Building a strong strategy for retirement often begins with choosing the right financial advisor. If you’re not sure where to start, here are seven questions to ask a potential advisor.
1. What’s Your Approach to Investing?
It’s always a good idea to start by asking a potential advisor about their investment philosophy. Listen carefully to ensure they talk about you – your goals, your tolerance to risk, and your needs in the short- and long-term. Some advisors might focus on socially responsible investing, others may put an emphasis on investing in companies with strong earning prospects, still others may base decisions around past market data. Do your research before the meeting and carefully consider which philosophies most closely align to what you want from your retirement strategy.
2. What Are Your Credentials?
The term “Financial Advisor” is not a legal title, meaning anyone can identify themselves as a member of the profession. Therefore, it is absolutely critical to ask about the credentials of your potential advisor. If you’re receiving investment advice, make sure they are registered with the Securities and Exchange Commission (SEC). Other qualifications to look for include a degree from an accredited college, and preferably an additional certification in financial retirement planning.
3. Are You a Fiduciary?
Being a fiduciary means that your financial advisor is legally bound to act in their client’s best interest. A financial advisor who is a fiduciary would, for example, be obliged to make an investment decision that’s better for your retirement strategy, even if the result is a reduction in the advisor’s own commission. Other investment professionals, such as stockbrokers, often are not held to the same standard.
4. How Do You Get Paid?
Sure, talking about money can be uncomfortable – but that’s literally what you’re here to do! Don’t be shy about asking a potential financial retirement advisor how they get paid. Advisors may charge a set rate per hour or per year, or they may set a fee equivalent to a certain percentage of your assets – around 1% is typical. Be wary of working with advisors who work on commission, as this can lead to investment advice based around buying products with higher fees. This is why fiduciaries rarely work on commission: they won’t recommend higher-cost products unless they are truly the best investment.
5. What Services Do You Offer?If retirement planning is your major financial focus, choose an advisor who specializes in this arena. While most financial advisors should be well-equipped to help you plan for retirement, a retirement specialist could offer additional insight into life insurance, estate planning, and the tax implications of later-in-life financial decisions. At a minimum, a financial advisor should offer support on maximizing retirement accounts like the 401(k) or Roth IRA, access to an investment portfolio covering mutual funds and EFTs, and tax consulting.
6. How Often Will We Meet?
If a potential advisor isn’t willing to meet with you at least once a quarter to catch up on your investments and financial retirement strategy, consider finding someone else. Keeping in touch at regular intervals is important so that you understand how recent market conditions or tax law may be affecting your current investments, and so that you can update your advisor about any changes to your retirement goals or overall financial situation. Since the global pandemic, some advisors may have moved these regular meetings online – so feel free to ask a potential advisor what their policy is on that.
7. Who Takes Over if You’re Not Here?
Working with a financial advisor on issues of retirement naturally means creating a long-term partnership. Therefore, it’s important to discuss what will happen if your potential financial advisor leaves their firm or retires before you do. Most professionals will have a well-established plan in place, detailing how you would be informed in such circumstances, who would take over as your point of contact, and how your investment strategy would be thoroughly communicated to the new advisor.
