How To Pick A Financial Planner For Retirement


Choose The Best Retirement Plan For You

Pick the right plan: Financial advisor explains retirement savings accounts | Part 2

A cornerstone of retirement planning is determining not only how much to save, but also where to save it.

  • If you have a 401 or other employer retirement plan with matching dollars, consider starting there.

  • If you dont have a workplace retirement plan, you can open your own retirement account.

There is no single best retirement plan, but there is likely a best retirement plan or combination of retirement accounts for you. In general, the best plans provide tax advantages, and, if available, an additional savings incentive, such as matching contributions. That’s why, in many cases, a 401 with an employer match is the best place to start for many people.

Some workers are missing out on that free money. According to a 2021 T. Rowe Price Retirement Savings and Spending Study,

» Go deeper: Read more about how to choose a retirement account

Ask How They Get Paid

During the initial meeting, you need to find out how the advisor makes money and the all-in costs you can expect to pay to work with them. It can be awkward to ask, but it’s critical that you understand what their expense structure is like, as it can affect how they give advice.

Many financial professionals will bill themselves as fee-based or fee-only. On a whole, financial professionals earn money for their services one of five ways:

  • Assets under management: Investors pay advisors a percentage of the amount of money they manage. Typically investors with less than $1.5 million in assets pay between 1% and 1.5% in fees, according to Boston-based research firm Cerulli Associates.
  • Flat annual fee: A retainer-like expense paid by investors and is generally between $1,500 and $3,000
  • Hourly fee: Expense paid by investors and offered as a pay-as-you go option of advice
  • Per-plan fee: Typically a one-time fee investors pay for a comprehensive financial plan
  • Commissions: Fees paid to an advisor based on selling a specific product or trading securities
  • Not quite sure how a potential financial advisor is compensated? You can typically search their firm’s SEC filings, which includes comprehensive breakdown of the company, including how their professionals are compensated.

    Online Financial Planning Services And Advisors

    This is the next step up from a robo-advisor: an online financial planning service that offers virtual access to human financial advisors.

    A basic online service might offer the same automated investment management you’d get from a robo-advisor, plus the ability to consult with a team of financial advisors when you have questions. More comprehensive services such as Facet Weath and Personal Capital roughly mirror traditional financial planners: You’ll be matched with a dedicated human financial advisor who will manage your investments and work with you to create a holistic financial plan. Many online financial advisors can match you with an advisor with a top-tier credential such as a certified financial planner.

    • Medium cost: Online financial planning services will typically cost less than a traditional financial advisor but more than a robo-advisor. Some services have relatively high investment requirements of $25,000 or more others require no minimum investment.

    • Good when: You’re comfortable meeting with an advisor online but would still like holistic financial planning services such as estate planning, retirement planning or help with company stock options. Online advisor marketplaces such as Harness Wealth and Zoe Financial, and many online advisors themselves, do the work of vetting a financial advisor for you.

    • Look elsewhere if: You’d prefer to work with an advisor in person.

    » Ready to compare? Read our full roundup of the best financial advisors

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    Consider What Type Of Professional You Want To Work With

    There are two types of legally defined financial professionals: brokers and investment advisors.

    Generally, brokers are registered with the Securities and Exchange Commission and overseen by the Financial Industry Regulatory Authority, a self-regulatory agency for the financial industry. Brokers are allowed to buy and sell stocks, bonds, mutual funds, annuities and other investment products on behalf of their clients.

    Traditionally, brokers were considered sales personnel under the law and only needed to recommend investments that were suitable for you, even in cases where better options existed. Under rules rolled out by the SEC over the summer, these professionals must now act in your best interest when working with your money. But some consumer advocates claim that the new rules are weak and don’t go far enough to eliminate conflicts of interest that can arise, such as accepting payments for recommending specific products.

    But financial professionals can also be registered as an investment advisor and, in that role, are overseen by the SEC and state securities agencies. Investment advisors can manage investment portfolios including buying and selling stocks and funds and provide advice on your investments. Under SEC rules, these professionals need to act as a fiduciary, which means they must put your interests ahead of their own and eliminate conflicts of interest as much as possible.

    Use Online Tools To Choose The Best Financial Advisor For You

    Investing Q& A: Retirement, College Funding, &  How to choose a Financial ...

    You can choose the best financial advisor in your ZIP code by browsing for them in online searches. Choose the one with the proper credentials and qualifications to meet your retirement investment needs.

    You can also choose to pick an advisor remotely, as most of them work online, if you dont want to establish a face-to-face connection with them.

    They will make use of advanced tools and software and make the remote process easy and simple. The use of advanced financial planning software, loan tracking software, and software for portfolio management helps in devising the financial retirement plan accurately.

    It also helps in participative planning, where your financial portfolio will be created to match your needs.

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    Advisers Who Deal With Insurance

    This includes:

    • general insurance such as home, car and travel insurance
    • protection insurance such as income protection and critical illness.

