Choose Your Financial Advisor Wisely

As individuals enter the “Reinvention Stage” of life – those who are moving from working stage to the retirement stage – there is often a major question:  Will I have enough money?  To that end, one needs to examine the sources of income and the amount that will be generated from various sources and compare this to one’s projected living expenses during this next stage of life.  Because your living expenses will not likely decrease more than 10% or 20% from what you lived on during the working stage of life, your future income will be as important as knowing your potential expenses.

This means you will need a plan for understand your income potential. The selection of your financial advisor should be done with a clear understanding of how their interests align with yours.  Your financial advisor should help you make decisions that will serve your goals and needs. Their honesty, integrity and competence are of paramount importance.  To that end it is vitally important for you to understand their interests, and what makes them to be successful.  If this is aligned with yours, you are more likely to be successful

There are five (5) types of financial advisors.  Each has a different role in your financial game plan. Each one may be important to you for working on what you need.  However, how they are rewarded is more important than what they say.  These different types are:

  1. Insurance Agent – these are individuals who are licensed to sell you different kinds of insurance product – life, disability, long-term care, annuities. They are paid a commission based on the type and size of the insurance product.


  1. Registered Representative or Stock Broker – these are individuals who are licensed to sell you stocks, bonds, mutual funds, or other equity or market based products. They are paid a commission based on the number and value of the equity products they purchase for you.


  1. Registered Investment Advisor – these are individuals who are licensed to manage your investments. They are usually paid a percent of the total assets that they manage for you.  For example, if you have them manage $1,000,000, using a 1% fee, they are paid $10,000 a year for this service.


  1. Bank Representative, Trust Advisor or Estate Attorney – these are individuals that work for a bank, trust company or attorney practice, and they manage the trusts associated with your assets.  While they are often paid a salary, with limited incentives, the financial institution charges your trust a fee to cover the costs associated with the account.


  1. Financial Planner – these are individuals that provide a financial service for you. They help you develop a financial plan, then will usually refer you to others to execute the plan.  They are paid a fee for the services they provide.

There are on-line tools available as well.  Companies like Fidelity Investments, Vanguard, Charles Schwab and others offer planning tools to estimate whether you will have sufficient income.  But, on-line tools may not capture your unique situation. So perhaps the best way to start is with a Financial Planner as described above.  Then, as you both understand your needs and wants, select other financial service professionals to implement this plan. Be careful that they don’t sell you “financial products” (annunities, insurance program, etc.) before you have a carefully thought out plan and that these actions will deliver greater value to you than the commissions you advisor will receive from selling you these investmnets.

The key is to keep yourself in charge, make them work as a team for your benefit, and monitor the performance of your investments to assure it meets your personal goals.   Think about where you are and what you need, then make your selection wisely.


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