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Question: My husband and I retired in 2019 and 2020 respectively. We opted for a financial adviser to manage our account, and we chose a moderately conservative approach with a plan to replace the lowest-performing stock in each portfolio. We each have a traditional IRA and a Roth IRA; in October we converted $108,000 and $125,000 from a traditional to Roth IRA.
We recently agreed to have our home/auto insurance agent, who has a financial license, give us a free assessment of our financial situation. We discovered that we have been paying a lot in fees each month. She thinks we could do better with more of a buy-and-hold plan where we make adjustments once a year instead of constantly trying to better our low performing stock. Should we get an outside opinion from a neutral party financial adviser rather than one who is trying to sell us something?
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Answer: The short answer is yes, you should get a neutral financial adviser to review what is going on, for a couple of reasons. Firstly, insurance agents often work on commission and may not recommend the financial products that are most suitable for you. Indeed, pros say insurance salespeople may be selling expensive products that may have high and hidden fees.
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And though a “financial license” sounds important, it doesn’t mean her having one makes her right for you. One of the most common financial securities licenses, the Series 7, allows financial advisers to sell many investment products — but without knowing exactly which license your insurance agent has, it’s hard to say whether or not they should be advising you on your IRAs. To see whether the person you’re working with is registered as an investment professional, the Financial Industry Regulatory Authority (FINRA) offers BrokerCheck, a free tool to research financial industry individuals, firms and their backgrounds.
Secondly, your current adviser may be charging you too much, as the agent implied, and may not be doing their job as well as you would like. If you’re charged under the assets under management model, where an adviser charges a percentage of your assets that she manages, a 1% fee is pretty standard. And for that money, the adviser should do “portfolio management, retirement cash flow, tax planning, review of estate plans and insurance — not just [be] a money manager,” says certified financial planner Bruce Primeau at Summit Wealth Advocates. Though it depends on level of experience and location, you can expect hourly planners to charge between $150 and $500 per hour, while project-based advisers might charge anywhere from $1,000 to $3,000 depending on the scope of the work.
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What’s more, there are some potential red flags that may have happened. In terms of the Roth IRA conversions, converting $233,000 in one year may be excessive, unless you had a net operating loss or some other losses to offset that income, pros say. “Converting that much puts you in at least the 24% federal tax bracket plus any state tax. A tax projection needs to be prepared prior to a conversion to understand the tax impact so you don’t get blindsided with an unexpected tax bill in April,” says Primeau.
The adviser’s strategy around getting rid of low-performing stocks might not be for everyone either. Keep in mind that just because something has performed poorly recently, doesn’t mean it will perform poorly going forward. “The opposite is usually true. You want to acquire assets when they are out of favor,” says Joe Favorito, certified financial planner at Landmark Wealth Management.
Instead of actively managed portfolios, which can be pricey and require much more attention, Primeau recommends choosing a low-cost, tax-efficient, passive approach to your portfolio. “Your adviser should rebalance your portfolio when necessary and avoid making emotional adjustments entirely. We recommend holding only equity mutual funds and ETFs in your Roth IRAs if possible since all growth inside of Roth IRAs is income tax free,” says Primeau.
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How to find a qualified financial adviser
If you’re looking for a new financial adviser, many will give you a free initial consultation so you can get a feel for what their recommendations might be and whether the relationship works well for you. You might want to do a few free consultations with advisers to find one you like. Here are 15 questions you should ask any adviser before hiring them.
“I would stick with an adviser who is fee based, more preferably a fee-only advisor who is paid based on the value of your account, a flat fee annually or even an hourly planning fee. A fee-only adviser is not going to be compensated any more for trading or selling a specific product, and that’s typically the closest you’ll get to an unbiased opinion,” says Favorito.
To start your search for a second opinion, the National Association of Personal Financial Advisors (NAPFA) offers a free “find an adviser” tool online, as do XY Planning Network and the Certified Financial Planner Board. “The search tools these organizations offer allow you to filter search results with several criteria like location, services offered and any minimum requirements,” says certified financial planner Mark Humphries at Sentinel Financial Planning. (Looking for a new financial adviser? This tool can match you to an adviser who meets your needs.)
Have an issue with your financial adviser or looking for a new one? Email questions to [email protected].
