Make sure you choose the Right Retirement Advisor!
Troy Sharpe: Picking the wrong advisor for retirement could potentially destroy your retirement and cost you hundreds of thousands of dollars in unnecessary taxes.
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Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, CERTIFIED FINANCIAL PLANNER™ Professional (CFP®) host of The Retirement Income Show, and author of the upcoming book Core4. It’s very important to understand that financial advisors are not all created equal. Just like the medical industry has specialists for different needs and phases of life that you’re in, so does the financial industry. It’s difficult though for a lot of people to differentiate between advisors. This video is designed to help you figure out what is the difference between these different types of advisors and how do I find the right one, and know I found the right one for my retirement.
When you go to the doctor, when you’re young, you have a general practitioner. In the retirement field or in the financial industry, think of the general practitioner as your accumulation phase advisor. That’s the advisor that works with all age groups. They’re not really a specialist in retirement, but they work with all age groups. Generally, all they do is help build an investment strategy.
Because when you’re younger, you don’t have as many things to worry about financially with regards to your nest egg because you don’t really have a nest egg. When you’re young, you’re trying to save, invest and grow as much as possible.
Your general practitioner is someone who works with all age groups and really helps them just invest the money by building a portfolio of stocks and bonds, maybe mutual funds or ETFs. As you get a little bit older, you seek out specialists for the different medical needs that you have. If you have chest pains, you go to the cardiologist, if you have skin problems, you see the dermatologist.
In the financial industry, as you get a little bit older, you should seek out a retirement advisor, a retirement planner, somebody who does this every single day, has tons of experience, an entire team built to help you distribute money, reduce taxes, plan for long-term care, Social Security, Medicare, required minimum distributions and everything else that’s involved in retirement planning.
This video is going to help you figure out how do you find the right retirement advisor for you. First, I want to go through just some common terms in the financial industry and help you to figure out if this is who you’re currently working with. Brokers work for big banks and big brokerage firms. Ameriprise, Ed Jones, Merrill Lynch, Raymond James, Wells Fargo, Bank of America, these big banks, big institutions, they are all brokerage firms. They all have brokers.
Brokers are transactional salespeople. They’re people that make commissions off selling you stocks, bonds, and mutual funds. This is where a lot of people get stuck with a lot of high fees and a lot of hidden fees inside their plan, inside their investment tools. For retirement, I don’t believe a broker is the right advisor for most people’s particular situation. Then you have the investment advisor. Most investment advisors are that general practitioner, they’re able to build a portfolio of stocks or bonds. They are not transactional salespeople like brokers, they receive a fee for managing the money and making adjustments to the portfolio as time goes on.
An investment advisor generally works with all age groups and you want somebody in retirement that is well versed in retirement law, retirement distribution strategies, that also is an investment advisor, but not a general practitioner investment advisor. Then you have an insurance agent. Insurance agents sell life insurance, annuities, and long-term care. In my opinion, there are far too many insurance agents out there claiming to be retirement planners, claiming to be financial advisors. You go to an insurance agent when you need to buy life insurance or health insurance or long-term care or an annuity.
They are transactional salespeople who get paid commissions from the products that they sell, but they don’t have the ability to talk about stocks or bonds, to give you advice here. They definitely don’t broker transactions with mutual funds, stocks, and bonds. Insurance agents, just to license and they sell products. What is the retirement planner? When I think of retirement planning, I think of when my wife asked me to go up to IKEA several years ago. I’m a lot better putting things together with my mind than with my hands, but she sends me up to IKEA to get this desk and she wants me to put the desk together.
I go up there, I buy the desk, I’m cursing, I’m upset because I don’t want to do this but she asked me to do it, so yes dear. I get home and I opened the box and I started taking all these pieces out and you got the bag of screws and the bolts and the washers. I get my tools out of the garage. I get to the bottom of the box and there are no instructions on how to put this thing together. start sweating a little bit, I’m panicking, but then I’m thinking, okay, I can get out of this because if there are no instructions, I don’t have to put it together.
She says, “No, just Google it and figure it out.” I do that, and as I’m starting to put this thing together, I realized like, “Oh my goodness, this is what we do every single day for people who are entering retirement.” They come in and they have this IRA, they have to make this decision about their pension or 401(k), they have social security, they have Medicare questions.
They have all these different pieces and they’re curious about which tools to use, but they don’t have any instructions on how to bring that all together. The retirement plan, or what a true retirement planner does is provide you the instructions, builds that retirement plan based on the different pieces that you have, using various tools, a more expansive toolkit than just stocks or bonds for retirement, but brings it all together and is there with you to guide and to adjust as time goes on.
That story really hit home for me as far as what we do every single day helping people transition into retirement. What most people don’t have, which is the instruction manual, so to speak, on how to take income, when to take it, where to take it from, how much, how long will it last, will your spouse be okay if something happens to you? The retirement planner, first, you have either independent versus captive. A lot of big firms have these retirement planning divisions or divisions designed to help you build portfolios if you’re in retirement.
The problem with captive firms is while the advisors may have your best interest at heart, their bosses and their management in the ivory towers in New York City, well, they have to put shareholders first. They have a fiduciary responsibility to increase profits, to increase revenues, and oftentimes you’re just a person or a number on a spreadsheet and you create the situation where management has a conflict of interest with the advisor who’s managing your money. There’s always this tug of war. I’m personally I’m not a big fan of working with big large captively-held advisors that work for these big banks and big brokerage firms.
Independent firms, these are companies that have decided I’m going to go out there and I’m going to do it my way because I think this is the best way to help people plan for retirement or invest their money. We created our firm because I wanted to do something different. I wanted to provide a service in the marketplace that I couldn’t find any firm in the country did.
Independent versus captive. I’m a big fan, obviously, of independent firms because I don’t have anyone looking over my shoulder telling me what to do, telling me I need to generate more revenue and more profits. As an independent firm, we can always operate in what we feel is the absolute best for our client, for our people, and for the community. When you have a retirement plan, a true retirement plan, you’re going to have a written income plan. This income plan, just like my IKEA story, it’s going to tell you which accounts to take income from, how much income, and how to reduce taxes.
The next part here is the tax plan. This is the number one and number two things. If you do not have a written income plan and a written tax plan that shows you how you’re going to reduce taxes over the course of your retirement, then you’re probably not working with a retirement planner. You’re probably working with a broker, an investment advisor, only a general practitioner, or an insurance agent.
You should also have a medical and long-term care plan. Different studies show different costs, but anywhere from $250,000 to $400,000, you can be expected to pay an out of pocket medical costs. You need to plan to pay for these costs later in life. Long-term care is an entirely different set of planning that’s needed and costs associated with future needs.
Last but not least, we have a legacy and an estate plan. Most people have a basic estate plan. That’s your living will, your last will and testament, your powers of attorney, your medical directives, but the legacy plan is a more strategic plan that helps figure out how are we best going to, not only maximize your retirement to make sure that you’re secure and have enough money as long as you’re alive, but how do we efficiently transfer that money to the next generation and maximize it?
Right now there’s a law in Congress and what the politicians are trying to do is they’re trying to make the IRS the biggest beneficiary of your retirement account. If you want to learn more about this, check out my video about the Secure Act. You can click on this link right up here. Understanding the difference between brokers, general practitioners, insurance agents, and then a true retirement planner can help you decide if you’re working with the best advisor for your particular situation, or maybe you need to make a change so you can have that written income plan, that written tax plan and also address legacy long-term care medical and estate planning strategies.
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