September 11, 2023 By Leave a Comment

Q&A: Getting a second financial opinion

Dear Liz: My wife and I recently retired. Our investments are managed by a certified financial planner. Our nest egg has not shown much growth over the last several years. We think it is time for another professional advisor to analyze our portfolio and see if we are really heading in the right direction. Is this out of the ordinary to seek more advice and how would we go about it, without offending our current planner?

Answer: You can certainly consult another advisor, but consider talking to your own first.

Start by asking the certified financial planner how your portfolio has performed relative to an appropriate benchmark over the last five years. The planner should be able to explain what benchmark was chosen and why. A portfolio that invests heavily in bonds, for example, will have a different benchmark than one that invests mostly in stocks.

If your portfolio is lagging behind this benchmark, then ask the planner what changes can be made to improve your investment performance. Switching from actively managed investments to passive ones, such as index mutual funds or index exchange traded funds, could save on costs and improve performance because few actively managed investments manage to beat the market.

If your portfolio is performing appropriately relative to its benchmark, then discuss whether you want to take on more risk for better returns. Many planners recommend retirees have a substantial portion of their portfolios in stocks for inflation-beating growth.

Your certified financial planner should be open to this discussion and ready to course correct if necessary. If you find that’s not the case, then it may be time not just for a second opinion but for a new advisor.

Filed Under: Financial Advisors, Q&A, Retirement, Retirement Savings
June 19, 2023 By

Q&A: Finding a fiduciary

Dear Liz: I am 55 and a single mom of three teenagers. My money has been sitting at a discount brokerage firm unmanaged … ugh!! I need help, but I am afraid to hire someone who will lose my money. Plus, two of my kids are old enough now to open a retirement account. We need help!

Answer: There’s actually no age minimum on contributing to a retirement fund; your kids just need to be earning at least as much money as they’re putting into the account. If they want to contribute the maximum $6,500 to an IRA, for example — or you want to contribute that much on their behalf — they have to earn at least $6,500.

The word you’ll want to keep in mind when seeking help with your money is “fiduciary.” Your advisor should be willing to put in writing that they will put your interests ahead of their own.

Many advisors are held to a lower “suitability” standard, which means they can recommend investments that are more expensive or perform worse than available alternatives, simply because the recommended investment pays the advisor more.

You don’t actually need a human being for investment management, though. Your investing firm probably offers target date mutual funds, which adjust the mix of investments to be more conservative as your retirement date nears. Another option is a robo-advisor, which handles the investing according to a computer algorithm.

Where a human can come in handy is if you have broader financial questions, such as whether you’re saving enough, when you can safely retire and whether your family is adequately insured, among other issues. Your discount brokerage may offer access to fiduciary advisors for a fee or in exchange for investing a certain amount of money.

You can also find fiduciary advisors through the Assn. for Financial Counseling and Planning Education, the XY Planning Network, the Garrett Planning Network, the National Assn. of Personal Financial Advisors and the Alliance of Comprehensive Planners, among others.

Filed Under: Financial Advisors, Q&A, Retirement Savings Tagged With:
December 12, 2022 By

Q&A: How to buy U.S. Treasuries

Dear Liz: Can I purchase a U.S. Treasury bill myself or do I need to go through a bank or a financial advisor?

Answer: You can buy government-issued securities — including Treasury bills, bonds and notes —from TreasuryDirect, which is operated by the U.S. Department of the Treasury. Setting up an account usually takes just a few minutes, but you’ll need a valid Social Security number, a U.S. address and a checking or savings account to complete the process.

You also can buy Treasuries in a brokerage account. You can purchase a Treasury bill on what’s known as the secondary market, where securities are bought and sold, or you can invest in a Treasury money market mutual fund or a Treasury exchange-traded fund.

Filed Under: Financial Advisors, Investing, Q&A
November 21, 2022 By

Q&A: ‘Assets under management’ advisors

Dear Liz: We’ve been using a fee-only financial advisor for 25 years. We’d discuss what we needed, she would tell us how many hours it would take, then she invoiced us at an hourly fee.

She recently joined a company that charges 1% of investment portfolios to provide financial advice. Is this still considered fee-only financial planning? If so, how do we find a firm that charges an hourly rate? We don’t want to spend thousands of dollars for someone to just tweak the detailed roadmap that’s already been created.

