seem to end up with financial accounts all over the place without consideration of proper guidance. Usually at some type of major life event, people seem eager to reach out for professional advice. The question is how do you know what to look for in qualifying that individual or company for help? Here are a few potentially valuable pointers for you.
After all, it's a large decision that can be difficult to undo.
1. Operate under Fiduciary or Suitability standard?
What does this mean, and why should it be important to you? Investment advisors and financial planners tend to operate under two separate rulings for business practices, either under the Fiduciary standard or Suitability standard. So, what’s the difference?
In short, a simple question to ask for Fiduciary duty is “Is it in your best interest?” and Suitability might be “Can your reasonably afford it?” While these two, in many cases, may both qualify you for your investment decisions, you may be able to see where there could also potentially be a conflict for your planning. You may decide to steer towards someone that legally has to have your best interests in mind to the best of their knowledge when it comes to such a decision as planning your income for the rest of your life.
2. Are they licensed to give investment advice?
While this may sound like common sense when looking for a comprehensive financial plan, you may be surprised that many of the advertisements you might come across for financial planning are not licensed to give investment advice. In these cases, they may be insurance licensed only to provide things like life insurance, annuities and long-term care insurance. There are many regulations around licensed investment advisors where you would not see things like “Retirement Expert” or client testimonials in their advertisements because it’s not allowed. Another way to distinguish whether they are licensed for investment advice is to see whether they have a disclosure as all advertisements must legally have one. Usually, it’s at the bottom of any advertisement.
3. Ask for the total costs.
While this may also seem like common sense when looking to do business with someone, we have found many consumers have a misconception that their costs might only be a 1% management fee. Many big firms provide mutual fund investments that also may have upfront sales load charges that could easily range from 4-6% upfront that should clearly be disclosed to you. In addition, investment funds also have what’s called expense ratios as an annual internal charge that typically ranges from 0.03-1.40%, which is wide scale and could affect your portfolio drastically over decades. Another investment to look out for in regards to total costs are variable annuities. While they could be a planning tool for income and accumulation for a portion of your portfolio, many carry a wide range of various fees and charges that could range from 2 - 4.5% per year.
4. Investment advice or comprehensive planning?
This should be of consideration when reviewing financial planning firms to ask yourself, are they simply giving you advice on your investment funds, or are they providing more comprehensive planning for income, taxes, estate planning, business planning, insurance reviews, etc. We believe it’s not just about what you have; it’s about what you keep! Your investments can be one thing, but effectively planning for the most amount of tax-efficient income for the rest of your life might be more important to you.
5. What's your plan for the downside?
We believe this is currently a hot topic for consumers when it comes to their investments because it’s been almost 9.5 years since the market was at the bottom of the last recession. This is historically a long bull run, and “buy and hold” investing has not turned out very efficient given the last two large recessions in the past 20 years.
We have found that many advisors in the past several decades have used bond funds in a portfolio to lower the overall risk. The difference in the past 30 years versus now is that interest rates are creeping up, and bond prices are going down. If you have a portfolio with a large portion of bonds to reduce your risk, you may also be giving up positive returns in the coming years. Technology today has allowed us to build automated trading models to help protect some of your profits in a correction instead of simply blending more bond into your portfolio. Thorough research has also presented that uncapped fixed index annuities may be able to provide a better risk-adjusted return than bond funds in the near future. If you don’t have a plan in place and understand it clearly, you may want to reconsider your planning so you don’t repeat the past.
If you’re curious as to what a comprehensive, transparent plan might look like for you, please reach out to me at Advanced Wealth Strategies at 704-450-8352, conveniently located at 19520 West Catawba Avenue. Second opinion reviews can be important for peace of mind, and they are always complimentary. Do you have enough confidence in your existing planning to get a second opinion? Let’s get started!
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