Questions Every Boomer Should Ask Their Financial Advisor

By Cheryl Proska
September 27th, 2017 For Members No Comments

Turning 60 is an exciting moment, even if it might not feel that way. The golden years are a time to reflect on the life you’ve lived so far while still prepping for the many adventures still left to come.

If you haven’t already, this time in life is also the moment to take a step back and focus on retirement planning, specifically the people helping to manage your money. Many Boomers once lived by the motto “don’t trust anyone over 30.” Today, it’s smart to not trust their retirement savings—or the Social Security system—to provide a comfortable retirement.

A financial advisor is a powerful resource for moving toward retirement. It’s vital to have the right person in place to help manage financial assets, assist with taxes, plan for long-term care, dissect government programs options such as Social Security, and ultimately help steer the ship towards a care-free retirement.

Unfortunately, not all advisors are created equal. Many offer a variety of services and have the client’s best interest in mind while some just want to make as much money for themselves as possible.

There are certain key questions to ask a professional advisor before engaging him or her to act as your retirement advisor. We asked Robert Johnson, president, and CEO of The American College of Financial Services, for some questions to ask potential or current financial planners. The following list is a high starting point when determining if your advisor will suit your retirement planning needs.

Are you a fiduciary?

This is the single most important question to ask a financial advisor.

A fiduciary is a legally appointed individual who is authorized to manage the assets of another person. It’s important for Boomers to understand that not all financial planners are required to adhere to a fiduciary standard of putting the client’s interest before their own. Some advisors are only required to uphold a suitability standard requiring that financial recommendations are consistent with a client’s wishes.

Be sure to ask detailed questions regarding each fund or investment suggestion and inquire whether he or she earns a commission just for selling it to a customer. If your advisor is also a broker, he or she may only be authorized to sell certain products, which could impact objectivity.

A majority of advisors operate with the client’s best interests in mind, but if you don’t get a straight answer to this question, that’s a sign he or she might be hiding something. Make sure to check 2017 governmental regulation for financial advisors.

QUESTION 2: How do you make money off clients?

Fiduciaries charge a fee based on the total investment amount managed. This fee is typically between 1-1.5% of the assets being managed.

Every financial advisor wants to make money, but if your advisor’s answer about his or her business model is vague or confusing, those are major red flags. Never buy anything, especially financial advice, if you don’t fully understand the costs.

QUESTION 3: Are you planning on moving some of my stock positions into lower risk investments as retirement approaches?

“To use a football analogy,” Johnson begins, “people in their early 60s are clearly in the retirement ‘red zone’ if they plan on retiring at age 65. They should think about de-risking their portfolio (lower equity allocation) in order to protect themselves against a sequence of returns risk. That is, just like a football team can’t afford a turnover inside the opponents 20, an individual getting ready to retire can’t afford to experience a bad market year immediately preceding retirement.

One need not look any further back than someone planning to retire in 2009. If that individual were 100% invested in the S&P 500, they would have seen a drop in the value of 37% immediately before retirement. If one has a long-time horizon, one can suffer through some down-market years in the equity markets, but the good years more than make up for those poor years in the long run. But, the sequence of those returns matters. Taking risk off the table before retirement is a prudent move.”

QUESTION 4: When should I consider claiming Social Security?

“This is not an easy decision,” explains Johnson. “One should consider their life expectancy, expected retirement date, as well as the expected life expectancy and retirement date of a spouse, among other considerations. The bottom line is that if you don’t need the cash flow from Social Security, by delaying it you increase your payments. A financial advisor can guide Boomers through the process of making the Social Security claiming decision.”

Be sure to consult this helpful chart on the effects of early or delayed retirement on your retirement benefits.

QUESTION 5: What other services do you provide to clients like me?

Ask if your advisor will advise on assets he or she doesn’t manage, such as your 401(k) plan, assisting with estate planning, charitable giving, planning for the kid’s college tuition and advising on stocks.

All of these services will not only save you money but help make money while cruising toward retirement. A financial planner that can help with any or all of these tasks not only makes retirement planning a “one-stop” option but also provides added value for the fee you’re already paying an advisor.

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