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:
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.
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:
What Women Want in a Financial Advisor – And How to Find a Good One