Q&A: How to avoid hiring a Madoff-like financial advisor

Dear Liz: What is the best way to pick a financial advisor to make sure they don’t make off with all your retirement money? I don’t want Bernie Madoff handling my retirement savings.

Answer: Even if you turn over day-to-day investment decisions to an advisor, you should make sure your money is invested at an independent custodian such as a nationally known brokerage or mutual fund company. That won’t immunize you from fraud, but Ponzi schemes are a lot harder to pull off when there’s third-party oversight.

Returns that are too good to be true, investments that you don’t understand or pressure from an advisor to invest are other red flags for fraud.

Protecting yourself from fraud is important, but so is protecting yourself from bad or conflicted advice. You need to check out any advisor thoroughly. Ask about experience, credentials and other qualifications. Find out how they get paid. Fee-only advisors are compensated only by the fees their clients pay and don’t accept any commissions for recommending products. Fee-based advisors, by contrast, may accept fees and commissions.

Your advisor should be willing to sign a fiduciary oath to put your interests first. That’s not currently required. Advisors can put you in expensive or underperforming investments just because those options pay them higher commissions and there’s little legal recourse for investors unless they can prove that the investments were clearly unsuitable for their situation.

Starting next year, advisors will be held to a fiduciary standard when counseling clients about retirement funds. There’s no reason you should wait for that rule to kick in, though. You can download a copy of a fiduciary oath for your advisor to sign at www.thefiduciarystandard.org.

Q&A: Guaranteed income in retirement

Dear Liz: Is there such a thing as guaranteed income in retirement? Private pensions are gone and public pensions aren’t far behind. There are calls for pension reform and I’m not sure if anything is guaranteed anymore. As far as annuities are concerned, insurance companies are on shaky ground and the U.S. government had to bail out AIG. My kids, in their 20s, have told me they aren’t expecting Social Security to be there when they retire. The term “guaranteed income” has lost its meaning.

Answer: I wouldn’t rely on your twenty-something offspring to be oracles of financial wisdom. The reality is that Social Security will collect enough in taxes to pay about three-quarters of promised benefits even if Congress never gets its act together to improve the system’s financial situation. As bad as Americans can be at math, most of us can understand that “75%” is not the same as “0%.” Social Security is an immensely popular government program that millions rely on for most or all of their retirement income, so the odds are pretty good that the system will be there when your kids need it.

Pensions are another common source of retirement income. Private pensions are on the wane but millions of people still have them. If a plan can’t pay promised benefits, the Pension Benefit Guaranty Corp. takes over. The PBGC has a maximum limit for payouts, which may trim the pensions of highly paid employees, but the vast majority of workers get what they were promised.

Public pensions, meanwhile, aren’t impossible to cut, but it’s tough to do, and most government agencies prefer to defer the pain by trimming benefits for younger employees rather than older ones.

Finally, it’s not true that insurers are on shaky ground — the vast majority survived the financial crisis without a bailout. You still should check into an insurer’s financial strength before you buy an annuity, of course, and many financial planners recommend buying only from top-rated companies. If an insurer does fail, many annuities are covered by state guaranty associations up to certain limits (typically $250,000).

Q&A: Using two-factor authentication

Dear Liz: In a recent column, you discussed the importance of setting up two-factor authentication to protect financial accounts. My concern about using this method is that if my cellphone is lost or not working, I won’t be able to access my accounts when necessary. What do you think about this?

Answer: Two-factor authentication typically combines the use of a password with a code texted to your phone. Most providers have backup options, including one-time-use codes and toll-free numbers to call if you run into trouble.

Friday’s need-to-know money news

budgetToday’s top story: Mapping your financial journey. Also in the news: What Wells Fargo’s settlement might mean for you, six unusual ways to get out of debt, and surprising Social Security benefits for divorced spouses.

Mapping Your Financial Journey
Building a roadmap to success.

What Wells Fargo’s $185 Million Settlement May Mean for You
The Wells Fargo wagon has rolled into some big trouble.

6 Unusual Ways to Get Out of Debt
You don’t have to deliver pizzas.

2 surprising Social Security benefits some divorced spouses can get
All is not lost.

Thursday’s need-to-know money news

FICO-score-calculation-300x281Today’s top story: Applying for the wrong credit cards can make bad credit worse. Also in the news: Store reward programs worthwhileness, preschoolers and personal finance, and the #1 cause of financial stress in your state.

