Before you decide on a retirement advisor, you should make sure you will be getting the services you require and the advice you need. The best way to do that is to ask the right questions. If the answers are unsatisfactory or incomplete, you may want to continue the search. Your retirement is far too important to leave to chance.
1. What Is Your Investment Philosophy?
This is the most basic of questions and one any retirement advisor should be able to answer without hesitation. You should hear about the discipline behind investment strategies and how those strategies will help you achieve an annual return designed to reach your investment goals. This should all be provided in simple terms you can understand.
2. Which Services Do You Provide?
The answer to this question should address solving problems you may face in retirement. These include knowing when you can afford to retire, coordinating your assets, figuring out how much you should withdraw from retirement savings (and from which accounts), managing expenses and helping you provide for your long-term care. In addition, you should receive information designed to make sure you understand and are able to navigate tax laws and avoid emotional responses to market fluctuations.
3. What Are Your Credentials?
Anyone you consider as a retirement advisor should demonstrate sufficient training. In general, you are looking for someone with advanced financial and retirement-planning education. Designations to consider include certified financial planner, chartered financial consultant and chartered life underwriter. Another credential high on the list is retirement income certified professional, which involves retirement-specific planning training and education. Verification sites such as Designation Check can help you search for a qualified professional or verify that the certification he or she claims is accurate. Finally, anyone who purports to be a retirement advisor should be a fiduciary (see question 10).
4. How Will You Be Compensated?
It is important to know how you would remunerate a potential retirement advisor. You should ask whether you will pay per transaction or annually, based on the value of your assets. Other advisors may be compensated through commissions on products they provide.
This is not to say someone who charges more is to be avoided. A high-priced advisor may well be worth the fee you pay if the results are valuable to you. Be wary of commission-based compensation, as it could mean you will be steered into buying products with higher fees. Transparency is the most important part of the answer to this question.
5. How Often Will You Contact Me?
You should expect contact on a quarterly basis at a minimum. Monthly is even better. In addition, your advisor should explain every buy or sell transaction. There should be periodic reviews of the status of your portfolio, including offering educational resources if appropriate or if you ask for them.
6. How Much Money Will I Need to Retire Comfortably?
The answer to this question should be preceded by a series of questions from your advisor seeking to know what type of lifestyle you want to live in retirement. This includes social life, travel, hobbies, education and whether you intend to work part time. If all you get is a number with no discussion of lifestyle, you may not be getting the time or attention you deserve.
7. What Should I Do About My Mortgage, Social Security and RMDs?
These three areas of concern represent major financial issues that must be resolved as part of retirement planning. Under what circumstances should you pay off an existing mortgage? When should you start taking Social Security benefits? When you turn 70½, how should you coordinate among Social Security, required minimum distributions (RMDs) and withdrawals from taxable accounts?
8. How Should I Plan for Healthcare?
According to Fidelity a 65-year-old couple retiring in 2018 would need more than $280,000 to cover medical expenses in retirement. Dealing with Medicare, supplemental insurance and long-term care requires solid and thoughtful advice. A competent advisor will not hesitate to address this issue with you.
9. What Happens to My Money If Something Happens to You?
Your advisor should be able to answer this question in enough detail that you are confident there is a plan of succession in the event he or she retires, leaves the firm for another job or is otherwise unable to continue serving you. You should know how your financial affairs will be handled and who would handle them.
10. Do You Have a Fiduciary Duty to Me?
Fiduciary duty is a legal term that means that one party has the obligation to act in the best interests of the other party. You want your advisor to be pointing you toward investments that are in your best interest, not your advisor’s. It’s great if the two coincide, but yours should come first. A hint: Fee-only advisors are more likely to assume fiduciary duty than those who work on commissions.
11. Is There Anything I’ve Forgotten to Ask You?
Ending an interview with this question can be very revealing, even if you think the answer is no, as it can demonstrate a level of engagement. Remember, choosing a retirement advisor is not an easy task. Asking the right questions and listening carefully to the answers you receive will help you decide if there’s a match and the likelihood of trust between the two of you. If you’re part of a couple, both partners should feel comfortable. Philosophy, fees, qualifications, standards and more all come into play. Your retirement should not be a guessing game.