Why… and How to Pick the Best Financial Advisor for Retirement

Category: Financial and taxes in retirement

April 26, 2010 — Most of us find it hard to admit the truth: when it comes to skills that require any degree of expertise, like financial advice, we are amateurs. Just like our skills in plumbing, electricity, architecture, medicine, software programming, or teach golf; it’s best to have an expert doing the work for us. This article will explain why hiring a competent financial advisor to help plan for your retirement is a smart move. After all, if you don’t have enough money, it’s going to be hard to have the retirement you deserve. We’ll provide some basic tips on how to find a good investment advisor. At the end of the article we have listed some helpful resources that explore more dimensions on how to make a smart choice.

One of the biggest advantages that financial advisors offer is…

the help they can provide before you retire. Beyond participating in a company 401k plan, few people have the self-discipline to set up a regular savings plan for retirement. Fewer still actually understand how much money they need to set aside for a comfortable retirement. A good financial planner can help you establish realistic goals and a solid plan for achieving them.

After you retire financial advisors usually provide different kinds of services. Here are some of the ways they can help you:
– Manage your money to bring you a reasonable and safe return
– Allocate it into the types of investments that are appropriate for your age and situation
– Determine the best time to start taking social security for your situation

– Decide how much you can safely take out of your savings each year so that you don’t run out of money
– Provide helpful advice about taxes, distribution, and how to reduce or increase your income if your situation calls for it.

How to Find a Good One
Judging by the number of questions we get, we suspect that most people’s method for finding a financial advisor is a random one. They choose someone who is a friend, golf partner, a neighbor, or sister-in-law. While occasionally that’s a good idea, most times it’s not. Remember Bernie Madoff – most of his clients were referrals from friends. One of the best reasons for not choosing a friend is that is very hard to fire someone you are close to. Hiring someone you don’t know is not that easy though. The process is time-consuming and no one wants to make a mistake; hiring the wrong adviser will cost you money and considerable aggravation.

Here are some principles and steps to help guide you in your search for the perfect financial advisor:
Cast a wide net. Ask successful people you know who they use – and why. Your lawyer or accountant might have some recommendations for you. Attend seminars put on by financial people in your area – they are a good way to get familiar with who is out there. Consult local directories for possible names. There are a myriad of certifications and titles for financial planners, advisors, brokers, etc. Some are a lot more strenuous than others.
Consider using the firm that manages your money now. Big investment firms like Vanguard, Fidelity, Schwab, etc. have online tools to help you manage your money. If your assets are very small you might have no choice but this approach. However if your assets are substantial, these firms would like nothing better than to develop a “custom” investment approach for you. It probably won’t be as detailed or as personal as what you get from an individual financial planner, but it might be a good benchmark for a comparison.
Talk with several candidates. You don’t have to commit to anything, just schedule an exploratory meeting. You’ll learn a lot about fees, style, personal qualities, and more from a short interview. Questions you will want answers to include: how long have they been in business, how many clients have given them additional money, have there been any complaints or questions from regulators, what kind of certification do they have (and are they current), what will their approach be in setting up your investments, and what is their investment philosophy and/or some of their favorite investment vehicles. What are their fees and how are they calculated? Do they have conflicts of interest, such as earning commissions on the trades they place on your behalf? Keep a healthy skepticism when they talk about results.

Ask for references. This can be a tricky area, since other clients might not want their privacy invaded. But if you can get some references (or you already happen to know some), you will find out some of the most useful information to help with your decision. Does the adviser ask for input, take the time to explain their approach, follow up on details, are the statements clear, the fees reasonable, the results encouraging? The answers to these questions will be very helpful.
How to Decide? The New York Times had a good suggestion in a recent article – construct a simple pros and cons chart for each of your serious candidates. Looking at all of the factors in one place will probably help crystallize your decision.
After the decision. As if you had an employee, best management practice is to hold at least an annual performance review. How was the advisor’s performance vs. various benchmarks, such as the rate of inflation, S & P 500 index, and various bond indices? Every advisor is going to have bad years, so it is important to compare how they do against the rest of the market over a few years. If you are consistently unhappy, it is probably time to move on. And if you are fortunate enough to have substantial assets, you might employ more than one advisor. You can compare them, and if there is a long-term trend you have options.

For further reference:
What Women Want in a Financial Advisor – And How to Find a Good One
Wikihow – “How to Hire a Financial Advisor”
Get Rich Slowly – “How to Hire a Financial Planner”
MSN.com – “7 Mistakes to Avoid When Hiring a Financial Advisor
New York Times- “Taking the Time to Pick the Right Financial Advisor

Posted by John Brady on April 25th, 2011

18 Comments »

  1. Just a comment about the final “evaluation criteria” (“after the decision”). As you mention in the article, a good financial planner is more than just an investment advisor. In my case, at this point, I still plan to make my own investment decisions (although that may change). So my grade for my financial planner would be, “how well did he prepare me for retirement?” (i.e. – set good goals), and “how well is he helping me manager my assets in retirement?” (i.e. – decision on when to take Social Security – that you referenced).

    by Scottp — April 26, 2011

  2. You can find a Certified Financial Planner at cfp.net. They have a search feature.
    Suggest that you find a fee-only planner at first. They don’t have a vested interest in what you buy.
    Make them jump through the hoops for you and show you how they would invest your money and why.
    If they can’t explain a program in simple English that you can understand, look elsewhere.
    Trust your gut. If you are uncomfortable now, think how you will feel at age 75!
    And yes, they can make your retirement much more comfortable, financialy and otherwise.

