Finding a Financial Advisor

Retirement often presents us with bewildering choices: When to retire? Where to live? How to occupy one’s time? These kinds of decisions are mostly matters of personal choice, and though you can seek the advice of friends and family, ultimately you’ll need to decide them on your own. However, the financial aspects of retirement – how you will derive income from your assets now that you’re no longer drawing a steady paycheck – comprise one broad area where you should consider seeking professional advice, particularly if your financial situation is complex.

Personal financial advisors are more prevalent than ever, and eager to apply their expertise to your situation. An advisor will sit down with you and look at your complete financial picture: any income you have from investments or pensions, your overall assets, your property, any debts or financial obligations you may still have. A good advisor may further help you make decisions regarding insurance and estate planning, and of course will weigh all the tax consequences. In this way, your advisor will help you formulate an overall plan for income in retirement, for adequate insurance, and for passing on your estate as beneficially as possible.

What should you look for in a financial advisor? First of all, credentials. The field is broad and all-encompassing, and people from many professional backgrounds can hang out a shingle advertising financial advice. One of the most respected credentials to look for is “CFP” (Certified Financial Planner). Earning this credential requires working through half a dozen rigorous courses, passing several exams (including ethics training), and having three years of job experience. Other designations included CPA (Certified Public Accountant), CPA/PFS (a CPA with training in financial planning), ChFC (Chartered Financial Consultant, with expertise in insurance matters), and CRPC (Chartered Retirement Planning Counselor). But a CFP will generally have the broadest training.

Another major consideration is fiduciary responsibility. Credentialed financial planners are held to a fiduciary standard, which means that they are professionally required to offer advice that is in their clients’ best interest. On the other hand, a broker, who can also offer a client financial advice on which products to purchase, is not held to a fiduciary standard — a broker is only required to suggest products that are “suitable” for a client’s portfolio. There is a big difference between “best interest” and “suitable,” and brokers typically sell their clients the investment products on which they make the biggest commissions, justifying the purchases by stating that these products are just as “suitable” as any other products.

New legislation currently under consideration (as of May 2011) would apply the same fiduciary standard to brokers that is applied to credentialed financial planners. Until that happens, however, don’t seek financial advice from a broker.

Another consideration is how your planner will be paid. If your situation is fairly straightforward and you just need a few sessions with an advisor to tweak your financial plan, then you will likely pay a standard hourly or per-session fee. If your finances need a major overhaul, you may need an advisor for repeated sessions over a period lasting several weeks or longer. Your advisor will likely charge a flat fee for such an overhaul. Or, you may wish to keep an advisor on board for the long term, having him or her review your situation on an annual basis and make adjustments as necessary. For such long-term arrangements, advisors sometimes charge a fee based on a percentage of your assets. And some advisors indeed earn commissions on some of the products they may recommend to you, such as annuities or load funds. This may not be a bad thing, but be sure that your advisor offers a full range of financial products. There is no reason under the sun, for instance, to purchase a load fund (which involves paying sales commission, typically 4.5 percent of the investment), when no-load funds perform just as well and usually better.

Most important, you must feel comfortable with your advisor. You will be disclosing information about all of your financial, estate, insurance, and related matters, some of which may border on issues that are personal. You should not withhold information, as this will make it impossible for your advisor to fashion a plan that is suited specifically to your situation. Interview at least a few advisors before settling on one with whom you feel compatible, and then you’ll be well on your way to a rewarding and worry-free retirement.