Financial security in retirement requires having the perfect balance of items in place. If you’re considering bringing on a financial advisor, we’ll go over some questions to ask and some resources to use during the selection process to help set you up for success.
What type of financial services do they provide?
While retirement planning is the most notable planning assistance a financial advisor can provide, an advisor who gives guidance on other aspects of your finances is worth considering. Questions on debt repayment, insurance product suggestions, and estate planning are additional areas you may need to turn to them for. If you have a complex financial situation, these added services can serve as a great item to factor in during your selection process. However, if you’re single or don’t have significant debt, you might only need basic planning services.
Are they bound by a fiduciary duty?
Unfortunately, there aren’t regulations that outline the duties of a financial advisor. The U.S. Securities and Exchange Commission (SEC) is trying to change this, though, by only allowing the use of “advisor” to those who hold themselves to a fiduciary standard. Understanding if a financial advisor is obligated to a fiduciary duty is a crucial part of the selection process. This means they are legally required to work in your best financial interest.
In addition, it’s a good idea to find a financial advisor who is a certified financial planner (CFP), as they have in-depth financial planning knowledge and are always held to a fiduciary standard. CFPs are required to have several years’ experience in the financial planning field, and must pass the CFP exam and adhere to strict ethical standards set by the Certified Financial Planner Board of Standards. You’ll find that some CFPs may specialize in specific areas like divorce or retirement planning, while others may choose to work with specific clients like small business owners or retirees.
Other advisors may only be held to a suitability standard, meaning they’ll suggest products that are suitable for you, but may be more expensive while also earning them a higher commission.
How do they earn their money?
There are two ways in which financial advisors earn their income. There are fee-only financial advisors who earn money from the fees you pay for their services. For example, you may be charged a percentage of the assets they manage for you, or you may be charged an hourly rate or even a flat rate. Typically, financial advisors who are paid in this manner are almost always fiduciaries.
There are also financial advisors who are commission based. This means they earn their money from third parties, which is why they’ll advertise themselves as “free” because you aren’t charged a fee to use their services. If a financial advisor is commission based, they aren’t fiduciaries, but rather work in a sales capacity for investment and insurance brokerages.
Some financial advisors may even work as a combination of the two, such as those who offer advice on products like life insurance.
Use FINRA’s BrokerCheck
The Financial Industry Regulatory Authority (FINRA) has a free tool called BrokerCheck where you can research the background and experience of financial brokers, advisors, and firms. You can find out instantly if a person or firm is registered, as required by law, to sell securities (stocks, bonds, mutual funds and more), offer investment advice, or both. BrokerCheck also gives you a snapshot of a broker’s employment history, regulatory actions, and investment-related licensing information, arbitrations, and complaints.
After you pick a financial advisor…
While CalPERS can’t offer financial advice, once you’ve established financial planning services we can offer you resources that’ll assist you and your financial advisor.
For example, our Retirement Estimate Calculator is a great tool to share as it uses the latest data as reported by your employer to get an idea of what your monthly benefit might be.
If you have a deferred compensation plan, such as a CalPERS 457 Plan, a CalPERS Supplemental Contributions Plan, or a Savings Plus Plan, this would also be information your financial advisor would want to add to your account details.
If questions come up that your financial advisor needs you to address, we can help you find the answers in a few different ways. You can register for a class, or attend our CalPERS Benefits Education Events (CBEEs) where you’ll get answers to your specific questions. Visit our Member Education page to get more details about our various learning opportunities, which we offer either in-person or virtually.
You can also call us Monday through Friday from 8:00 a.m. to 5:00 p.m. at 888 CalPERS (or 888-225-7377), or schedule an appointment with us in person at one of our eight regional office locations. To schedule an appointment, log in to your myCalPERS account and select the Education tab, then Appointments.