With $1 million saved, should we hire a financial adviser?

The retirement checklist
The retirement checklist

My wife and I have accumulated more than $1 million in our retirement accounts without the help of a financial adviser. But as we get older I wonder whether we're making a mistake by not having one. What do you think? — Robert, Palo Cedro, Calif.

You and your wife clearly know a thing or two about preparing for retirement. After all, building a seven-figure nest egg is no easy feat. But if you're experiencing doubts about your abilities or facing new issues you don't want to handle alone, then it makes sense to seek assistance.

Before you do that, however, you and your wife need to think more about what kind of help, exactly, you might want, as clarifying that will help you choose the right type of adviser.

For example, many people are content to do their own investing during most of their career but then have second thoughts when their account balance begins to swell. That's only natural, as there's more at stake and errors can be more costly.

So if it's primarily investing help you want, then you might consider hiring an investment adviser or an investment advisory service that can create and manage a portfolio of investments that jibes with your financial goals and tolerance for risk.

Most large investment firms and mutual fund companies offer this type of service, at a total cost that might range from, say, 0.75% to 1% a year (or more) of assets under management. But you can easily get investment management at a much lower cost.

A new breed of companies known as "robo-advisers" rely on algorithms to build low-cost portfolios of index funds or ETFs and in many cases, charge 0.5% a year or less.

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If you're thinking of having an investment adviser take charge of your investing -- or you're just looking to lower the investment fees you pay now -- you don't have to hand over all your assets at once. In fact, I'd recommend doing a trial run for at least a year with just a portion of your savings, after which you can decide whether to maintain, expand or end the relationship.

If, you would like guidance on other matters, such as figuring out whether you're on track to a secure retirement, assessing how much you can safely draw from your retirement accounts or deciding which of your many retirement accounts to tap first, you may require an adviser who can take a more comprehensive view of your finances.

One such pro is a financial planner. Careful, though. Virtually anyone can call himself a financial planner. So be sure you're dealing with someone with the experience and training to provide solid advice. No professional designation can guarantee competence, but you'll increase your chances of getting knowledgeable advice if you stick with a Certified Financial Planner (CFP) or chartered financial consultant (ChFC).

Financial planners can be compensated for their services in a variety of ways. Some receive the commissions for the investment products and services they sell you. Fee-only planners eschew commissions and instead accept only a fee for their advice. Depending on the planner and the range of services offered, that could be a flat fee or a percentage of assets, typically 1% to 1.5%. Some may also have a minimum charge of, say, $2,000 to $5,000 a year. Fee-and-commission planners, as their name implies, charge a fee but deduct from it the value of any commissions they receive.

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People will argue ad nauseam about which method is best. I prefer the fee-only system because I think it's cleaner and eliminates the potential conflict of interest and other problems that can arise if a planner can boost his income by recommending high-cost products over less expensive ones. But every system has potential conflicts.

What's most important is that you understand in advance exactly how much you'll pay and what services you'll receive -- and that you get actual advice, not a product sales pitch. You can find planners in your area with one or both of these designations at the Financial Planning Association's site. The National Association of Personal Financial Advisors restricts itself to fee-only planners.

There's another way to work with an adviser you might consider. Let's say that you need advice on a one-time basis. Maybe you aren't sure how to integrate Social Security into your investing strategy or you want to see whether a Roth conversion makes sense. Rather than work with a planner on an ongoing basis, you might hire one by the hour.

Not all planners are willing to work on this basis, but you can find ones in your area by checking out the Garrett Planning Network. Fees typically range from $175 to $250 an hour and, depending on the planner and the amount of work involved, you might shell out $500 to $1,500 for a specific project.

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Finally, I'd recommend talking to several advisers before settling on one. It's also a good idea to talk with a few current clients and, of course, check with regulators -- the Securities and Exchange Commission, FINRA and your state securities regulator — just to be sure no ugly history of abusing clients lurks behind the best face anyone seeking new business puts forward.

All this may take a while. But better to take your time and be sure you're getting the right kind of advice at a reasonable price from someone you can trust than spend years regretting the decision.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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