Financial advisers offer a long list of services, and it’s important that clients are clear about what they’re getting when they choose to work with one. - MarketWatch photo illustration/iStockphoto Dear Help Me Retire, Retirement is around the corner, and I have all of our funds— $1.4 million—at Fidelity through my workplace 401(k). I feel that I’ve found a good adviser at Fidelity and I am considering having her manage my portfolio for a 0.83% assets-under-management fee. I feel confident in her knowledge. I’m not very comfortable managing these investments on my own. We will be converting the 401(k) to an IRA.
What are the pros and cons?
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Dear Adviser-Seeking,It is important to be extremely clear about what role this adviser will have if you decide to work with her. Is she the kind of financial adviser who will focus only on managing the retirement account you have at the firm, or will she be working with you across your entire financial landscape, which likely includes assets and debts outside that retirement account or investment firm?
To be clear, I’m not going to discuss the investment firm itself or whether it’s the right place for you to keep your money. There are plenty of financial institutions out there, and the one you mentioned has a long history in retirement-plan management. I will, however, encourage you to thoroughly vet the financial adviser — and I would give you that same advice whether you were working with a professional at an investment firm that houses your 401(k) or looking for someone independently.
But first, you need to determine what you want from a financial adviser. For example, the cost of a financial adviser is, on average, about 1% of assets under management (though some may charge a flat or hourly fee instead). However, not all financial advisers — or the services they provide — are created equally.
Ask her to explain exactly what you receive for what you’re paying, such as ongoing investment advice and portfolio management, and whether those services apply only to the retirement account you have at the firm or also include your other assets. You may have to pay more if you’re discussing money outside the $1.4 million portfolio, but at least you’ll have a precise understanding of what you’re paying for.
Story ContinuesThe Fidelity Wealth Management gross advisory fee ranges from 0.20% to 1.50%, according to this fee guide from the company. With a $1.4 million portfolio, a 0.83% annual advisory fee would equate to about $11,620 per year initially, and that dollar amount would increase as the portfolio grows.
Over a 25- to 30-year retirement, you could be paying hundreds of thousands of dollars in lifetime fees depending on market performance and withdrawal patterns — but you could also be seeing greater returns than if you were to try and do it yourself without feeling confident about your investment strategies. Paying advisory fees aren’t unreasonable. It just means the advisory relationship should deliver clear value for the cost.
You may be interested in comprehensive retirement planning, which takes into account other income sources in your golden years, as well as Social Security claiming strategies; tax planning, especially if you intend to convert some of your 401(k) to a Roth IRA so you can diversify your tax liabilities in retirement; and estate planning, including putting crucial documents such as wills, powers of attorney, and healthcare proxies in place, to name a few.
Fees vary, depending on the adviser’s level of involvement, aside from a full-service adviser. An hourly or flat-fee fiduciary planner could anywhere from $2,000 to $10,000 a year, but you would do a lot of that managing yourself. A hybrid strategy, combining professional advice with self-managed investments, would cost closer to 0.2%-0.4% annually. A do-it-yourself index-fund approach could cost 0.03%-0.10% a year, but that’s more suitable for investors who are truly comfortable handling their own investments.
With retirement around the corner, now is a good time to get a handle on every asset and debt. Financial advisers can create financial statements that list these items, as well as cash-flow statements showing how much money you bring in versus how much you spend, but you should also stay on top of this information yourself. If you’re not providing the financial adviser with everything she needs to work with, your financial plan will eventually fall apart.
Before working with any professional, check their experience and background. You can do this in several ways, including using the Securities and Exchange Commission’s Investment Adviser Public Disclosure database, which shows a professional’s background information as well as any disciplinary actions they may have faced. For brokers, there’s FINRA’s BrokerCheck, which provides similar information.
Ask this adviser, as well as any others you consider, about credentials and certifications, and whether she is required to act as a fiduciary (meaning she must act in your best interest above her own). You can also ask what kinds of clients she typically works with to see whether your needs fit within her expertise — for example, near-retirees seeking portfolio management — and about her investment approach. Ask the smaller questions, too, such as what happens if you need to speak with her because you’re stressed during a market downturn or because you unexpectedly need to withdraw more cash than usual from your retirement plan.
Basically, even if you plan to work with an adviser to manage your retirement money, you should still remain at the helm. It’s your money, and you need to know it’s in good hands at all times.
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