Question: I have lost over $200,000 through mismanagement of my retirement fund by a financial adviser. I am a single female and did have plenty of funds to retire on, but now at 75, I have had to go back to part-time work. Fortunately, I own my home outright and refused to sell it when the past adviser told me to.
Trying to find a replacement adviser has opened up a hornets’ nest. It’s very difficult to find advisers prepared to give fee-for-service advice on an ad-hoc basis. I will report my past adviser to the financial services ombudsman but am still trying to sort out the mess I was left with and haven’t had time to do this yet. What I have learned is that I do not trust many financial advisers and they are excessively expensive. How should I proceed?
Answer: It is essential that you can fully trust your adviser, and finding one you feel that way about can be a challenge. (You can use this free tool to get matched with financial advisers who may meet your needs, and you can learn to vet all advisers below.) You also may want to consider a robo-adviser or doing this yourself (more on both later).
How to find a financial adviser you can trust
One thing you need to do before pursuing a new adviser is define what you want them to do. “Do you want someone to manage your assets, simply advise you on your comprehensive plan and implement recommendations or something else? Once you answer these questions, find someone to do just that,” says certified financial planner Cristina Guglielmetti at Future Perfect Planning.
Have an issue with your financial adviser or looking for a new one? Email picks@marketwatch.com.
Once you know what you’re looking for, you need to interview multiple advisers. Ask friends and family for recommendations first and then look at the CFP Board Let’s Make a Plan site or the National Association of Personal Financial Advisors (NAPFA). When you vet advisers, do a background check on them by looking into FINRA for any formal complaints that have been filed or the SEC’s Investment Advisor Public Disclosure site where conduct, designation and disclosure information is available. You should also ask them these 15 questions, and ask to talk to past clients.
You might want to work with a certified financial planner (CFP) because not only do they have to complete certain education requirements and pass exams, they also have thousands of hours of work-related experience and are required to act as fiduciaries, meaning they have to put their clients’ best interests ahead of their own. This minimizes the potential for conflicts of interest and helps ensure you’re working with someone qualified and trained.
Good communication is key with an adviser, and it seems you didn’t have that with your last one. It does seem like something in your math isn’t adding up, and it’s unclear how much money you started with and why your adviser wasn’t more clear about what was going on. “You’re 75 and say you had plenty of funds to retire on, but losing $200,000 meant you had to return to work. Last year was definitely a down year for everyone and that was hard to live through for sure, but if a $200,000 loss represented just a fraction of your assets, what should have happened was you being coached on the possibility and likelihood of loss. It’s possible you have unrealistic expectations of how the portfolio will perform and your adviser didn’t communicate well,” says Guglielmetti.
How to find an hourly or one-time plan financial
When the time comes to find a new adviser, certified financial planner Alonso Rodriguez Segarra at Advise Financial says he suggests not looking for an adviser who earns money by putting your money more at risk so they earn more. “Instead, have a session with a CFP who charges by the hour so they can make a diagnosis of where you are and the steps you should follow,” says Segarra.
Most advisers charge on an assets under management (AUM) model, but there are advisers who charge hourly or will do a one-time financial plan. Hourly fee schedules average between $150 and $450 per hour while one-time plans tend to cost between $1,500 and $10,000 depending on where you’re located and the complexity of your situation. To find advisers who work under various fee models, check FeeOnlyNetwork.com or XY Planning Network.
What about a robo-adviser or DIY?
You might also consider working with a robo-adviser, pros say. Or ir working with a robo-adviser isn’t your cup of tea, you’ll need a simple strategy you can manage yourself.
“I’d suggest reading one of Jack Bogle’s books for individual investors and putting your money in a combination of S&P 500 index funds and short-term fixed income. With rates much higher than in recent years, you might also consider putting money into a very simple insurance company immediate annuity which would pay you lifetime income. Not a complex fixed-index or equity-index annuity with high commissions, just pay a chunk of your assets for a stable monthly income,” says certified financial planner Jim Hemphill at TGS Financial.
At the end of the day, it’s important to understand that a financial adviser will not prevent you from losing money. “Investing in stocks and bonds can have risks and you want to make sure your investment portfolio aligns with your goals. If you’re uncomfortable working with a financial adviser based on past experiences, you can consider self-education and invest in resources available like books and online courses,” says certified financial planner Ryan Haiss at Flynn Zito Capital Management. While this route won’t replace personalized advice, it may help you make more informed decisions with your investments.
Some online courses to look into are Foundational Finance for Strategic Decision Making offered by Coursera from the University of Michigan, Investment and Portfolio Management from Rice University and Indiana University’s Planning for Risk and Retirement.
*Questions edited for brevity and clarity.
Have an issue with your financial adviser or looking for a new one? Email picks@marketwatch.com.
