The money world is full of people giving advice, most of it worth exactly what you pay for it: zero.
The Internet, cable TV and money magazines are jammed with confusing, often conflicting ideas. Sell now before the market tanks! Stocks are cheap, time to buy! And of course the interminable sector plays designed to get you to pull the trigger now on whatever stock is in the headlines.
Retirement investors truly don’t need any of this information. It’s the hobbyist investor, the person looking to take a chance, who really consumes most of this “information,” usually to their detriment.
Rather than stock tips, retirement-oriented investors should hire a serious advisor, someone who can help them make timely decisions that keep them on track. If the goal is to build up enough wealth to stop working, then the advice is really more about consistency than tail-chasing the daily market news.
Here are the four key due diligence steps you should take before hiring an advisor, phrased as questions to ask:
1. “What is your fee and how is it charged?”
Some advisors are financial planners who work by the hour. They get nothing on an ongoing basis for working with you. Others charge a fixed percentage of your total assets. Rather than setting up a plan, they will be an continuing source of advice and help with your retirement plan.
2. “Who pays you?”
Fees can vary, but many advisors try to charge 1% of your assets under management. If they charge much less, a reasonable question might be: “How else are you compensated?” You might find the answer is “no one else” and they are just being competitive. Or, the advisor might be getting a commission for recommending specific funds to you.
3. “Do you provide your SEC Form ADV?”
Get this document. It’s a plain English answer to the above questions and more. It’s required by the U.S. Securities and Exchange Commission. Any advisor who puts you off on this question or doesn’t seem to have one is very likely skirting regulations. Be wary.
4. “Are you an RIA?”
You could shortcut the first three questions by simply asking if the advisor you are considering is a registered investment advisor (RIA). It’s not a requirement, but RIAs meet a higher standard under the law. Put simply, they must put your interests ahead of their own. Brokers don’t meet that standard, nor do many financial planners and financial advisors.
By asking the right questions before you begin a new relationship, you can avoid a lot of heartache later. However you proceed, hiring a broker, standard advisor or a full-fledged RIA, keep in mind that you should approve all decisions about your money.
Considered that way, the job of the advisor is to make those choices clear and the outcomes easy to understand. You should be confident that your retirement money is working hard for you now and in the future.