By David L. Monday, CRPC® • Commonwealth Retirement Advisors – david@cwealthra.com
How much thought have you given to the intersection of retirement and financial advice in your life? It’s been my focus for years and it’s a topic that I believe is vitally important. I invite you to spend a few minutes with me while I tell you about my background and more importantly, share my thoughts on choosing the right retirement advisor for you.
I’ve given thought to just about every retirement issue that exists over the past several years. As Chief Client Officer of a major investment firm, I’ve interviewed scores of retirees and the professionals who advise them. Along the way, I earned a Masters in Gerontology, the all-encompassing study of aging. Then, after 31 years at my company, I decided to retire, too.
But I’m one of those people who has trouble stopping. So, I joined a financial practice that specializes in serving those who are retired or seriously planning for retirement. My partners and I have met with hundreds of families in their 50s, 60s, and 70s and I’ve developed a deep appreciation for the financial issues that we all face in retirement.
The opinions expressed here are just that — my own opinions. I have biases. We all do. My opinions on some matters have changed over the years. No doubt, they’ll continue to evolve. As we age, we tend to see more sides of an issue and we are less likely to take a hard stand. I am more open to change, always ready to learn from those I meet and from the situations I navigate.
So let’s start with a basic question:
How Does Retirement Financial Advice Differ From Other Financial Advice?
• Risk. When you give up your working income an important safety net disappears. Retired people rely on pensions, annuity payments, social security and earnings on savings and investments to pay their bills and finance their fun. If you make financial mistakes in your 30s, you have time to recover. But when you retire it is critical to try to protect yourself from situations that can hurt you financially. You may not have time to recover. Therefore, retirement advice is most importantly risk advice. Most retirees are realistic enough to know they can’t entirely avoid risk. Regardless, every retired person should understand the risks associated with his or her choices and how to manage those risks sensibly.
• Timing. When retired you should focus on investments that deliver at least a portion of their returns in the “here and now.” Interest and dividends become important. Evidence shows that dividend investing can also enhance returns over time. And a steady flow of income from investments can cushion your tendency to react emotionally during periods of market volatility.
• Growth. Retirement advice should aim to create an income with the potential to grow. Your expenses will grow as you live your retirement. Your income needs to grow as well.
• Options. There are serious decisions you will make in retirement. Sound retirement advice can help. What options will you select if you start drawing a pension? When should you start drawing social security? Is your insurance coverage up to date? Are all your insurance policies still appropriate? How are you protecting yourself and your family from the potential expenses associated with aging? How do you remain in control of your assets? How do you protect yourself from those that may seek to harm you? How can you shield yourself from well-intentioned family and friends who may be misinformed?
Why I Plan to Get Advice
Even though I have spent virtually my entire working life as a financial professional, I plan to get advice when I retire. I don’t say this lightly. There are several good reasons I will work with a professional, including time, obsolescence, objectivity and perspective. We’re talking about my retirement here; I don’t think I will want to spend my time tied to my keyboard doing research. Investing isn’t easy and it requires constant attention. I will expect my advisor to be current on all of my holdings. Also, when I’m traveling, I don’t want to concern myself about what may be happening in the markets. Of course, as I spend less of my time following every twist and turn in the financial world, my knowledge base will gradually diminish from lack of use. The world changes and staying current is a full-time job.
A professional advisor will have the objectivity that I might lack with my own finances. I have observed that emotions can impact the quality of investment decisions. Having an advisor as a sounding board and trusted counselor can make me reconsider if I’m headed down the wrong road. I believe the old adage that says, “Two heads are better than one.” Hearing different viewpoints from fellow professionals makes professional advisors better and can benefit their clients. In a similar way, an experienced advisor can have a perspective that is different from my own and that can benefit me greatly. As an advisor, I see many different financial situations, from brilliant moves to colossal blunders. If I were to retire and invest based only on my own perspective, I would be deprived of this important resource. Having an advisor can help me stay current, get the whole picture and discern fact from fiction.
How Would I Choose My Own Retirement Advisor?
• Credentials. Professional designations proliferate in many fields, including financial services. Not all designations are equal, nor is the lack of a designation a “knockout punch.” Still, designations represent time spent honing skills and learning the trade. The designations I would seek are Certified Financial Planner™ or Chartered Financial Consultant®. Both of these require extensive study and rigorous exams. Advisors often operate in teams, so check out the credentials of the team as a whole.
• Size and Scope of Practice. You can tell a lot about an advisor by the size of the practice. In my opinion, it would be very hard for a solo advisor to deliver high-quality service to more than 100-150 families. As part of a team, however, the practice can handle more clients. I’d ask, “How many clients do you personally advise?” Too few clients makes me wonder why. Too many make me afraid of being overlooked.
• Value Proposition. What, exactly, will the advisor do for you? I’d want someone to serve as my overall retirement advisor. I’d want financial planning, various investment options, return and risk research, and budget or tax strategies. I expect my advisor to develop a long-range plan, with goals and projections, and keep those plans up to date. I’ll want formal review meetings twice a year.
• Price. I will take the time to ask for and understand the advisor’s schedule of fees and charges. The fees should be fair to both me and to my advisor. I am not comfortable putting my future in the hands of someone charging too little. They may be tempted to take on too many clients or skimp on research and support. This could end up costing me money. Likewise, I don’t want to pay too much while my advisor is living on “Easy Street.” I want to work with a successful advisor who makes a good living.
• Thoughtfulness. This is hard to judge. There are hundreds of thousands of financial advisors in the United States and it’s a difficult and demanding job to do well. Most advisors are busy juggling all the hats they must wear. They must stay current on changing tax laws, economies, interest rates, markets and clients’ personal situations. Advisors are called every day by armies of salespeople wanting to explain their offerings. They have lots of distractions. The best way to evaluate thoughtfulness is to ask questions. There are no right, wrong, or specific answers to the questions I would ask. I would just listen for evidence that the advisor is well-informed but also realistically aware that sometimes he or she will be wrong. I might ask: What investment publications do you respect and read? What is the biggest investment mistake you have ever made? What are you worried about today? What would cause you to make a change in your investment outlook? How do you protect your clients? What are you doing to keep yourself at the top of your game? What is the biggest mistake you think investors are making today? In the end, it’s a judgment call. I know that someone who hasn’t made enough mistakes is not experienced enough for me. I also know that someone who won’t admit to mistakes could be dangerous. I want my advisor to listen to ideas with an open mind. Then, I want her to apply a strict filter before acting on my behalf. I want to know my advisor is always looking for opportunities as well as for what could go wrong. You should, too.
• Chemistry. Your “gut feeling” is critical once you’ve established credentials, value proposition, thoughtfulness and service expectations. Once I am confident my advisor can and will deliver value to me at a fair price, I would consider personal chemistry. Do I see myself really getting to know this individual? Will I be able to trust him with my most personal family information? Does she respect and listen to me? Some people say that chemistry isn’t important. I don’t believe it. Over the years I’ve learned that it’s best not to begin a relationship unless both sides seriously anticipate a very positive relationship.
Retirement represents an incredible opportunity for many Americans.
Choosing the right retirement advisor doesn’t guarantee success. Still, I believe you put the odds in your favor when you work with an advisor that understands your situation and can meet your needs. The next time I retire, I’ll be enjoying all this world has to offer and I never plan to read research reports, study tax strategies, or pull up a stock chart on the Internet. When I catch a news report about the hyped-up issues of the day, I’ll know my advisor is back home, eyes glued to the screens in his office… although I just might log in to double check.
By David L. Monday, CRPC® • Commonwealth Retirement Advisors – david@cwealthra.com
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