| On the surface, when people think of an investment advisor, financial planner or retirement
planner, what they think of is someone that’s going to assist them with making the selections
of their stocks, bonds and mutual funds. As you transition into the retirement stage there are
many other important areas of retirement that also need to be considered. Selecting the right
retirement guide that will be able to help in all of these areas is crucial for you to have a
We call ourselves many different things, Financial Planners, Investment Advisors, or maybe even Retirement Planners. Regardless of the title, you probably go to us all for the same thing – to use our knowledge and expertise regarding the financial markets to invest your funds for you. On the surface, this describes the role of the advisor. However, we feel that this limited role of the advisor specifically covers one period of your investment lifetime, the accumulation period, when you are trying to build and grow your wealth. As you transition into retirement (the portfolio distribution phase), it’s important that the advisor begin to take on a larger role when it comes to your financial well-being. As an advisor that specializes in the distribution phase, the investment selection must be complimented by a strategy of when best to file for Social Security Benefits, a plan to minimize the amount of taxes that will be due, and a sustainable withdrawal strategy to ensure that your needs will be met for the remainder of your lifetime.
Fiduciary vs. Suitability
When it comes to the investment selection, it’s very important to understand what type of advisor with whom you’re working. There are two different types of advisors that plan within two different sets of rules. There’s the investment advisor, who is held to a fiduciary standard, and then there is the registered representative, or an insurance professional, who is held to a suitability standard. Understanding what standards that they’re held to and how they’re compensated is part of the investment selection process that, as the consumer, you need to be aware of. The differences are crucial.
A fiduciary standard is a legal obligation where the advisor must act in the best interest of their client and puts the client’s best interest ahead of their own. It is the highest standard of care available under law. Fiduciary advisors can be regulated by the SEC or state regulators. An example to explain this standard is an advisor with two identical products that have different fees, who must recommend the one that is lower in cost. They can’t recommend the product that makes more money for them or their company. A fiduciary advisor is often paid by a quarterly fee that is calculated as a percentage of assets.
According to the FIRNA Industry Professionals manual, the suitability standard requires that a registered representative or insurance professional must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer. This is based primarily on financial objectives, current income level and age, in order to complete a commissionable sale of a financial product. There is no requirement to find the best investment for you, only ones that are seemingly suitable for you. They offer a range of products for sale carried by the company he or she represents. The way that someone with a suitability standard gets paid is by commissions calculated as a percentage of money invested into the product.
Which type of advisor would you like to work with after hearing the differences between the two?
What to expect from a retirement planner
As we transition into retirement, the investment selection is still part of the process, but there’s more to expect from a retirement planner. Important questions we need to ask include: • How are we going to create an income/distribution plan of these assets that’s going to be reliable and sustainable for as long as you live?
• How do we select a social security filing strategy that will best meet our needs it?
• How are we going to protect your standard of living from inflation? • How are we going to reduce your tax obligations? • How are we going to position these assets in a way that you still have the liquidity that you need for all kinds of emergencies and related discretionary spending?
• How can we position things in such a way that you have the income stream you need and, at the same time, have the flexibility to handle life’s unknowns?
• How can we help protect you from the risks of a long term illness?
• How do we select the right health care plan to best meet your needs and resources?
• How do we protect the legacy that you want to leave behind for your heirs?
Transitioning into Retirement
Again, as we transition into this retirement phase, investment selection is part of the process. But now we need to focus more on an income plan, which encompasses social security planning, tax planning, planning against inflation and health care planning – all of these things are added into the picture. So, during this transition, the perception that you have of your investment advisor needs to take on a new role. Often, with new clients, we find that there hasn’t been a transition, which means the client is being greatly underserved.
At Citizen Advisory Group, (www.citizenadvisory.com), our program offers a much more comprehensive approach to the retirement planning side of things. We pull in the investment selection with an income/distribution plan that includes planning for social security, longevity and taxes. We unify all of these different pieces to create a very well-rounded plan. This allows people the safety and security to go out and enjoy their retirement lifestyle and spend their money without the fear associated with running out of money during their lifetimes.