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3 Steps to Take… Before You Hire a Financial Advisor for Retirement

Category: Financial and taxes in retirement

August 18, 2015 — Many of us don’t have the interest, the background, or the perseverance to do a great job managing our retirement money. As a result, we often turn to a financial advisor for help with planning and making smart investment choices for the retirement funds that are so important to our retirement security. But before you sign up with someone from the yellow pages, that fabulous guy the boss recommends, or your brother-in-law, here are some things you should be doing to protect and maximize your nest egg.

1. Don’t get fleeced
The sad fact is that there are many unethical people out there who would love to separate you from your hard earned retirement savings. They very often come with glowing references, testimonials, track records, advertising, and impressive credentials. And thanks to those weapons, thousands of very smart and worldly people are fleeced out of their life savings every year.

Certainly there are many more honest, competent people to advise you than there are the opposite. But to protect yourself, please read this article and consider these suggestions – before you even talk to an advisor. Many of the ideas expressed here come from an excellent article from MarketWatch, “Four Things to Do Before Hiring an Investment Advisor”.

Use the sources below to see if there have been any disciplinary problems and to verify the credentials of your prospective advisor. Resources like these include your state securities administrator, The SEC Investment Advisor, and the SEC Board of Standards. It is easy to enter the advisor’s name and other details and instantly check for past problems. Even a simple search on the web with the advisor’s name will often turn up red flags. Here are some sites to use:

SEC Investor Advisor Public Disclosure Website
CFP Board of Standards – verify credentials and search for disciplinary actions
FINRA Broker Check

2. Don’t trust referrals, references, or ads.
The most unethical advisors are way ahead of you on that score. Because of the way their friends recommended him, many of the victims of the greatest investment swindle of recent decades, the folks ruined by Bernard Madoff, fought to put their money into his hands. A better plan is to use the resources listed above to look for problems yourself. Sure, recommendations can be useful, but not just by themselves. People can say almost anything in a direct mail ad, Linkedin page, website, or radio commercial. So do not believe anything you read or hear.

3. Be prepared to ask your questions
Once you find an advisor with no red flags attached to his or her record, get ready for the meeting. Don’t be as impressed with their office and credentials as you are in the confidence you get from their answers. You need to know a lot more information about them before you turn over any of your hard-earned money. Here are just some of the questions you need to get good answers on:
– What process do they use to understand your goals? Is it a cookie cutter, one size fits all, or will they actually work to understand your goals (and help you understand them too!)
– How do they select the investments in your portfolio, and who actually does the selection?
– What fees will be charged? Is it a percentage of assets, a yearly fee, commissions, or some other approach.
– Are there any potential conflicts of interest? For example, do they recommend investments or mutual funds that they earn commissions on? Or, do they steer you to high fee investments associated with their company that might not do as well as those that come without fees.

Bottom line
Hiring an ethical, effective advisor can be very helpful in achieving a successful retirement. But getting the right firm means you have to invest time and energy to protect yourself – it is far too risky to rely on unverified information.

Do you have any advice or war stories that you can share with your fellow members about hiring a good financial advisor? If so, please share in the Comments below.

For further reading:
Should You Hire a Professional Financial Advisor, or Do It Yourself?
What Women Want in a Financial Advisor – And How to Find a Good One

Posted by Admin on August 17th, 2015


  1. The very first question should be “Are you a registered investment advisor operating under fiduciary rules?” A financial advisor operating under fiduciary rules must always put client interests first. Bank based advisors, insurance agents , wirehouse advisors all operate under a much lower standard which is suitability. This standards only requires advisors to offer investments which are suitable for individuals like yourself. The difference doesn’t sound like much, but in reality it’s huge. It can be the difference between a portfolio of Vanguard index funds total with a fee structure 1/4 of 1% or a variable annuity with a total fee structure over 3% per year. In other words, the variable annuity is 12 times more expensive!! And this is just one issue that highlights the conflict of interests that permeate the financial services industry. That’s why I recommend a Registered Investment Advisor operating under fiduciary rules.

    by Troutbum — August 19, 2015

  2. Being spectacularly financially conservative and risk averse, we employ no financial planner. Our money is almost exclusively tied up in a paid off home, CDs and government bonds. The thought of losing a little ground to inflation is far less worrisome than losing principal in the market.

    by JCarol — August 19, 2015

  3. About 2 years before we retired, we had our retirement account transferred to a Financial Advisor working for E.J. He told us that we could meet our monthly financial need and get a very high interest rate by purchasing an annuity. (We knew nothing then, and trusted him, as he was our daughters employer) we transferred over $500K to him, and subsequently purchased this annuity. In the end, we found out that the annuity paid 1 1/4% (nowhere near our monthly financial need) and the additional “High Interest” came as a return of Principal, so that after we began drawing it, the whole account would be spent leaving us with nothing after 10 years.

    The Financial Planner received $8000 for the initial purchase of the annuity, and also received commissions on “Dividends” paid periodically, that were reinvested in other additional securities.

    E.J. Management saw that we had registered a complaint, investigated, then advised us that this investment was completely wrong for us, returned our principal and fired the Financial Adviser. We were very fortunate, believe me!

