When it comes to planning for your financial future, working with a financial advisor can be extremely beneficial (though not always). If you can find the right one for you, they can offer outsized value in helping you create a comprehensive plan, as well as provide valuable insights and expertise that you might not have had otherwise. But, it's important to remember that not all financial advisors are created equal. To ensure that you are working with someone who is truly invested in helping you reach your financial goals, there are certain questions you should be asking before you decide to work with them.
What is your approach to tax planning before retirement?
Tax planning is an essential part of any financial plan, especially when it comes to saving for retirement. Your financial advisor should be able to provide you with strategies that can help you minimize your tax liability and maximize your retirement savings. This can include things like contributing to a Roth IRA instead of a traditional IRA, taking advantage of tax-deferred investments, performing tax-loss harvesting on your behalf via services like direct indexing, and utilizing other tax-efficient strategies.
How do you help your clients achieve their long-term financial goals?
Your financial advisor should be able to help you identify your long-term financial goals, such as the life you want to live in retirement, and then create a sound, realistic, and easy-to-follow plan to help you achieve them. This can include things like creating budgets, identifying areas where you can cut expenses, and recommending investments that align with both your risk tolerance and time horizon.
How do you handle investment risk?
Investment risk is an inherent part of investing, and your financial advisor should have a clear understanding of how to manage it. They should be able to explain the potential risks associated with different types of investments, and provide strategies to help you mitigate them. This can include diversifying your portfolio, investing in low-cost index funds, and rebalancing your portfolio regularly.
How do you charge for your services?
Different financial advisors have different fee structures, so it's important to understand how your advisor will be compensated before you begin working with them. Some advisors charge a flat fee for specific services like financial planning, while others charge a percentage of assets under management (otherwise known as an “AUM fee”). Additionally, some advisors may earn commissions from the investments they recommend, so it's important to ask about this as well. Registered Investment Advisor (RIA) firms are registered with either the U.S. Securities and Exchange Commission (SEC) or state securities administrator and have fiduciary obligations to their clients, meaning that they have a fundamental duty to always and only provide investment advice that is in their client's best interests. Unlike financial advisors that work for a broker-dealer, financial advisors at firms like Savvy Wealth can be trusted to not sell you financial products that earn them kickbacks or commissions.
What kind of ongoing support do you provide?
Creating a financial plan is just the first step – you will also need ongoing support to help you stay on track and make adjustments as necessary. Your financial advisor should be available to answer any questions you have, provide guidance when needed, and help you make any necessary adjustments to your plan. Ideally, they are always able to provide timely responses to your questions, be willing to jump on the phone or an online Zoom meeting with you to discuss issues in detail, and send you content via email with information specifically relevant to you at your specific stage of your financial journey.
The bottom line:
In conclusion, tax planning before retirement is one of the most important question you should be asking your financial advisor right now. It's important to understand the approach of your advisor towards tax planning, as it will help you to minimize your tax liability and maximize your retirement savings. Additionally, it's important to understand how your financial advisor will help you achieve your long-term financial goals, how they handle investment risk, how they charge for their services, and the kind of ongoing support they provide. Asking these questions will ensure that you are working with a financial advisor who is truly invested in helping you reach your financial goals.