If you're retired, you want a retirement planning consultant who is skilled and knowledgeable in the financial issues of retirees. Many retirement planning consultants won't do because most financial advisors are trained to help investors accumulate assets. But if you are retired, then your interest is motivated to preserve and distribute financial assets. Here are five things that can go wrong if you select an improperly trained advisor:
The advisor takes too much risk with your assets as he has an accumulation orientation from working with mostly younger clients. Your portfolio becomes too volatile and you are consistently nervous.
The retirement planning consultant takes too little risk. Some retirement advisors that deal with mostly younger people are under the misconception that once retired, your financial assets should be mostly in bonds and fixed annuities. In fact, research shows that retirees should maintain 50% of their financial assets in equities to last a lifetime.
The retirement planing consultant may have a biased education or orientation either toward insurance or investments. If your advisor started in the business at Merrill Lynch, you likely have an investment-oriented advisor how is light on insurance knowledge and how to protect your net worth. Alternatively, if your advisor started out at New York Life, he may be oriented toward insurance products, thinking these will work in place of investments. You want a balanced advisor who does not have a bias.
Does your retirement advisor have knowledge in areas where he won't make any money from you: understanding Social Security, Medicare coverage and Medicaid eligibility? If they don't have knowledge about these social programs, you cannot get a well crafted plan that accounts for these sources of income or protection.
Does your retirement planning consultant employ sensitivity analysis? Tools like Monte Carlo simulation or other ways to consider various scenarios or outcomes are critical. To create a plan based on a static assumption (e.g. you will earn 7.5% annually) can be disastrous when the single assumption does not pan out.
Learn more and view our list of ten certified retirement planner qualifying questions you should ask to properly screen financial planning candidates.
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I agree with the point about consultants possibly not drawing you into areas where they won't make any money. I think more people should be aware of this when they hire a consultant.
I totally agree!
This does not only apply with Retirement Consultants, it is widely spread across the board!
Having you own consultant after retirement will really help you to know what is happening to your own investment.
Sean