Answer: So-called “assets under management,” or AUM, fees are indeed considered fee-only planning, as long as the advisor only accepts fees paid by the clients and does not receive commissions or other compensation for the investments they recommend. AUM fees are a common compensation method and 1% is a fairly standard fee. If the advisor is doing significant, ongoing planning and investment management for you, the fee may be worthwhile. If not, there are other compensation methods that may be a better fit. Garrett Planning Network represents fee-only advisors willing to charge by the hour, while XY Planning Network and the Alliance of Comprehensive Planners offer fee-only advisors who charge retainer fees.

Filed Under: Financial Advisors, Investing, Q&A
October 10, 2022 By

Q&A: ‘Fee based’ vs. ‘fee only’ financial planners: There’s a big difference

Dear Liz: How do you find a fee-based financial planner? I just inherited a lot of money, and trying to figure out our future is stressing me out.

Answer: That’s understandable. Getting sound advice can mean the difference between growing your newfound wealth and wasting it. But finding a good, honest, competent planner requires some work.

Most advisors aren’t fiduciaries, so they aren’t required to put your interests ahead of their own. Instead, they can recommend investments that cost more or perform worse than available alternatives, simply because the recommended investments pay them more.

Such advisors often call themselves “fee based,” hoping you’ll confuse them with “fee only” planners. Fee-only planners are compensated only by the fees you pay; they don’t accept commissions or other compensation that could influence their advice.

The National Assn. of Personal Financial Advisors and the Alliance of Comprehensive Planners are two organizations that represent fee-only planners, many of whom charge a percentage of your investable assets. You can find fee-only planners who work on an hourly basis at Garrett Planning Network and those who charge monthly retainer fees at XY Planning Network.

Interview at least three candidates. Ask them how they are paid and what your “all-in” costs — their fees plus the cost of investments they recommend — are likely to be. Ask about, and verify, their credentials. (You can check a certified financial planner’s status at cfp.net/verify-a-cfp-professional.) Find out about their education and experience, including whether they’ve advised people similar to you.

They should be willing to assert in writing that they will be fiduciaries. Finally, check their backgrounds, including their disciplinary history, at BrokerCheck.finra.org.

Filed Under: Financial Advisors, Q&A
November 22, 2021 By

Q&A: Be wary of advisor motives

Dear Liz: In a recent column, you discussed the difference between fee-only vs fee-based financial planners. Most of my retirement dollars are in an IRA with one of the better-known investment companies. One of the advisors with that firm has advocated for an annuity with a well-known insurance company as a component of my portfolio. So, does this affect the advisor’s status of fee-only vs fee-based, or is this person to be only on the fee-based side of the equation? Or am I just confused?

Answer: You’re confused because it’s confusing — deliberately so. Many investment companies, including the better known ones, don’t make it clear that their advisors do not have to put your best interests first. Most are held to a lower “suitability” standard that allows them to recommend an investment that isn’t as good as the alternatives, simply because it pays them a higher commission.

If you want an advisor that puts your interests ahead of their own, seek out a fee-only financial planner — one who only accepts fees paid by clients rather than commissions and other incentives. This advisor should be a fiduciary, meaning the advisor is required to put your best interests first. The advisor must be willing to state, in writing, that they will put your interests ahead of their own.

It’s especially important to check with such a fiduciary advisor before purchasing an annuity, since these are complex products with potentially significant downsides that could be glossed over by someone who’s being paid to sell you one. An annuity could be the right fit for you, or it could be an expensive mistake. Get an objective review from a fiduciary before you buy one.

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November 8, 2021 By

Q&A: How a fee-only financial planner differs from a fee-based one

Dear Liz: What is the difference between a fee-based financial planner and a fee-only financial planner? I have had a few complimentary meetings with a fee-based financial planner regarding retirement planning and income-generating strategy. I am 61 and currently have $325,000 in a traditional IRA and a 401(k) from a former employer, with 70% of both accounts held in stocks. The planner suggests that I put the whole $325,000 into a fixed indexed annuity, which he says is no risk. Is this a good idea?

Answer: Someone who is “fee based” typically accepts commissions or other incentives for selling certain investments in addition to charging fees. “Fee only” advisors accept money only from their clients.

Another important word that starts with f: fiduciary. Fiduciary advisors promise to put your interests ahead of their own. A fiduciary advisor, for example, typically wouldn’t recommend putting all your money in a single investment since having all your eggs in one basket is rarely in your best interest.

