What Is a Retirement Advisor?

Wall Street Journal

5 days ago

What is a retirement advisor?
As with many other terms in the financial professional industry, there is no regulation around the term retirement advisor.
'All these terms can be confusing for consumers to understand,' says Roger Whitney, CFP, CIMA, CPWA, RMA and founder of the planning firm Agile Retirement Management. 'There's no regulatory structure around these terms, so often an advisor chooses a title designed to attract their preferred clients.'
Whitney says he considers himself a retirement planner because he focuses on helping people figure out how to manage their money to support their lives in retirement.
What matters more than the title a professional uses, according to Eric Ludwig, Ph.D., CFP, RICP and assistant professor of retirement income at the American College of Financial Services, is whether they have specialized education aimed at the issues surrounding retirement planning.
'We're seeing trends in the financial industry similar to what we see in healthcare,' Ludwig points out. 'There are generalists and specialists. As you plan your retirement, you might want a specialist who has extra education in issues specifically related to retirement.'
Retirement advisor vs. financial planner: What's the difference?
Both Whitney and Ludwig have CFP designations, which stands for certified financial planner. The CFP certification is a credential from the CFP Board and is recognized for its rigorous standards and education requirements.
Whitney points out that a financial planner can help with retirement planning, and a CFP, in particular, can provide additional help with retirement-related topics.
'A financial planner with a CFP credential can probably give you an overview of what you need to do to prepare for retirement,' Whitney says. 'They have access to the right software and an understanding of core concepts. But if you're looking for someone with deeper knowledge, a retirement advisor with extra education and experience can take you to the next level.'
Ludwig helped create the retirement income certified professional (RICP) designation, issued by the American College of Financial Services. He says one reason he created education and coursework around that credential is to address the specific challenges associated with retirement planning.
'A retirement advisor with the RICP designation has specialized education and expertise in helping you figure out the best way to begin drawing down your account so your money lasts while you live comfortably,' Ludwig says. 'I have a bias because I'm in the business of training advisors, but when you start shifting your financial strategy to living in retirement, choosing a retirement advisor can help you navigate the unique tax, longevity and spending challenges.'
What services do retirement advisors offer?
Whitney says that retirement advisors offer specialized services that go beyond traditional financial planning.
'When you're living in retirement—and you don't have a traditional paycheck anymore—you need to use your accumulated accounts to create that income,' Whitney says. 'A retirement advisor will help you with cash flow planning, create a drawdown plan based on the types of accounts you have and help you manage tax planning.'
Some common retirement advisor services include:
Reviewing your retirement accounts: It's common for retirees to have multiple retirement accounts. You might even have a mix of Roth and traditional accounts. Retirement planning includes creating a roadmap that determines which accounts to focus on drawing down first. For example, Roth accounts don't have required minimum distributions, so that can factor in whether you start taking money from a traditional account, leaving the Roth account to grow.
It's common for retirees to have multiple retirement accounts. You might even have a mix of Roth and traditional accounts. Retirement planning includes creating a roadmap that determines which accounts to focus on drawing down first. For example, Roth accounts don't have required minimum distributions, so that can factor in whether you start taking money from a traditional account, leaving the Roth account to grow. Deciding when to begin collecting Social Security benefits: A retirement advisor can look at your situation, goals, current assets and account types to help you determine whether it might make sense to take Social Security earlier or whether you should concentrate on drawing down your accounts while putting off claiming benefits so you have a bigger monthly Social Security check.
A retirement advisor can look at your situation, goals, current assets and account types to help you determine whether it might make sense to take Social Security earlier or whether you should concentrate on drawing down your accounts while putting off claiming benefits so you have a bigger monthly Social Security check. Manage sequence-of-returns risk: At some point during retirement, the market is likely to crash—and it might happen more than once. If the market crashes early in your retirement, sequence-of-returns risk can deplete your accounts faster as you're forced to sell assets while their values are down. A good retirement planning professional can help you implement strategies to reduce your risk.
At some point during retirement, the market is likely to crash—and it might happen more than once. If the market crashes early in your retirement, sequence-of-returns risk can deplete your accounts faster as you're forced to sell assets while their values are down. A good retirement planning professional can help you implement strategies to reduce your risk. Create an income plan: Your retirement advisor can assist you as you decide how to allocate your portfolio to create the income you need, in conjunction with other sources of income you might have, such as business or Social Security income.
Your retirement advisor can assist you as you decide how to allocate your portfolio to create the income you need, in conjunction with other sources of income you might have, such as business or Social Security income. Protect against longevity risk: With life expectancy higher than in past decades, there's a risk that you could outlive your money. Your retirement advisor can help you determine which financial products, services or portfolio strategy might help you outlast your money.
With life expectancy higher than in past decades, there's a risk that you could outlive your money. Your retirement advisor can help you determine which financial products, services or portfolio strategy might help you outlast your money. Basic legacy planning: If you're interested in donating to charity and providing an inheritance to heirs, a retirement advisor can help you figure out how to use your money for the benefit of others while still maintaining your lifestyle.
If you're interested in donating to charity and providing an inheritance to heirs, a retirement advisor can help you figure out how to use your money for the benefit of others while still maintaining your lifestyle. Tax planning: Investments and accounts come with different tax consequences. An advisor with retirement expertise can help you create a plan that reduces your tax burden, whether that involves qualified charitable distributions from a traditional retirement account or a plan that balances when you withdraw from a Roth.