Applying for the Wrong Credit Cards Can Just Make Bad Credit Worse
Be selective.

Are Store Rewards Programs Worthwhile?
Only if you’ll actually use the benefits.

Should Preschoolers Be Taught Personal Finance?
It’s never too early to start.

This is the No. 1 cause of financial stress in your state
Odds are pretty good your state is worried about debt.

Wednesday’s need-to-know money news

payday-loansToday’s top story: Financial aid tips for procrastinators. Also in the news: Auto insurance in the driverless car era, payday alternative loans, and six ways your teen driver will affect your wallet.

4 Financial Aid Tips for College Procrastinators
Don’t waste any more time.

If You Hate Auto Insurance, You’ll Love Driverless Cars
A change in who’s to blame for accidents.

What Is a Payday Alternative Loan?
Avoiding the traditional payday loan trap.

6 Ways Your Teen Driver Will Affect Your Wallet
It’s more expensive than you’d think.

Tuesday’s need-to-know money news

Pile of Credit CardsToday’s top story: What yo look for in a credit card for bad credit. Also in the news: How to decide whether you should save, invest, or pay off student loans, how to spend less money in your 20s, and why next year’s tax refund might be late.

What to Look for in a Credit Card for Bad Credit
Pay close attention to fees.

Should I Save, Invest or Pay off Student Loans?
Using your money wisely.

10 Ways to Spend Less in Your 20s
The more you can save the better.

Adjust Your Withholding Now Because Next Year’s Tax Refund Might Be Late
Be prepared to wait.

Q&A: Naming co-executers

Dear Liz: Is it legal for my parents to appoint me co-executer of their estate, along with my sister, without asking me first if I was okay with this, and keeping me as co-executer after I told them I do not want the responsibility? My sister is more intelligent and competent than I am and would do a better job of this by herself.

Answer: Your parents can name pretty much anyone they want, but that doesn’t mean you’re legally obligated to accept the role when they die. You’ll have the right to decline.

If your parents don’t name an alternate, your sister may be allowed to serve on her own or another executor may be appointed by the court, depending on how the will is written.

Obviously, your parents are being short-sighted by trying to force you to serve when you’ve made your feelings clear. Being an executor can be a time-consuming, complex and often thankless task that shouldn’t be foisted on anyone who’s not willing. If they don’t trust your sister to function alone, they should name someone else—and get that person’s permission before they do. It’s smart to name an alternate or two besides, in case their choices also decide they don’t want to serve.

Q&A: Social Security survivors benefits

Dear Liz: My husband and I were married after dating for over four years, but he died suddenly on our honeymoon. When I got home, I was told by our local Social Security office that I did not qualify for survivors benefits because we were not married long enough. I am going to be 66 next month and he was already receiving Social Security benefits. People have been advising me to look into getting this marriage benefit, even by contacting my Congressional representative, since I don’t plan to apply for my own benefit until I’m 70 and could really use the survivor benefit now.

Answer: Social Security isn’t likely to help you cope with your devastating loss. The rule that couples have to be married for at least nine months is meant to prevent deathbed marriages designed just to give the survivor benefits.

There are some exceptions to the nine-month rule, such as when the death was accidental or in the line of duty for service members, or if you had a child together. The exceptions are outlined on the Social Security’s site: https://www.ssa.gov/OP_Home/cfr20/404/404-0335.htm

Q&A: Removing a quit-claim house mortgage from your credit

Dear Liz: I recently divorced and quit-claimed my house over to my ex-wife. She has been making all the payments on time but the mortgage still shows up on my credit. Because of this, I can’t borrow as it is considered my indebtedness still. Do you know of anyway of having it expunged from my credit reports?

Answer: She will have to refinance the mortgage in her own name to get you off the loan. The contract you signed with the lender otherwise remains in force and isn’t affected by the divorce agreement.

It’s good that she’s making payments on time, since a single skipped payment could trash your credit scores.

It’s unfortunate your attorney didn’t advise you of the consequences of quit-claiming the property while remaining on the mortgage. It’s rarely a good idea to give up an asset while keeping the liability. A better approach is to separate your credit before the divorce is final. That means closing all joint accounts and transferring the debt to separate accounts in the name of the person who will be responsible for the payments. If your ex wasn’t able to get approved for a refinance, the house could have been sold so that you wouldn’t be on the hook indefinitely.