Finding a Financial Adviser

There’s a lot to be gained from a professional perspective on your financial situation.

If you’re looking for advice you can trust as you make major financial decisions, you might consider building a long-term collaborative relationship with a financial adviser. An adviser can help you:

• Create a financial plan
• Understand potential investment opportunities and common investment mistakes
• Evaluate your tolerance for investment risk
• Determine an appropriate asset allocation by looking at the full range of your investments, including those in your retirement accounts
• Analyze how effectively you’re meeting your financial objectives
• Reallocate your portfolio as your financial situation changes or your goals change
• Rebalance your portfolio as the value of different asset classes alters your preferred allocation

INTERVIEWING FINANCIAL ADVISERS

While you can work effectively with a stockbroker with relatively infrequent person contact, you may want a more direct relationship with an adviser who is guiding you through a variety of financial decisions in addition to selecting among specific investments.

That’s one of the reasons an interview is an important part of the selection process. Before you schedule an appointment, you can find basic information about the firm on the adviser’s website, though you’ll want to verify its accuracy when you can with the SEC or your state regulator before moving forward.

Before your conversation, you’ll want to think about what you want to learn from the interaction. Some of the direct questions you may want to ask:

What experience do you have in working with people whose financial situation is similar to mine?
How will we work together and how will you keep me up-to-date?
What types of investments do you recommend most and why?
What are your ideas on how someone like me should be investing?
How are you paid for the services you provide and how are those fees calculated?

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TAKING A HARD LOOKS

Whether you do your long-term planning on your own, use an online worksheet, or enlist the services of a financial planner, you’ll need to provide the same type of information. Some you’ll know, but some you might have to collect. You may want to create a retirement file that you can access easily.

As you analyze your personal situation, ask yourself these questions:

• What year do you hope to retire?
• What’s your current income?
• How much do you already have in accounts you’re designating as retirement accounts?
• What real rate of return are you earning on those accounts?
• How much are you adding to your retirement accounts each year?
• What income can you realistically expect from other sources?
• At least as important as the questions you ask are the questions a potential adviser asks you. Among the things a good adviser will want to know are the financial goals that are important to you, your current income, assets, and debts, and how knowledgeable you are about investing and investment risk.

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WHO IS THE MONEY FOR?

At the same time you’re trying to provide adequate retirement income for yourself, you may also be thinking about leaving money to the people or institutions that are important to you. Those goals tend to require different approaches.

Retirement savings plans can be one source of regular income. But the government requires you to withdraw a minimum amount from your IRA or retirement savings plan—such as a 401(k), 403(b), or 457—each year.

Similarly, annuities and pensions are paid only as long as you or your joint annuitant live or until a payout period you have chosen ends.

In contrast, you can purchase other types of investments to build the value of your estate and increase what you can leave to your heirs. You can leave these investments untouched for as long as you choose, and often save capital gains taxes by passing them along to your heirs. Or you can choose to sell the investments at any point during your lifetime and use the gain for yourself. Be careful to consider all tax impli­cations when you make those investment decisions.

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A TWO-WAY STREET

From the outset, you should put a premium on clear communication. And one of the best ways to ensure that you and your adviser understand each other is that important decisions, including any changes in investment objectives or portfolio allocation, should be in writing.

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CREATING A FINANCIAL PLAN

Putting a financial plan on paper is generally a necessary step in successful investment planning, and it’s an area where a financial adviser can be an enormous help.

By clearly reflecting your objectives and the time frame for meeting them, a plan establishes a benchmark against which to measure progress. And by including your current financial situation, a summary of your current investments in both tax-deferred and taxable accounts, your need for liquidity, and any special concerns that will affect your investment choices, the plan lays out the foundation on which future actions will be build.

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A WORKING LIFE

If you’re doing a job you love, or you’re ready to start a new career, you may plan to work past customary retirement age. This age, which is 66 if you were born from 1943 to 1954, gradually increases in monthly increments from 66 to 67 if you were born from 1955 to 1960, and is 67 if you were born in 1960 or after. Social Security rules say you won’t lose any part of your benefit for earning money after you reach full retirement age.

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THE PRICE OF FINANCIAL ADVICE

Advisers charge for their services in different ways. Sometimes the cost is built into the price of the investments you purchase, sometimes it is added to that cost, and sometimes you pay separately. You should ask for a statement of costs from those advisers who don’t provide one automatically.

There are five ways you may pay for financial advice. Some of these have potential drawbacks that you’ll want to evaluate carefully before choosing the person with whom you’ll work.

The first, and for many the most preferable, is a fee-only charge. These advisers may earn a percentage of the assets they oversee or a flat monthly or annual fee. But because they don’t buy or sell investments or earn commissions, they have nothing to gain by recommending one approach over another.

Fee-based advisers charge a fee and also earn commissions on some of the products they sell, such as insurance-based annuities, life insurance, and mutual funds. You’ll want to be sure you know which products those are, what the cost is, and why they are preferable to products that don’t involve a commission.

Some financial advisers are paid exclusively on a commission basis, as stockbrokers are. The charge is typically calculated as a percentage of purchases you make based on their recommendations. The size of the commissions and how they are assessed vary by product.

Some advisers are salaried. One risk is that their recommendations may be primarily products offered by their employer. Others charge by the hour.

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WEIGHING THE COST

You can evaluate the advice you’re receiving by weighing what it’s costing you against what you feel you’re gaining. If it’s clear to you, for example, that without your adviser’s input you’d still be putting off reallocating your portfolio or changing your beneficiary designations, you’re probably getting your money’s worth. Or if you want help choosing between two insurance alternatives or aren’t sure whether to add some alternative investments to your portfolio, you’ll have a greater appreciation of the benefits of financial advice.

Of course, there are times when even the best advice doesn’t work out, or when your portfolio isn’t providing as strong a return as you’d like. You have to pay for that advice, too. But over time, most investors find that the cost of professional help pays for itself.