Retirement advisor fees and compensation
Whenever you hire a financial professional, it's important to understand how they're paid. Ludwig points out that, like other types of financial advisors, a retirement advisor is likely to charge based on one of three main compensation models:
Commission-based: You don't often pay a fee directly when an advisor is paid by commission because they are compensated based on the products and services they sell.
You don't often pay a fee directly when an advisor is paid by commission because they are compensated based on the products and services they sell. Fee-only: You pay the advisor directly. There are various fee-only structures, such as fees based on the assets they manage for you, a flat rate for specific services, an hourly rate, a membership fee or a retainer.
You pay the advisor directly. There are various fee-only structures, such as fees based on the assets they manage for you, a flat rate for specific services, an hourly rate, a membership fee or a retainer. Fee-based: This is a somewhat hybrid structure. You might pay the advisor for specific retirement planning services, but the advisor might still make money on commissions if they sell you a financial product.
'As a consumer, you need to know who the advice is benefiting,' Ludwig says. 'Are you paying the advisor to create a plan that's best for you, or are they getting compensated from the products they sell?'
Ludwig points out that someone getting paid a commission or based on the transactions they complete inside your portfolio isn't automatically a bad thing. The advice can still be good, he says, but you need to be aware of the potential for conflicts of interest later.
How to choose a retirement advisor
When choosing the best retirement advisor for your needs, Whitney suggests starting with just that—your needs.
'Figure out what you want from the advisor in the first place,' Whitney says. 'What kind of lifestyle do you want to live? What types of activities do you plan for retirement? Are you worried about tax planning? Do you want someone who will manage your money as well as help you make a retirement financial plan?'
Once you know what you're looking for, it's time to interview multiple advisors to find a good fit. To narrow down your search for retirement advisors, you can take the following steps:
Search for potential candidates: Rather than asking for referrals, Whitney suggests doing a quick search online. There are also advisor networks that can help you narrow your search. Whitney says referrals can be problematic because your neighbor or brother-in-law might not have an accurate frame of reference for who is competent.
Rather than asking for referrals, Whitney suggests doing a quick search online. There are also advisor networks that can help you narrow your search. Whitney says referrals can be problematic because your neighbor or brother-in-law might not have an accurate frame of reference for who is competent. Vet your candidates: Whether you're searching for a financial advisor near you or someone to work with at a distance, Whitney says you should do some preliminary research before setting up an interview. He suggests checking their social media posts or articles they've written to get a feel for their philosophy. Don't forget to check FINRA.org and SEC.gov to see if they have complaints or actions against them.
Whether you're searching for a financial advisor near you or someone to work with at a distance, Whitney says you should do some preliminary research before setting up an interview. He suggests checking their social media posts or articles they've written to get a feel for their philosophy. Don't forget to check FINRA.org and SEC.gov to see if they have complaints or actions against them. Set up exploratory calls: Once you have a few candidates, set up appointments with three to five retirement advisors for initial calls. Many financial advisors are willing to have a free 20- to 30-minute meeting or call.
Once you have a few candidates, set up appointments with three to five retirement advisors for initial calls. Many financial advisors are willing to have a free 20- to 30-minute meeting or call. Ask questions: Whitney suggests asking the retirement advisor about their specialty, their ideal client, what qualifications and education they have, how the advisor gets paid and what conflicts of interest they might have. Consider asking other questions that might help you understand their investment philosophy and background.
Whitney suggests asking the retirement advisor about their specialty, their ideal client, what qualifications and education they have, how the advisor gets paid and what conflicts of interest they might have. Consider asking other questions that might help you understand their investment philosophy and background. Verify that they will act as a fiduciary: A fiduciary puts your financial interest first, even if it doesn't benefit the advisor. Consider asking if they're willing to sign an attestation that they will act as a fiduciary.
A fiduciary puts your financial interest first, even if it doesn't benefit the advisor. Consider asking if they're willing to sign an attestation that they will act as a fiduciary. Verify their credentials: Make sure the advisor you interview has the education and designations you prefer. You can usually check with the governing board to verify that they are up to date on continuing education requirements to maintain their credentials.
After you have interviewed a few retirement advisors, you should have an idea of what to expect and who you might work well with. Choose someone you're comfortable with and who aligns with your values.
FAQ
When should I hire a retirement advisor?
If you don't have the time, desire or expertise to navigate the issues surrounding retirement income planning, taxes and longevity risk, consider hiring a professional to help you create a plan for retirement.
What certifications should a retirement advisor have?
While there are no specific certifications that a retirement advisor is required to have in a regulatory framework, it might make sense to consider looking for someone who has completed a course of study and received a designation that indicates expertise in retirement planning. Two credentials are the RICP and the retirement management advisor (RMA).
Can a retirement advisor help with Social Security planning?
Yes, a retirement advisor can usually help you with Social Security planning, including how to decide when to start taking benefits.
How often will I meet with my retirement advisor?
How often you meet with your retirement advisor depends on the schedule you set up and your individual needs. It's relatively common, however, to meet with a financial advisor at least once or twice a year to review your concerns, goals and make tweaks to your plan.
Can a retirement advisor help with estate planning?
Some retirement advisors can help with basic estate planning tasks. However, depending on how complicated your situation is, you might want to consider adding an estate planning attorney or other professional with specialized knowledge to your financial team.