Should you let advisers handle your life savings?

guaranteed retirement income

My wife and I have about $750,000 saved and plan to retire soon. Two young advisers who appeared at our door one day have regularly been visiting us and now would like to manage our money. My wife likes and trusts them, but I'm not so sure. What do you think we should do? --Richard, New York.

Far be it from me to stand in the way of two ambitious young advisers trying to get a toehold in the financial services biz. I applaud their effort. But that doesn't mean you should hand over your savings to them. The fact that you say they "appeared at your door" makes me wonder how they found you in the first place. Were you on some "hot leads" list? Perhaps you and your wife signed up for a free retirement seminar recently and they got your name from the registration list. Or perhaps you inquired about investing and retirement planning service on the internet and these guys are following up.

Whatever, I don't like the idea of doing business with people who appear out of the blue, especially when you're talking about savings that took you a lifetime to accumulate. I mean, what do you really know about these two fellows other than their apparent charm? And while I don't want to suggest that only graybeards are qualified to advise people in or nearing retirement, I do think that experience counts when it comes to understanding the unique challenges people face when they transition from building a nest egg to living off it. Call me an ageist, but all else equal I'd prefer someone have deep experience if I'm going to entrust him with my $750,000 life savings and rely on his guidance to help get me through retirement.

So the short answer is that I'd thank these two young men for their interest, tell them you're considering other alternatives (without getting dragged into a conversation about what those alternatives are) and let them know politely but firmly that you prefer they cease contact with you. That done, you can then launch a search for an appropriate adviser rather than hoping that the right one somehow magically appears at your door.

Money Essentials: Hiring financial help

You can launch that search by going to sites like the Financial Planning Association, the National Association of Personal Financial Advisors and The Garrett Planning Network, all of which allow you to search for advisers in your area by an expertise, such as retirement planning. I'd interview at least three advisers, and I wouldn't rush into anything. If you have misgivings about the advisers you've spoke to, don't hesitate to do another round of interviews. There's no shortage of financial advisers.

To help you settle on an adviser who's trustworthy, competent and a good fit for you, here are four questions you can ask prospective advisers:

1. What will you do for me? You want to agree in advance on what kind of services you need and what the adviser will provide. Do you just require someone to invest your nest egg for you? Or you do need help with a retirement income plan, choosing when to claim Social Security, making sure you meet required minimum draws, creating a spending budget and perhaps even some estate planning? It's important you and the adviser are on the same page going into the relationship. Otherwise, the adviser could feel you're demanding more time and attention than you're due or you could feel you're getting shortchanged.

2. How and how much will you charge? Start with how you will pay: Commissions for products your adviser sells you? An annual fee based on a percentage of assets the adviser is managing (say, 1% or so a year)? A combination of the two? A relatively small number of advisers are willing to charge an hourly rate (say, $175 to $250 an hour for actual time spent on services) or a flat-fee for doing a particular project or solving a specific problem. Generally, I prefer fees vs. commissions, but each of these arrangements has pros and cons. But whichever you choose get a detailed estimate in writing of what you'll pay and what services are included in that charge. Just because an adviser asks for a specific percentage of assets or hourly rate, don't be afraid to ask for a better deal. Prices aren't ordained from above; they can and often do change based on individual circumstances. One note: if an adviser is charging an all-in-one fee that includes investment management and other services (creating a retirement income plan, etc.) make sure you'll actually need enough other services to make such a deal worthwhile. Otherwise, you may simply end up overpaying for investment management, which, in the days of low-cost services offered by robo-advisers and large firms like Vanguard, can often be had for 0.5% a year or less.

3. What line-up of products and services can you choose from? This is important because some advisers may be restricted to (or, if not actually restricted, limit themselves to for other reasons) products and services offered by their firm or an affiliated company. Others are free to mix and match investments and products from a broader range of firms. Be aware that some advisers may make the bulk of their income by selling a particular type of investment, such as variable annuities, and thus more likely to recommend that investment even if other, less costly, ones might work just as well for you. Similarly, some advisers may not be disposed to use a plain-vanilla immediate annuity, as it would reduce the amount of assets they manage, as well as their fee. No adviser can completely set aside his own interests. But to the extent possible, you want to be sure that your interests come first and that any potential conflicts between what's good for the adviser vs. good for you are disclosed and discussed up front.

4. How will we assess whether your advice is actually working? The adviser should present you with a plan to monitor how your savings are doing vs. an appropriate benchmark and to assess whether you're achieving your goals -- for example, getting the retirement income you need with a reasonable assurance you won't outlive your savings. Among the issues you and the adviser should explore are how (by phone, in person) and how often you'll meet to discuss your progress and whom you should contact if you have concerns or questions between those sessions.

Finally, before you sign on with any adviser, be sure you've vetted him or her with the appropriate regulators, including the Securities and Exchange Commission, your state securities regulator and FINRA.

I get that this will take a lot more time and effort on your part than just handing your money over to two charming young men who conveniently appeared on your doorstep. But you worked hard to build that $750,000 nest egg. And it's worth the extra effort to make sure the person advising you on it is both competent and worthy of your trust.

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