What to know before hiring a retirement financial advisor

If you’re managing your finances for your golden years, you may want to consult with a financial advisor who specializes in helping clients prepare for retirement.

But before you hand over control of your investments to a retirement financial advisor or retirement planner, there are a few things to know.

What is a retirement financial advisor?

Nicholas Stuller, CEO of BenFi in Middlebury, Connecticut pointed out that the term “retirement financial advisor” is not a regulated job title, but it does describe financial advisors who normally focus most of their time and client work on people who are planning for retirement or already retired.

“This is opposed to an advisor that is expert on people early in their career or who manages money and does no financial planning,” he said.

What retirement planning advisors do

Retirement planning advisors perform a range of tasks to help their clients reach long-term financial security after their working years.

1. Planning

The financial planning process for retirement begins with an overview of a client’s current financial situation, including income, expenses, savings and investments. Retirement financial advisors then help clients set realistic goals and develop a strategy to achieve those goals.

For example, if travel is important to a client, an advisor will help figure how much the client can spend each year on travel-related expenses. Over time, as goals and life situations change, the advisor will monitor and adjust the plan.

2. Investments

A retirement planner makes sure that client portfolios are invested to create the return that’s needed in retirement.

Rather than trying to generate the highest possible return, which is a risky approach, planners will determine how much income a client requires and create a portfolio that balances capital preservation and growth.

A planner can advise on various types of accounts, including 401(k)s, individual retirement accounts (IRAs) and taxable brokerage accounts.

3. Taxes

Taxes are often a significant expense in retirement. A planner will develop tax strategies and can partner with a client’s tax preparer to make sure all consulting professionals are on the same page.

“Tax planning will help you take maximum advantage of tax-smart strategies to reduce current and/or future income taxes,” said Joe Buhrmann, a certified financial planner (CFP) and advisory financial planning consultant at eMoney Advisor in Radnor, Pennsylvania.

4. Estate planning

A financial planner assists clients with estate planning by creating strategies to manage and distribute assets, with an eye on minimizing taxes. Estate planning ensures that assets are distributed according to a client’s wishes, while striving to avoid sticky probate situations or disputes.

Often, a planner will team up with an estate attorney to be sure documents such as wills and trusts are in good order.

5. Insurance planning

Insurance is a key component of the retirement financial planning process. Often, retirees with no dependents can cancel life insurance policies, but that’s not always the case.

A comprehensive retirement financial plan will reveal coverage gaps and determine appropriate levels of coverage when it comes to life, health, disability and property insurance, as well as any other types of protection a client may need.

Pros and cons of working with a retirement advisor

Retirees and pre-retirees should be cognizant of the pros and cons of the decision to work with a financial advisor.

Pros

• An expert in your corner: “The advisor’s industry experience will help guide you through making big financial decisions that can help shape your retirement experience for decades,” said Jordan Mangaliman, CEO of GoldLine Financial in Fullerton, California.
• Personalized advice: “An advisor can offer personalized advice that fits your financial situation and will develop a comprehensive financial strategy to meet short- and long-term planning goals,” said Tiana Patillo, a CFP and financial advisor manager at Vanguard Personal Advisor in Malvern, Pennsylvania.
• Behavioral coaching: Patillo added that financial advisors also provide behavioral coaching to guide clients through complex and emotional financial decisions. That coaching can be particularly valuable during times of market volatility.

Cons

• Challenging assumptions: A financial planner brings a fresh set of eyes to a client’s situation. While that’s generally a positive, some clients may balk at taking actions that don’t jibe with their preconceived notions.
• Understanding the fee structure: Advisors can be paid in several different ways, and clients should know how their planner is compensated. “Typically, the industry charges a percentage of assets held under management,” said Russell E. Gaiser III, a CFP who’s co-founder and retirement income planner at Retirement Income Headquarters of America in Williamsville, New York. “Regardless of how you pay, ensure you know how your advisor is compensated and that they are providing value to you, not just managing your assets without a plan,” he added.
• Choosing the right advisor: Not every advisor is suited to every client. For example, if an advisor doesn’t return calls, speaks in jargon or is condescending, that person may not be right for you. “So make sure to do your homework, and meet with different advisors to see which suits you best,” said Mangaliman.

How to choose a financial advisor for retirement

1. Evaluate your needs

Before choosing a retirement advisor, review your own situation. Do you have a specific level of income you’ll need to maintain your lifestyle? Do you have interests, such as travel or expensive hobbies, that you’d like to pursue? Do you want to protect your assets to pass along to your heirs or make charitable donations?

You may even have a unique situation, such as one that includes a special needs child or retirement from a certain career, such as medicine, education or the military, and may want an advisor with experience in that area.

2. Research advisors

“When choosing a financial advisor for retirement, it is important to do your research and consider factors such as their qualifications, experience, fees and approach to investing,” said Michael Collins, a chartered financial analyst (CFA) and founder of WinCap Financial in Winchester, Massachusetts.

“You may also want to seek referrals from friends or family members who have successfully worked with an advisor for their own retirement planning,” Collins said.

3. Meet with advisors

It’s good practice to meet in person or over video with an advisor to get a sense of whether or not you have good personal chemistry. After all, you’ll be sharing very personal information with this person, and it’s important to feel comfortable.

4. Ask questions

It’s important to ask questions in order to understand how advisors are paid, their approach to investing and other experience and credentials. Good advisors should be forthcoming about how their businesses are run, and about what types of clients they typically work with.

5. Check regulatory compliance

Verify the advisor’s registration with regulatory bodies such as the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA) to ensure they are properly licensed and have no disclosure events.

You can look up a prospective advisor using FINRA’s BrokerCheck tool or the CFP Board’s verification tool.

What to ask a financial advisor about retirement planning

1. How are you compensated?

Understand if an advisor is fee-only, commission-based or uses a combination of fees and commissions. Any of those business models can be suitable, but it’s important to understand what you are paying and how an investor’s compensation may affect your financial plan.

2. What services do you provide?

Confirm that the advisor’s offerings match your financial needs, such as retirement planning, tax strategies or estate planning. Do they provide portfolio management, or are they just planners? Do they also sell insurance products? Here again, various models may be acceptable, but be sure the advisor discloses any potential conflicts of interest.

3. How often will we meet to review my financial plan?

Ask the advisor how often they will review your financial plan. Can you call at any time with questions or concerns? Can the advisor easily update your plan if your situation changes?

Frequently asked questions (FAQs)