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4 Questions Everyone Must Ask Their Retirement Advisor

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In honor of National Retirement Planning Week, now is a good time to take a step back and think about who is helping you with your retirement planning. A financial advisor can be a powerful resource for those heading down the road to retirement. Financial companies and advisors alike are putting a great deal of emphasis on retirement planning as the baby boomer generation moves into retirement. The baby boomer generation’s retirement represents a tremendous opportunity for the financial planning industry to add a lot of value given the complexity of retirement planning. Individuals need to manage their financial assets, plan for long-term care, deal with taxes, determine lifestyle goals, dissect government programs such as Social Security, and ultimately still enjoy their retirement. However, all advisors are not created equally, as service offerings, compensation, value, and skill levels widely vary. Whether you already have a retirement advisor or you are considering one, there are certain things you should know about a professional before engaging him or her to act as your retirement advisor. While the list of questions below is not comprehensive by any means, it is a good starting point to determine if the advisor will suit your retirement planning needs.

1)      How do you provide value as a retirement advisor?

Perhaps the most important question to ask an advisor is, “what services are you going to provide for the fees I am paying?” Advisors can add value in a multitude of ways. For instance, an advisor could help you decide when you can afford to retire, when to collect Social Security, what to do with your 401(k) assets, how to afford long-term care costs, how to manage sequence of returns risk, how to navigate tax laws, how to withdrawal assets in retirement, and how to develop a cohesive plan. Advisors can also help protect you from yourself. This could mean planning for difficult issues (e.g., long-term care and death), keeping you on track, and avoiding emotionally charged financial decisions, like selling off assets when the market is down. Understanding the value proposition of your advisor is important as you are hiring them to perform a specific service. Make sure that their services align with your retirement planning needs. You could also ask the advisor for testimonials to help gauge how their others clients view the advisor’s value.

2)      Do you provide comprehensive retirement planning?

To the surprise of some people, not all advisors provide comprehensive retirement planning. It is important to know whether or not your advisor provides a full range of retirement planning services in addition to the value that he or she has already stated that they provide. Recent research from The Diversified Services Group, Inc., in conjunction with Wealthmanagement.com, showed that while there has been a shift towards holistic retirement planning, far too many advisors fail to fully integrate important planning issues regarding senior health care and long-term care planning into the overall plan. According to Heywood Sloane, a Principal from Diversified Services Group, "all too often actions on senior healthcare were event driven and late in the game. Steps aren't taken early when it is a question of options and alternatives. They are delayed until later when it's about constraints and trade-offs."Additionally, certain healthcare and long-term care planning decisions need to be made at an early age, such as buying long-term care insurance or contributing to a Health Savings Account (HSA) while working. These planning decisions cannot be put off until retirement.

In many cases, an individual might be best suited with a retirement planning team. This could include an insurance professional, an investment advisor, a tax professional, and an estate planning attorney. Make sure you have the right type of advisor. However, a large team of advisors often needs to be managed to some degree under a comprehensive plan. Because retirement planning is so vast and complex, it is often advisable to have one advisor manage and coordinate your team of advisors to provide you with the best possible solutions for retirement.

3)      Do you have advanced financial planning education?

If someone is holding him or herself out to you as a qualified advisor or retirement planning expert, make sure that he or she has the proper training and education. Check and see if the individual has advanced financial planning or retirement planning education. Do they have an industry recognized professional designation such as the CFP®, ChFC®, or CLU®? Additionally, do they have a specific retirement planning designation such as the RICP®? There are online resources, such as Designation Check, to help consumers check the designation or certification status of an advisor. In addition, Designation Check can help you search and find qualified retirement experts in your area.

4)      How are you compensated?

It is important to know how your retirement advisor is being compensated. This means asking about both direct compensation and indirect compensation. Some advisors are paid on a per transaction fee basis, while others are paid annually based on the value of your assets that they manage. While fees and compensation are important, it needs to be balanced with the other questions you have already asked, as the advisor’s fee might be well worth the value that he or she brings to your retirement plan. Do not let the compensation overshadow the potential value offered, but make sure you understand the costs associated with the advisor and how these could create potential conflicts of interest.

With hundreds of thousands of potential advisors out there, make sure you hire the right one for your family’s specific retirement needs. Make sure you pick a retirement advisor that you feel comfortable working with for a long time. Understand their philosophy and be sure that your personalities will mesh for a productive relationship. Get to know how the retirement advisor can add value for you, if they can provide comprehensive planning, their professional education, and how they are compensated. Your retirement is important to you, so make sure that the person helping you achieve that goal is right for you.