    by LuluM — April 27, 2011

  3. You typically want to avoid commission-based advisers. Planners who work on commission may have less than altruistic incentives to push a certain life insurance package or mutual fund if they’re getting a cut of that revenue.

    by Best Financial Planner — April 17, 2012

  4. Do your research! This is very important..don’t rely on one source to provide you with information about a Financial advisor. IMHO, some are a “dime a dozen” so to speak. Seek out Financial advisor’s with credentials and experience. They should be interacting with you, asking you detailed questions about your goals and market tolerance – they need to learn about YOU and what you would like, in addition to providing you advice and recommendations based on their knowledge/skills. I’m also a believer in “don’t put all your eggs into one basket”. I do manage my own money, as well as, work with my financial advisor. You really shouldn’t totally depend on someone to manage your money – you need to be an active participant and I highly recommend using Quicken and being aware of what the market is doing. There are lots of free calculator’s out there as well to help you understand how your money can grow if you follow either a recommended path or set up goals for yourself. Once you find a financial advisor, you should ensure a communication with them at least annually to review your goals and progress. Goals can change, along with things can happen that force you to change. My most important advice though, is be an active participant, and do your research prior to selecting one. We were given one through my employer who didn’t work out – really had no credentials and was in it for themself, not for us. We changed and are completely satisfied, and have annual meetings with extensive conversation about goals. I agree with what LuluM said about ‘trust your gut’…this is usually a good indication and trust is VERY important when working with someone handling your money.

    by LC — April 18, 2012

  5. […] Other Ideas Staying Put (See “The Case for Staying Right Where You Are Now“) Full Time RVing (See our 6 Part series by Betty Fitterman, beginning with “Living the Mobile Lifestyle”) Local Culture and Diversity Experiences Selling Your Home Co-housing (See Co-housing article) Scenic Places to Retire Retirement with Children Survey Real Prices Paid to Live in a Community Buying Health Care Insurance (See “Your Early Retirement: What Are You Going to Do About Health Insurance“) Sandwich Generation How to Find a Good Financial Advisor (see “Why, And How, to Pick Your Financial Advisor“) […]

    by » Downsizing, Renting, Affordability Dominate Your Survey and Poll Suggestions Topretirements — June 4, 2013

  6. Consider an advisor’s credentials. I recommend a fee-based CFP (Certified Financial Planner).

    by Jan Cullinane — June 5, 2013

  7. […] For further reading: How to Select a Financial Advisor […]

    by » What Do Women Look for in a Financial Planner? Topretirements — December 10, 2013

  8. Has anyone used a credit union (one that is a member of CUIS) for financial advice. If yes, I would love to hear about your experience.

    I like the lower % of assest fees that most use. I am sure it would vary by the specific credit union, but would like to hear about any experiences.

    by Elaine — December 30, 2013

  9. To Elaine, We went to NFCU to talk with a financial advisor and our experience was great. Basically spent 2 hours with us. I brought all of our information for retirement and he told us what we should be thinking about and some recommendations. Never once tried to push his products or NFCU;s products on us and very good and smart advice. Charged us nothing and we walked away with a lot to think about. Great experience and glad we did it. Worth a phone call to check it out for yourself.

    by Vickie — December 31, 2013

  10. I have been a satisfied user of credit unions almost all of my adult life as a secondary means of savings and free info. Great resource of talented people. Seems like they, the working staff, are there because they want to be, not because they need a job. Never had a problem, seemed to be trained better than commercial banks in personal needs of members. HINT:Look for the ones with gray hair, been there a while and know the in’s and out’s, shortcuts.

    by charlie — December 31, 2013

  11. Charlie….I am 64 and don’t have gray hair. Family doesn’t go gray. My mother died at 92 with brown hair. Just sayin’.

    by Ginger — December 31, 2013

  12. We can’t tell if your bragging or complaining

    by charlie — January 1, 2014

  13. Hahaha! Just pointing out that experienced people don’t necessarily have gray hair!

    by Ginger — January 1, 2014

  14. Julie and Charlie, Thanks for the info.
    My challenge is that my credit union is not in the same state that I live in…just found out you need to live in the state. That is probably not true of some credit unions, but mine was for employees of the state. I do belong to one in this state, but I do not like them nearly as well. Should have checked before I asked.

    by Elaine — January 1, 2014

  15. Elaine,

    Try http://www.asmarterchoice.org or call (800)358-5710.Hope you find a credit union you like as much as your previous one.

    by Jan Cullinane — January 1, 2014

  16. Thanks Jan. I checked out the site, but the only one I saw was the one that I belong to…the state employee one. Some of the military ones in VA are supposed to be good, but I do not qualify. I fully expect to move and may end up in NC for retirement and may hold off.

    Good site though

    by Elaine — January 2, 2014

  17. For further reading How to Find the Right Financial Advisor for Your Retirement […]

    by » What Women Want in a Financial Advisor – And How to Find a Good One - Topretirements — December 20, 2014

  18. Late to the discussion, but have some thoughts. I agree with the opinion of “divided” assets. Why not attempt to manage a percentage, then find a good advisor to manage the rest? In time, each performance will tell you how to proceed, while giving you more confidence to boot. Agood advisor will probably help you in your extra-curricular activities, also. You can always change plans down the road. I stayed with my advisor for one reason: Gratitude. Upon reviewing my mother’s previous investment history with other firms, my advisor STRONGLY advised us to take FINRA action since she had been blatantly and wrongfully misled. Through the prodding of our advisor, we were able to recover a portion of what my mother had lost. Wouldn’t have done that if not for the professional advice.

    by Doc Stickel — December 21, 2014

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