We work with many clients who come to us for their retirement planning, and many of them have misconceptions about the process and how it works. So, we’re going to outline a few of the most common misconceptions that many people – maybe yourself – have about retirement planning.
4 Retirement Planning Misconceptions That Need to be Put to Rest
1. “Financial Planners” or “Financial Advisors” Must Be Qualified
Many people have the words “financial planner” or “advisor” next to their name, but that doesn’t mean that these individuals are particularly qualified to do their job.
Anyone can say that they’re a financial planner or advisor, and even though they’re not “supposed to,” that doesn’t mean that they don’t lure in clients this way. For example, insurance agents can call themselves:
- Financial advisors
- Financial planners
- Retirement planners
But all that these individuals have access to are insurance products. Insurance products are a good option to secure your retirement, but they’re not enough for a well-rounded retirement portfolio.
Yes, these individuals can call themselves financial advisors, but they won’t provide the intensive products you need to retire comfortably. Retirement demands a robust portfolio that includes insurance products, stocks, bonds and so much more.
2. The Lowest Fees are the Best Solution
Are you focusing only on the lowest fees? If so, this may be a mistake. There are many justifiable fees and cutting these fees down may do you more harm than good. For example, the lowest fees may lead to:
- Less hands-on recommendations
- Autopilot portfolios with no active management
Robo advisors, for example, are low-cost opportunities to invest, but you miss out on the true portfolio customization and altering that a human advisor offers.
Low-cost advisors may not:
- Help you grow your money
- Have the expertise for retirement planning
In the insurance world, fees are often not seen, so they’re promoted as having “no fees.” However, the fees are really built into these products, and the advisor is being paid a commission on these products.
When we work on your portfolio, we have a risk management portfolio in place that fights back against market fluctuations. For example, we didn’t see our clients lose 38% in 2008 when the market crashed.
We actively update portfolios to mitigate these potential losses.
Would you rather pay a fee to reach your goals, or have no fees and sacrifice risk mitigation? It’s something to think about.
A good option is to:
- Learn what your goals are
- Discuss your goals with a potential advisor
- Then decide if the fees are worth it or not
If you go directly to the lowest fee option, you’re likely putting your retirement more at risk for small savings.
3. All Credentials or Certifications are the Same
Advisors like to list their credentials and certifications next to their names. These credentials help boost their authenticity and stand out when talking to prospective clients. The issue is that unless you’re familiar with the credentials or certifications, you may not know the value behind them.
For example, you won’t know whether the certification requires just a fee and open book quiz, or if it took a lot of time to receive a credential.
One credential that we believe is very valuable is a certified financial planner. You cannot claim to be certified if you’re not. This certification (and for full disclosure, we do hold this credential ourselves) is very valuable.
For someone to be considered a certified financial planner, they must:
- Take courses at a college for about two years
- Pass an extensive six-hour exam (50% pass)
- Three years of full-time experience in financial planning in some way
Once certified, you must also live by the code of ethics and go to continuous education annually to maintain the certification.
We believe the certified financial planner certification is the gold standard for financial planners.
4. An Advisor Works at a Big Firm, So They Must Be Good
Working under a big brand-named company, such as Morgan Stanley, is often the only credential potential clients consider when choosing an advisor. The client assumes that since the expert is working at a major company, they must be the best of the best.
This isn’t necessarily true.
In the investment banking world, these companies have a lot of brand recognition. But working for one of these companies doesn’t mean that the individual is qualified. These companies often have training programs, and the person you initially work with is still learning the ropes.
A lot of younger advisors will go to these big companies out of college, leverage their training and go on to open their own financial planning business.
Independent financial planners are free to:
- Offer you the best products or services
- Not force products on a client
For example, if they work for Morgan Stanley, they’ll push the company’s products. This isn’t to say that all these advisors are bad. You can definitely find a great advisor at one of these firms, but consider that independent financial planners are in the fastest-growing advisor category.
So, now that we’ve cleared up a few misconceptions, it will be easier to find an advisor to help you meet your financial goals.
This is part 2 of how to choose the right financial advisor for you. If you missed the first part of this series, we encourage you to click here to read part 1: Avoid 4 Retirement Investment and Planning Rip-Offs.