Planning for retirement is one of the most important financial decisions that you can make. Since there is no direct source of regular income, you may have to depend on your retirement savings to fund your daily expenses and future goals that you might have planned for your retirement life. Thus, to ensure you have a comfortable sum of money to meet necessities and medical emergencies, you need to plan your retirement carefully.
You might have witnessed your parents receiving messages and emails from different organizations that promise to ensure guaranteed income during retirement. Or you might have heard their peers reach out to them to recommend some investments that give high returns with a low-risk factor. However, the best way to come up with a solid financial plan that caters to your specific needs and goals and secure your financial future is engaging the services of a financial advisor.
Who is a financial advisor?
A financial advisor is a professional who possesses specialized financial knowledge about different investment classes and the market, thus making him the appropriate person to help an investor create a retirement or investment plan.
It is generally advised by experts that retirees or investors nearing retirement do not invest in risky ventures. They need to be extra cautious about where they put their money. They have less margin to make wrong decisions. Therefore, making decisions with the help and guidance of a professional who has sound knowledge and good ethics is important. You should find a financial advisor for your parents with all such characteristics for improved investment planning and peaceful retirement.
What factors should you consider while looking for a financial advisor?
Many brokers may claim to be financial advisors. However, these people might not have your parent’s best interest at heart. They may be motivated by their own self-interest of earning commissions by selling various financial products to your parents.
Although broker-dealers are required to follow standards and make suitable suggestions to their clients, these might not necessarily be helpful to the clients. Hence, it is essential to consider certain factors before hiring a financial advisor, especially someone who will prioritize your parent’s goals and who can be relied on. These factors are:
1. Check whether the advisor is a fiduciary or not:
A fiduciary is a person who is obligated by the state’s law to hold their client’s best interest at the forefront while working. Unlike financial advisors, a fiduciary advisor is required to do so on a mandatory basis. This quality makes them trustworthy. Hence, it is better to enquire if your financial advisor is a fiduciary or not and then take a call on whether to hire him or not.
2. Enquire about the advisor’s fee structure:
Different financial advisors charge different types of fee structures. It is recommended to work with the advisor who has an hourly or a percentage-based fee rather than the one who earns income from fees as well as commission. There is a potential of conflict by working with advisors who are paid both fees and commission.
What credentials should you look for when hiring a financial advisor?
There are many credentials and designations that financial advisors pursue to gain specialized knowledge in different fields of finance. Credentials represent the skills and knowledge of a particular financial advisor. It is not easy to earn credentials as it requires rigorous training, devoting an increased number of hours to studying and following ethical standards.
Following are some of the widely accepted credentials to consider while searching for a financial advisor.
1. CFP (Certified Financial Planner) Professional):
One needs to go through extensive training, have experience and commit themselves to follow their fiduciary duty in order to gain the Certified Financial Planner Certification.
2. CRPC ( Chartered Retirement Planning Counselor):
The Chartered Retirement Planning Counselor Certificate is regarded as the industry benchmark in the case of retirement planning credentials. The College of Financial Planning offers this certification.
3. CRC (Certified Retirement Counselor):
To achieve this certification, one needs to pass a particular exam and also possess two years of professional experience in the retirement field and follow the mentioned code of ethics. A Certified Retirement Counselor focuses on retirement planning to better address the financial needs of retirees.
4. RICP (Retirement Income Certified Professional):
This certification stands for The Retirement Income Certified Professional. The requirements for the same include – studying the coursework, appearing for exams, following ethical standards, and having at least three years of business experience. The American College of Financial Services offers this certification.
5. RMA (Retirement Management Advisor):
This designation requires coursework and exam, adherence to code of conduct, and minimum of three years of work experience. It stands for Retirement Management Advisor and is sponsored by Investments and Wealth Institute.
What is the process for finding the right advisor for your parents?
Along with possessing the above-mentioned credentials, the advisor must also be registered with the SEC (Securities and Exchange Commission), the Financial Industry Regulatory Authority (FINRA), and other state regulators. To verify if the advisor is registered or not, you can visit SEC’s Investment Advisor Public Disclosure site and the FINRA broker check.
Besides emphasizing the above-mentioned factors like credentials, fiduciary and fee structure, you must find an advisor who is specifically suited for your parents in terms of their unique requirements. Just shopping for credentials alone may not serve your parent’s purpose. You need to research thoroughly on other aspects of the advisor.
The advisor needs to understand your parents’ goals. Having an honest discussion with them about their finances and general retirement plans can be a good place to start. You should be respectful and calm while discussing financial matters with your parents and try to gather information about their legal documents and long-term plans.
It may so happen that your parents might be looking for a guide who can help them with the whole retirement planning process, or they might only be looking for support who can explain the steps required to protect their retirement wealth. Hence it becomes important to have clear communication first with your parents before making any plans.
Another vital step in hiring an advisor is to have a one-to-one meeting. You and your parents should be ready with a list of questions and doubts that you might have for better clarity. You can choose to ask the following questions:
- What compensation structure do you follow?
- Are you a fiduciary?
- Has there been any instance of disciplinary action taken against you?
- Have you ever been sued by a client?
- Do you have any clients with the same characteristics as us in terms of income bracket, long-term goals, and more? How do you deal with them?
- Will you be able to provide any references from your present clients?
- Could you share an example of the financial plan created by you for a client who was similar to us?
Retirement planning can get very tricky, especially if you look to plan it for your parents. It is advised that you take the help of a professional to plan for your parents’ retirement. You should not hurry to find a financial advisor. Ensure that you check their compensation levels and credentials. Do not forget to prepare a comprehensive list of questions to ask potential financial advisors that you may interview. Lastly, you should help your parents find someone who can help them meet their financial needs and help reduce their financial stress.
Use Paladin Registry’s free advisor match tool to match with an experienced and certified investment advisor who will be able to guide you and your parents effectively and help you choose the best as per your parent’s convenience. Give us basic details about yourself, and the match service will help connect you with 1-3 financial advisors that best suit your needs.
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