Whether you're just starting to save for retirement or you've been investing for years, it can be a smart move to turn to a professional for guidance. As you search for one, you may want to get details on what's involved when you work together. Here are 10 questions to ask a financial advisor about retirement.
Please note that Investopedia refers to investment professionals with a strict fiduciary responsibility who advise clients and/or manage their financial assets as “advisers.” We refer to investment professionals who follow the suitability standard as “advisors.”
- A financial adviser can make recommendations and provide guidance to help you plan for retirement.
- It's important to ask advisers about their experience with issues that concern your financial future when you interview them.
- You pay fee-only investment professionals an hourly rate, a fixed annual retainer, or a percentage of your assets.
- Generally, fee-only financial advisers are fiduciaries.
- Make the effort to find the right financial adviser—you could be working with them for years.
Ask the Right Questions to Find the Right Adviser
Before you decide on a financial adviser, make sure you'll be getting the services you require and the advice you need. The best way to do that is to ask the right questions. If the answers are unsatisfactory or incomplete, you may want to keep looking. Your retirement is far too important to leave to chance or to someone with whom you're uncomfortable.
1. What Do You Like About Your Job?
No matter what type of professional you're looking for, it helps to find someone who likes their job—and who isn't just punching a clock.
Ideally, your financial adviser will enjoy assisting people and have a passion for all things finance. They should be happy to help you budget, pay down debt, manage healthcare costs, build wealth, and ensure that you have enough income in retirement.
Body language says a lot. Is the adviser making eye contact with you, smiling, and using hand gestures while speaking? That's good. Or, are they slumped in a chair, distracted, and staring at their phone? That's a red flag.
2. Which Services Do You Provide to Your Clients?
Your financial adviser should offer services that will help you solve the problems you may face in retirement. For example, you may need help:
- Figuring out how much you need to retire, and setting savings benchmarks to get you there
- Picking investments that match your risk tolerance and time horizon
- Developing a long-term investment strategy
- Rebalancing your investment portfolio
- Managing your expenses now and in retirement
- Making plans for long-term care
- Creating a favorable tax strategy
3. What Are Your Qualifications?
In general, you’re looking for someone with advanced financial and retirement-planning education. Ask about such designations as Certified Financial Planner (CFP®), Chartered Financial Consultant (ChFC®), and Chartered Life Underwriter (CLU®).
Another credential high on the list is Retirement Income Certified Professional (RICP®), which involves retirement-specific planning, training, and education. Verification sites such as "Your Advisor with Designation Check" can help you search for a qualified professional, or verify that the certification they claim is accurate.
Anyone who purports to be a retirement adviser should be a fiduciary.
4. Are You a Fiduciary?
Fiduciary duty is a legal term that means that one party has the obligation to act in the best interests of another party. You want your adviser to point you toward investments that are in your best interest, not theirs.
It’s great if the two coincide, but yours should come first. A hint: fee-only advisers are more likely to assume fiduciary duty than those who work on commissions.
5. How Will I Compensate You?
It’s important to know upfront how you’ll compensate a potential retirement adviser. You should ask whether you’ll pay hourly, per transaction, or annually, based on the value of your assets. Other investment professionals may be compensated by commissions on the products they provide.
This isn't to say you should necessarily avoid someone who charges more. A high-priced adviser may well be worth the fee you pay if the results are valuable to you. Be wary of commission-based compensation, as it could mean the professional will steer you into buying products with high fees.
6. Does Your Firm Hold My Money and Investments?
Your financial adviser shouldn't come into contact with your assets (except for the money you pay for their services). Instead, the adviser should contract with a reputable custodian, which could be a third party or a company owned by their firm.
The custodian holds your assets and will also process transactions, collect dividend and interest payments, make distributions, and produce monthly statements. Well-known third-part custodians include Charles Schwab, Fidelity Institutional, Pershing/BNY Mellon, TD Ameritrade, and LPL Financial.
7. What's Your Investment Philosophy?
This is the most basic of questions and one any retirement adviser should be able to answer without hesitation. You want to hear about the discipline behind investment strategies and how those strategies will help you reach your investment goals. This should all be explained in simple terms that you can understand.
You should also receive information that helps you understand and navigate tax laws as well as avoid emotional responses to market fluctuations.
8. How Will We Touch Base About My Investments?
You should expect contact on a quarterly basis at a minimum. Monthly is even better. Your adviser should explain every buy or sell transaction. They should provide periodic reviews of the status of your portfolio, including educational resources if appropriate (or if you ask for them).
9. What Happens to My Money if Something Happens to You?
Your adviser should be able to answer this question in enough detail so that you’re confident there’s an exit plan if they retire, leave the firm for another job, or are otherwise unable to continue serving you. You should know how your financial affairs will be handled and who would handle them.
10. Is There Anything I Forgot to Ask You?
Ending an interview with this question can be very revealing. Even if you think the answer is no, it can demonstrate a level of engagement with a potential financial adviser. This is a good time for the adviser to bring up anything important that hasn't been covered.
The Bottom Line
Asking the right questions and listening carefully to the answers can help you decide whether you've found a good match. If you’re part of a couple, both partners should feel comfortable with the financial adviser. Philosophy, fees, qualifications, and more all come into play.
Remember, choosing a retirement adviser is not an easy task. You may have to interview several candidates before you find the right one. Be sure to do your homework to ensure you've got a top-notch professional with whom you can work successfully.