    These advisers are often also known as insurance brokers.

    Like mortgage advisers, theyre paid by commission on any insurance product they sell. They dont usually charge an extra fee.

    Insurance brokers will also help you deal with any claims you might make and will shop around for you every year to make sure youre getting the best deal.

    If your circumstances are out of the ordinary for example, if you live in an area at risk of flooding or youve health issues and need travel insurance an insurance broker can be especially useful.

    They know the insurers who deal with the type of insurance you need and will be able to find you the best deal.

    But some insurance brokers deal with a wider range of providers than others. So always check the level of service they offer and how many providers they work with.

    As with other types of financial advice, brokers who deal with a wide range of insurance providers will give you the widest choice.

    Stockbrokers And Mutual Fund Dealers

    These are licensed individuals who can help you buy or sell investments such as stocks, bonds or mutual funds.

    They can also help you start or contribute to a registered savings plan, such as a registered retirement savings plan , registered education savings plan , registered disability savings plan or Tax-Free Savings Account .

    Read Also: How Much Do You Need To Retire At 62

    Know How Financial Professionals Get Paid

    Traditional advisors

    There are various ways an advisor makes money like a commission for selling products, an annual percentage of an investors assets, or an hourly rate so you shouldnt be afraid to ask for the details.

    Different payment structures might create different incentives, says securities attorney, Alan Rosca. If somebody is paid only to sell investments, it means if he doesnt sell you anything, he doesnt make any money.

    Here are some ways financial advisors may get compensated for their time and expertise:

    • Hourly rate: You could pay advisors for their time like you would an attorney. Hourly rates range from $100 to $400 per hour, according to financial advice site SmartAsset.
    • Flat or annual fee: Financial advisors could collect 1 to 2% annual percentage of your assets under management. So, for instance, if your assets total $100,000 you would have to pay between $1,000 and $2,000.
    • Commissions: Advisors could collect commissions on the financial products they sell you.
    • Fixed rate: Advisors could charge a fixed fee of between $1,000 and $3,000 for a service such as creating a full financial plan
    • Retainer: If you have a complex financial situation, sometimes a financial advisor will work on a retainer model, and charge you either monthly, quarterly or annually. Since this is not asset-based, it can help minimize conflicts of interest and keep the focus on advice.


    Consider What You Are Hoping To Gain From Financial Advice

    Pick the right plan: Financial advisor explains retirement savings accounts | Part 1

    Often, people turn to financial advice when in a changing season of lifesuch as starting a family, planning for retirement or after receiving an inheritance. You may also turn to a financial advisor when looking to get out of debt, or wanting to become more conscious of your investment abilities in the long term.

    When choosing an advisor, its important to consider your stage of life and what you want to get out of the advice. Consider your short and long term goals along with how long you anticipate wanting to work with a financial advisor for.

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    Why Work With A Financial Advisor

    Managing your investments can be complicated. You may not be comfortable investing on your own. A professional financial advisor or planner can help.

    An advisor can create a detailed financial plan, which involves:

    • assessing your current situation
    • determining your present and future goals and needs
    • giving advice on the financial products that are right for you
    • reviewing and updating your investments periodically

    Choosing the right advisor depends on what help you need. If you need specialized advice, look for an advisor with expertise in that area.

    Meet with several potential advisors. Ask your friends and family if there is an advisor they recommend. Choose one that you’re confident has the experience, expertise and credentials to help you reach your financial goals.

    Digging Into The Details

    Youll want to ensure that the advisor can provide the services you want. Check minimum requirements and insurance protections. Find out more about the advisors investment approach. Ask for a sample portfolio. Inquire about the investments that advisor recommends. Low-cost, broadly diversified funds and ETFs should be the mainstays of a portfolio balanced between domestic and international stocks and bonds.

    A good advisor will also seek to minimize the drag of taxes on your portfolio. Determine, too, if youll receive advice on other assets, such as money held in an employer-sponsored retirement plan.

    For robo-advisors, in particular, get a feel for the website or app. Is it intuitive and easy to use? Does it offer a complete description of the services provided and fees charged? Is there educational content? What about account security?

    Next, turn to performance. Be wary of advisors touting market-beating returns or their ability to pick winning stocks and funds. Youll want to know instead if an advisors recommended portfolio has produced competitive results versus a relevant benchmark over the long term. More importantly, youll want to know how the advisor will show progress in reaching your identified goals. The advisor should also clearly explain the accompanying risks of the recommended portfolio and individual component funds.

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    Preparing For A Meeting

    There are a number of factors to consider as you prepare for your first planning meeting so you can feel confident and get the most out of your session. You may wish to:

    • List your financial goals in order of importance.
    • Educate yourself about money matters through free financial seminars, local classes, or online financial calculators.
    • Gather your financial records, including copies of all recent financial statements and information about any stocks, bonds, mutual funds, real estate and life insurance you own.
    • Think carefully about your retirement goals, including the age at which you hope to retire, what sources of income you can expect in retirement, and what standard of living you hope to maintain after you stop working.
    • Talk with your spouse or partner about your financial goals and retirement plans .
    • Be ready to talk about financially protecting your loved ones in the event that you become disabled or pass away.
    • Think about your risk tolerance when it comes to investing your money.

