately following the death of a close family member can be dangerous. It is often best to allow some time before tackling big financial decisions. On the other hand, some people find getting immersed in the finances is helpful in coping with the loss. Whatever way is best for you, you will need to give it your
careful attention to avoid big financial mistakes. The different types of accounts have different rules. I'll address the most common types. In the case of the death of a parent or anyone other than your spouse in which you are a non-spouse beneficiary, there are many rules that you must know to make the best decision for you and your family. (In this article, I use the common parent-child inheritance, but the planning strategies can apply to other non-spouse situations.) Your decisions can have major tax and investment consequences, both now and in the future. And some of these decisions have time deadlines keyed to your parent’s date of death. Also, some of these decisions are irreversible. You can download my free Estate Planning Survivor Checklist here
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So, you don’t want to rush in and make decisions without knowing the rules, and you don’t want to wait too long and be stuck with fewer options. (In this article, I am not addressing estate taxes. As of 2021, only estates valued at $11.70 million or more are subject to federal estate tax. But there are plenty of other tax pitfalls to navigate around. I am also going to focus on liquid savings like investment and retirement accounts, versus real estate which will be for another time.) Sign up to receive my free monthly email articles on retirement planning--no cost, no obligation
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Delaying Social Security makes a lot of sense for many retirees; but there are common pitfalls that can cost you a bundle. As you know, the longer you delay your Social Security Retirement benefit, the higher your lifetime monthly payments are figured to be. This increase in delaying continues until age 70, after which there are no further increases for delaying. This increase for each month that you delay filing is not small, especially considering the current low interest rates. Even after full Social Security age, your payment goes up by 8% per year until age 70. Sign up to receive my free monthly email articles on retirement planning--no cost, no obligation . Here are the five big mistakes of delaying your Social Security retirement benefit. |
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Are you wondering about the impact of the
2020 election results on your retirement? If so, you are not alone. The two political parties are greatly polarized. While the Democrat party has moved further toward ethno-centric socialism, the Republican party has moved further toward nationalistic populism. The difference in the two parties’ goals for our country is wider than ever. Sign up to receive my free monthly email articles on retirement planning--no cost, no obligation . |
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Investment Advisory Services offered through JT Stratford, LLC. JT Stratford, LLC and Echols Financial Services, LLC are separate entities.
Serving Cumming, GA, Forsyth County, and the surrounding areas of John's Creek, Alpharetta, Milton, Duluth, Buford, Suwanee, Flowery Branch, and Gainesville
