Take Control Of Your Finances
The good news about the current economic meltdown is that it seems people are taking more control over their financial futures. One sign of that is the increased due diligence when looking for someone to invest your money. Finding professionals in retirement planning is the first, and most important, step in your financial planning.
Professionals in retirement planning are everywhere so it can be difficult to decide which one is the best fit for you.
In this article I will provide you with some basic guidelines you can use to determine which professional you should be working with.
Here are some questions you need to have answered before you settle on the person to help guide your financial future:
1. Find out how a professional adviser actually makes their money. There are 3 compensation methods:
Fee only compensation – this is the model that best ensures there is no conflict of interest since your adviser gets paid a set fee rather than a commission, they are being paid for their advise.
Since they don’t rely on commissions for their pay, they won’t feel the pressure to encourage you to buy or sell financial products so they can make more money.
Fee Based: This is kind of a hybrid between fee only and commission. The planner will get a set fee but may also receive some of their compensation through commissions.
They aren’t legally required to tell you how they receive their compensation either.
Commissions: this type of planner is really more of a broker and they only make money when you buy or sell a financial product at their recommendation.
While many of these planners are capable and honest, this type of compensation is open to possible abuses and conflicts of interest.
2. Finding a planner with a fiduciary responsibility. That means that the person you hire is required, by law, to only work in your best interest.
This can help ensure that you are being provided with the best advice for you, rather than the best advice for the individual planner or their company.
Not all financial planners are fiduciaries. Only financial planners that are Registered Financial Advisors (RIA) are held to a fiduciary standard by federal and state law.
Most financial planners are really just brokers/dealers and are not held to the same standard when it comes to looking out for their clients best interest.
As a matter of fact, if you carefully look over any contract you sign, you may just find a few paragraphs that say something to the effect that: « Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours… »
You may want to think long and hard before you sign on the dotted line for that type of contract.
Your adviser is more likely to advise you based on their needs or the needs of their company than on what is in your best interest.
So, you shouldn’t just find a planner based on the first listing in your local phone book.
Be willing to spend some time and ask some questions so you know the person you are working with truly is concerned with you and not just their own compensation.
There are many well trained and ethical professionals in retirement planning, but they are not all as interested in you and your goals as you may want them to be. Do your due diligence first.