Will I ever have enough money to retire? If this question keeps you up at night counting dollars instead of sheep, maybe it’s time to seek out the services of a financial planning professional. “The average person, if he or she devoted the time, could understand the basics of retirement planning,” says Bob Landaas, president of Landaas & Company Investments, a Milwaukee money management firm that manages more than $3 billion. “But emotion often gets in the way.” As does personality – the tendency to risk too little or too much.
Before deciding whether to outsource or handle your own investing decisions, test your smarts when it comes to money matters. Experts suggest two questions for would-be do-it-yourselfers:
Are you certain you have a firm grasp of the basics, such as the difference between stocks and bonds? Use this online 5-question quiz (usfinancialcapability.org/quiz.php) to test your financial literacy. Correctly answering these basic questions won’t prove that you can beat the market, but if you flub any of them, you might want to rethink choosing your own investments.
Can you trust yourself not to react emotionally if the markets turn turbulent? A 2015 survey conducted by Natixis Global Asset Management found that 60 percent of investors struggle to avoid emotional decisions when shocks to the market occur. If your impulse is to sell off all your investments when things go south, you would probably benefit from having a professional who helps talk you down off the ledge.
WHICH TYPE OF ADVISER IS RIGHT FOR YOU?
Start by familiarizing yourself with the available options. We’ve narrowed the field to three categories.
◆ Registered investment advisers focus on one aspect of financial planning: managing investment portfolios. They are not tied to any specific investment products or family of funds and are legally bound to serve the best interests of their clients.
Best for: People with high net-worth whose priority is hands-on management of their many investments.
◆ Certified financial planners tend to work for independent investment or planning firms and handle investments but also offer retirement and estate planning, employee benefits planning and budget planning. Most financial planners are investment advisers, but not all investment advisers are CFPs.
Best for: Those looking for a customized soup-to-nuts financial plan based on their individual goals. Fee-only planners who don’t charge a commission (and therefore aren’t always pushing products) appeal to those just starting out who may need advice in many areas but who have relatively few assets to manage.
◆ Certified employee benefits specialists manage and sell employee benefit plans. If your employer offers a 401K plan, the financial services company that administers the plan might offer free consultations with a CEBS. This person will help you select funds that align with your goals, and balance them periodically.
Best for: Those whose investments are limited to 401Ks and who aren’t necessarily looking for estate planning or other financial services.
HOW TO VET YOUR CANDIDATE
Once you’ve zeroed in on the type of adviser you need, finding the right fit is the next step. Use these guidelines to make your final selection.
◆ Get a referral: Daniel Kerns, a financial adviser at Robert W. Baird & Co., a Milwaukee-based wealth management firm, recommends getting feedback from friends and family. For younger investors, he advises tapping parents or other elders for advice.
◆ Review their credentials: At a minimum, financial advisers and planners should have successfully completed the Series 7 and Series 66 examinations, administered by the Financial Industry Regulatory Authority; the most qualified financial planners will also have a Certified Financial Planner (CFP) designation.
◆ Run a background check: The U.S. Securities and Exchange Commission’s Investment Adviser Public Disclosure database (adviserinfo.sec.gov) allows you to look up employment histories, license information and other relevant details for investment advisers and firms. BrokerCheck (brokercheck.finra.org), a service of the Financial Industry Regulatory Authority, is another resource that provides similar information.
◆ Ask questions: Consumers should determine how much money an adviser manages. Advisers who manage large sums of money tend not to take on a lot of new, small clients. Landaas, for example, personally requires that clients have a minimum of $1 million to invest with him, although other advisers at the firm typically have minimums of about $250,000.
◆ Speak frankly: It’s important for investors to be clear with advisers about their level of risk tolerance, which will signal whether to have a conservative, moderate or aggressive investment strategy, Kerns says. He also suggests getting a written agreement, with regards to the level of service a client can expect.
◆ Be proactive: Make sure you review your investments regularly with whomever you hire (or review them yourself if you choose to fly solo) as your income, financial needs, risk tolerance and goals may change over time.
CONSIDER GOING ROBO
If you’re comfortable in the digital realm, there are a growing number of sophisticated online advisory tools that recommend what to invest in based on the information you provide. Referred to as robo advisers, they use specific algorithms to offer automated advice. Because there isn’t a human involved, the fees tend to be low.
Options include Personal Capital, a retirement planning software program with nearly a million users that pulls real-time data from your accounts and offers free investment check-ups in addition to retirement planning tools. Betterment and Wealthfront are also popular choices, Just be aware that these tools merely give rough estimates as far as future predictions go. But if you’re looking for low-cost advice, or prefer to work independently but still would like some direction, robo advisers are worth looking into.
Just starting out? People without a lot of money to invest often find it challenging to find an adviser. Check the Garrett Planning Network’s (garrettplanningnetwork.com/home/accessible) online database of advisers who focus on the middle-class and are fee-only.