    Please heed the above advise, and check things out carefully!

    by Jack — August 19, 2015

  4. I managed both my and my wife’s retirement savings for roughly 20 years buying and selling primarily individual equities and did reasonably well. Escaped the techscapade virtually unscathed. Then, after retiring, I thought I’d get smart and turn it over to the pros. First national company, Stifel Nicolaus, charged a flat percentage but then had me spinning with constant turnover. But before I could cancel, the agent took me to breakfast to announce that our one-year contract wasn’t binding on them and the company was increasing its fee by a half a percent. I informed him that going from 1.5 to 2% (if i recall correctly) was a bit more than a half percent increase in fact. Next, went with Waddell & Reed through one of their top men. Did reasonably well until that bad week in ’08 when my agent was at a meeting back East and I couldn’t contact him. Fortunately, I bailed with a 20+% loss and got back in near its bottom. Disappointed, but no yet having learned my lesson, I later went with Edward Jones. Decent performance but very expensive. Wanting to put some money into individual stocks I was shocked at their unbelievable, to me, percent to buy and again to sell. Having had enough of the professionals, and not willing to spend the time necessary to manage an individual portfolio of stocks, I went with Vanguard. Much happier with the ability to combine my fund choices with their advisory service for next to nothing as backup. I also trade stocks through them at nearly no cost per transaction. It may read as if I’m a day trader type, but fact is, both on my own and with these firms I try to buy and hold. Changed companies more than holdings!

    by Craig Knowles — August 19, 2015

  5. I have been handling my own investments and have done very well. Gained 37% last year and lost 7% in 2008. Generally gain 20% or more per year. Even after these last two days, I’m still up 17% for the year and just cashed out of everything waiting for a turnaround. I also do options which helps a little.

    by Joe Stewart — August 21, 2015

  6. Something that I’m sure not everyone knows. You CAN move your money out of what you’re invested in during a correction, like we may be having now, into a money market account and not ride your investments all the way down. Just note the symbol for what you are in or others that you have available and wait until you are sure they are coming back like the market. Then get back in. I cut my losses to 8%, then I get out. I just got out of mine Friday.

    by Joe Stewart — August 22, 2015

  7. Everybody please read and re-read Troutbums comment! I whole heartedly, totally and unequivocally agree with that comment. In my opinion that is the very first question that needs to be answered. If the advisor is not acting as your fiduciary the conversation is over.

    by Bob — August 23, 2015

  8. Advisor I have been considering checks out just fine on all 3 sites. What else do I have to do to avoid a Bernie Maddoff situation?

    by Sallie50th — August 24, 2015

  9. Most advisors will tell you not to try and time the market. In 2008 I was down 120M in my IRA. I left the $$$ in the stock funds and it came back in about a year and a half. Just checked the Dow futures for today and it is currently up 500 points. If I had gotten out last week I would have missed the bounce today.

    Having said that, I am going to go more conservative once the market comes back and this China issue subsides. I’m getting too old for these wild swings in the stock market.

    by Jim C — August 25, 2015

  10. Thanks to your comments, I looked at my 401(k) investment fees and notice that I’m paying 4%(!!!) on one investment. That’s a lot of money! No wonder my balance has been in neutral. I’ve got to change that. Even though I’m close to retirement, I’m leaving some of my investments in the stock market, but I’m going conservative. for the bulk of it. I’m too close.

    by Elaine C. — August 25, 2015

  11. If we live long lives, we may need to earn some of our income in a less conservative manner so as to earn more. If there are substantial funds elsewhere, i recommend using a Roth IRA for this purpose. As these monies can be used last, we can afford to be a bit less risk adverse with them. By this i mean finding a fund with an excellent track record of earnings; but with, perhaps, wider swings up and down. Of course, one must be prepared to ignore this portfolio when the market over reacts, knowing that these funds can sit there for over a decade, and maybe a lot more. Wishing all well at this critical time of our lives.

    by ella — August 26, 2015

  12. Sallie,
    Go in and visit with the advisor. Typically they offer a free 1st time consultation, probably a half hour or so. Just feel the person out. Be sure your personalities click, after all you are really going to have to trust this person. Ask all the usual question and be sure you understand the answers and are satisfied with them. Do you understand how he is getting paid? Believe me they are not doing this out of the goodness of their hearts. I know two different couples that the same advisor sold them annuities. They couldn’t believe it when they discovered how much the guy made from selling those things to them. Don’t be afraid to take support person in with you. Good Luck

    by Bob — August 26, 2015

  13. Troutbum…I’m not ckear on what you.mean by “operating under fiducuary rules”?

    by Bob Milliken — August 27, 2015

  14. Bob – thanx. I have met with him & like him. My daughter & some friends of hers have been working with him for several years & believe he has been honest, clear, & kept them on the right track with their retirement funds. But a lot of people liked Bernie Madoff too. Where did I put that crystal ball?!?

    by Sallie — August 27, 2015

  15. Ella – the current market tremors/quakes prove you right. ????

    by Sallie — August 27, 2015

  16. Folks, when you hear someone mention annuities as a possible “investment”, run, not walk, to the nearest exit.
    Key word like “surrender charge” should send you to the nearest exit. Huge expenses take a great deal of your return on investment. The Securities and Exchange Commission says flat out that a variable annuity is appropriate for almost nobody. Your money is tied up, you get very low interest rate and your income is dependent upon the viability of ONE company. That’s all your eggs in one basket.

    by vincent moloney — August 27, 2015

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