Most advisors are not fiduciaries, however, and may recommend poorly performing or expensive products to you when better options are available because those lesser options pay them more. Indexed annuities can pay high commissions to the people selling them, for example, and that can be a powerful incentive for your advisor to gloss over their potential disadvantages.

Indexed annuities are sold as a way to benefit from some of the upside of the stock market without the risk of loss if the market falls. But these annuities are complex and insurers can typically change the rules that govern your returns. In addition, you may face surrender charges if you need to take your money out.

The Securities and Exchange Commission has issued investor alerts about indexed annuities. These alerts urge potential investors to thoroughly investigate how the contracts are structured, how returns are figured and how the calculations can change. Anyone who is considering an indexed annuity would be smart to run the purchase past a fee-only, fiduciary financial planner to see whether it really makes sense for their situation.

By the way, there’s no such thing as a no-risk investment. Every investment poses some kind of risk, and a fiduciary advisor will take the time to explain those to you so you can make an informed judgment.

Filed Under: Financial Advisors, Investing, Q&A, Retirement Savings
July 12, 2021 By

Q&A: Finding a fee-only advisor

Dear Liz: I need help locating a fee-only financial advisor. My search only comes up with advisors with investments.

Answer: It’s not clear what you mean by “advisors with investments.” Some fee-only planners charge a percentage of the assets they manage and often require you to invest a minimum amount with them. Others charge a monthly retainer (check XY Planning Network) or by the hour (visit Garrett Planning Network).

If you’re primarily looking for help with issues other than investing, such as budgeting or debt management, you could consider hiring an accredited financial counselor or accredited financial coach. Visit the Assn. for Financial Counseling & Planning Education. Another resource is nonprofit credit counseling agencies affiliated with the National Foundation for Credit Counseling at www.nfcc.org.

Filed Under: Financial Advisors, Q&A Tagged With: , ,
April 5, 2021 By

Q&A: How the pandemic made working with a financial planner easier

Dear Liz: You often recommend in your column to seek the advice of a fee-only financial planner. Where would I find such a financial planner? Our understanding is that a person has to have at least $1 million of savings to invest before a “fee-only” financial planner will consult with you. Can you be more specific?

Answer: Once upon a time, it was difficult to find fee-only financial planners if you didn’t have a lot of money to invest. Many required you to invest at least $250,000 and charged 1% of those assets annually.

Today you have many more options.

There are now fee-only planners who work on an hourly basis (such as those affiliated with Garrett Planning Network) or who charge monthly retainer fees (the XY Planning Network).

There are also accredited financial counselors and accredited financial coaches (Assn. for Financial Counseling & Planning Education) who often work on a sliding scale. The National Assn. of Personal Financial Advisors and the Alliance of Comprehensive Planners are two other organizations that represent fee-only planners.

One positive outcome of the pandemic is that many more planners now work virtually, which widens your potential options.

Also, many discount brokerages and robo-advisors now offer more affordable ways to get fiduciary advice. (“Fiduciary” means that the advisor is required to put your best interests first.)

Many use a hybrid model, with computer algorithms directing your investments plus access to a human advisor by phone, email or video call. The cost is typically 0.3% to 0.5% of the assets you have invested with the company, which is significantly cheaper than the 1% traditionally charged by financial planners.

Filed Under: Financial Advisors, Q&A Tagged With: , ,
December 21, 2020 By

Q&A: Weighing portfolio rebalancing costs

Dear Liz: I constantly read about the need to “rebalance” portfolios each year or more often to make sure you have a specific distribution of stocks, bonds and cash. However, selling stocks can create capital gains that will be taxed. An advisor rebalanced my portfolio and the result for me was an increase in capital gains taxes and an increase in my Medicare premiums. The extra taxes and costs to me seem to outweigh the benefit of hitting an exact asset target. Can extra taxes and Medicare costs be avoided while rebalancing?

Answer: Most of the advice about rebalancing is focused on people whose primary savings are in retirement accounts, where capital gains aren’t taxed.

Outside of retirement accounts, the costs of rebalancing must be weighed carefully. There often are ways to minimize capital gains taxes, such as selling losing stocks to offset winners, but in many cases the rebalancing should be done slowly, over time, to manage the fallout.

If your advisor didn’t discuss the tax and Medicare implications with you before taking this action, then it’s time to find another advisor.

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