Choosing the Right Advisor for Your 2017 Financial Success

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The holiday festivities are coming around, and many Americans are getting their financial houses in order. For people who are retired or near the end of their working life, that includes assuring their retirement needs and objectives can be met.

If you and your partner are within five to ten years of retirement, or are already retired, now is a crucial point. It makes sense to prepare for this stage of life. Working with a financial professional can help clear a path to a secure future and instill greater confidence in our financial decisions. But the sheer numbers of financial professionals from whom you can obtain retirement planning advice is truly staggering.

Consider this:

To say the least, choosing a well-suited financial professional for retirement planning guidance can be a challenging task. Let’s cover a few basics to keep in mind as you search for a suitable professional for retirement planning advice.

Retirement Planning Shouldn’t be a Complete Gamble

Then there is the matter of your “safe money,” or the money you can’t afford to lose. In retirement planning terms, safe money can be a number of things:

  • Accumulated savings that will be future retirement income
  • A lump-sum of money set aside for specialized needs and goals – for example, helping grandchildren with college education or paying for vacations
  • A pre-allocated sum of money for legacy goals for heirs

As safe money is the retirement funds we can’t afford to lose, the principle of “risk diversification” comes into play. One primary risk to safe money is market risk, or the possibility of losing money due to a falling market. Whichever financial professional someone works with should heed the importance of managing this risk so safe money remains intact.

However, if someone you are considering specializes in investment-growth strategies, they may not be a well-suited guide for what to do with your safe money. After all, investment-growth strategies make use of “market-risk options” – namely stocks, mutual funds, or other investments which go up and down in value. What could happen to your retirement plans if the income-generating parts of your portfolio took a hit due to a market downturn?

There is the human element to consider, as well. Say there was another bear market like that in the 2007-2009 financial crisis, when stock prices dropped over 50% between October 2007 and March 2009. Understandably, many people lost their cool in the face of this market crash and sold off a flurry of stock holdings. However, in an effort to save face and keep more money from evaporating due to a market meltdown, they hurt themselves. Taking their savings out of the market kept them from being able to recover from a market rebound, when they probably could have recouped their losses and then some. Ask yourself: In the face of a market freefall, how would you react – especially with investments that were providing income for you in retirement?

Strategies to Search for the Right Advisor

How is the financial professional paid? When speaking with prospective advisors, ask them about how they are paid. Be aware, though, that the “conventional” wisdom you probably have read in financial columns may not be all that it is cracked up to be.

Many financial writers espouse “fee-only” advice, and that certainly has its value. As a recap, there are a number of ways which a financial professional may be paid:

  • Fee-only advice, for which someone charges a flat fee for services they render
  • Fee-based advice, for which someone is paid a fee for rendered services and may receive commissions for financial product recommendations
  • Commissions, which someone receives from an insurance carrier or other financial company for products sold

Fee-only advice can help with getting out of possible conflicts of interest. But the irony is if a fee-based advisor makes an insurance or financial product recommendation, someone who does receive a commission will have to execute that recommendation for them. The person who handles the product transaction may have a difference of opinion with what the fee-only advisor suggested for valid reasons. What would that mean for the client if their fee-only advisor and the person implementing that recommendation had a disagreement? Another point is how fee-only advisors receive compensation. They are paid directly with money from their clients' accounts, whereas commissioned individuals are paid by the companies whose products they sold.

Commission dollars may pose a conflict of interest for commissioned financial professionals. But the upcoming DOL rule, which takes effect April 10, 2017, is helping to change this industry-wide. Now all financial professionals, commissioned and otherwise, will be held to a fiduciary standard for advice they give. This will certainly help separate the wheat from the chaff in terms of professionals not working in a client’s best interest.

Also, in terms of averaging out commission dollars over time, you may be surprised at the findings. Many assets-under-management firms can charge 1-2% annually on accounts they oversee. There are interesting insights when this is compared with average commission rates for guaranteed financial products, such as annuities. An industry-wide review of 150+ different 10-year fixed index annuities – a standard contract and term in the annuity market – averages standard advisor compensation out at 6.89%.

The deviation between the lowest-priced contract and the highest-priced contract in these 10-year-period contracts is .71 standard deviation. From a year-to-year standpoint, 6.89% over 10 years comes out to .69-.7% of advisor compensation per year. That isn’t to say that planning services from a firm operating on an AUM model are any less ideal – it just reinforces that whomever you work with should be right for your needs, goals, situation, and other considerations.

Fee-based advice is something you may want to be careful with. All details and stipulations of compensation should be clearly spelled out. Firms which use this fee structure can charge a flat fee on top of receiving commissions, which means you would pay more for their advice.

How does the financial professional offer guidance? As we mentioned earlier, the DOL fiduciary rule will be in force come April 10, 2017. At that point, financial professionals will need to offer guidance based on “best-interest standard of care” – or in a client’s best interest, absent an advisor’s own interests or that of their company.

There are firms already serving in a fiduciary capacity, and they are worth consideration. For income planning, wealth protection, or other retirement-related strategies, under the rule professionals offering annuities or other financial solutions are at heightened levels of accountability. At, you can connect with a financial professional who offers independent, objective recommendations based on client needs, financial circumstances, risk tolerance, goals, and other factors.

Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

Author: Ian

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