    Three Types Of Financial Advisors

    Best Retirement Plans: Choose the Right Account for You

    Financial advisors are generally grouped into the following categories based on how they offer and administer their services:

    • “Robo-Advisors” Some financial services are provided entirely online, sometimes referred to as robo-investing. In this case, you don’t meet with an in-person advisor. Instead, you get all your advice online. After you input your information, computer algorithms give you feedback and answer your questions. This type of service is less personalized, and therefore less expensive. However, there may be account minimums or additional fees for various activities.
    • Online Financial Planners This option provides similar services as robo-advisors, but youll also have access to a professional advisor. Keep in mind that the advisor may not always be the same person, so it can be difficult to build a relationship and have someone who truly understands you and your goals.
    • Traditional Financial Advisors Working with a financial advisor provides you with the opportunity for a lasting relationship and a partner to help you stay on track toward long-term goals. A dedicated financial advisor should take the time to get to know you, including who and what matters most to you. With this deep, consistent knowledge and understanding, you can make the right decisions together as a team.

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    Start With Your Target Retirement Number

    When mapping out your financial planning retirement strategy, it can help to work backward. That means figuring out how much money youll need to save for retirement first, then building your financial plan around actions that can get you to that number.

    A retirement calculator can help you narrow down how much you may realistically need to have saved and invested. When estimating a target savings number, its important to ask questions like:

    • What will your retirement lifestyle involve?
    • How much will you need to meet your annual retirement budget?
    • Where will your retirement income primarily come from, in terms of Social Security, a 401, IRAs, etc.?
    • At what age will you begin taking Social Security benefits?
    • How many years do you anticipate spending in retirement?
    • Is working part-time in retirement or starting a business something youre interested in?
    • How much debt do you anticipate having in retirement?
    • Will you be providing financial support for adult children or grandchildren?
    • Are you interested in creating a financial legacy of any kind?

    These questions can help you set up accurate spending goals to ensure that you dont run out of money in retirement.

    Consider Smaller Withdrawals For A Longer Retirement

    It’s not as though proponents of early retirement are just misunderstanding the study. Although the Trinity study assumes a 30-year retirement, the compounding nature of investment returns means that the math can be applied over longer periods, experts say.

    “When you actually look at the math and extend it out over a longer period, in most cases your money is going to triple or quadruple,” says Grant Sabatier, a leading figure in the FIRE movement and creator of the financial site Millennial Money. “That’s the nature of a compounding curve.”

    But extending the length of your retirement widens the margin for error in your portfolio, experts say. That means it may be wise to aim for a slightly lower withdrawal rate the longer you plan for you money to last. Researchers at Morningstar say a safe withdrawal rate may lie somewhere between 3.3% and 4%, for instance.

    “In general, if you have a portfolio balance and you’re planning to stretch your withdrawals out over 40 or 50 years, starting with a lower withdrawal rate gives you a higher probability of success,” Christine Benz, director of personal finance and retirement planning at Morningstar, told CNBC Make It.

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    Know When To Start Retirement Planning

    When should you start retirement planning? In a word, now. In three words, in your 20s. The earlier you start planning, the more time your money has to grow.

    That said, its never too late to start retirement planning. Even if you havent so much as considered retirement, dont feel like your ship has sailed. Every dollar you can save now will be much appreciated later. Strategically investing could mean you won’t be playing catch-up for long.

    » Go deeper: Read how retirement planning and building wealth go hand in hand

    Determine Whether You Need A Fiduciary Financial Advisor

    How to choose a financial advisor

    You might think all financial advisors would put their clients needs first and avoid conflicts of interest but thats not always the case.

    Many different financial professionals fall under the term financial advisor, but only some of them must adhere to the fiduciary standard.

    The fiduciary standard of care also known as fiduciary duty is a rule that requires financial advisors put their clients best interests ahead of their own, even if that means recommending strategies that could reduce their own compensation.

    Registered investment advisors have this obligation while critics say brokers do not, despite a recent regulation that was intended to strengthen these standards.

    This comes as a surprise to a lot of people: a 2019 survey from the digital wealth manager Personal Capital found that 48% of Americans mistakenly believe that all financial advisors must meet this fiduciary standard.

    Meeting the fiduciary standard matters most when youre hiring a financial advisor to invest and choose financial products on your behalf. If youre simply seeking help building a monthly budget, this issue is likely not as crucial.

    In either case, dont be shy about asking potential financial advisors whether they are fiduciaries and any other questions about how theyre compensated. Its your net worth at stake, after all.

    Since this is a complex topic that deserves more attention, we dug a little deeper. Read our in-depth research further down below.

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