Is your retirement in jeopardy? If you’re among the 33% of adults that Northwestern Mutual reports have less than $5,000 in retirement savings, then it’s quite possible. And if you’re one of the 21% of adults with nothing saved, then you’re likely facing a retirement nightmare.

It’s no surprise that the country is on the brink of a retirement crisis. American’s have been on this trajectory for several decades now. And today, many people risk outliving their savings. Others will be working longer and retiring later, and some may never be able to retire.

Although these statistics reaffirm America’s retirement crisis, a recent CNBC Invest in You survey showing that only 1% of Americans polled use a financial advisor may leave you wondering…

Is there a correlation between financial planning and financial security? And if so, what can I do to jumpstart my financial planning today?

Planners Outperform Non-Planners

The Charles Schwab 2018 Modern Wealth Index confirms: Planners are in better financial shape than non-planners.

According to the analysis of 1000 participants, 75% of planners pay bills and still can save something each month compared with just 33% of non-planners. And while 62% of planners report feeling financially stable, only 32% of non-planners can say the same.

And if you’re living paycheck to paycheck today, chances are you are among the 68% of non-planners polled who are in the same boat. Among planners, however, only 38% are on the paycheck-to-paycheck merry-go-round.

While the Vanguard Advisor’s Alpha study calculates that working with a financial advisor may increase your financial returns by about 3%, you don’t need a financial advisor to be a planner.

What you do need is the knowledge to create your own financial plan and the discipline to implement it. With access to a range of online resources—both free and fee-based—it’s easier than ever to handle most portfolio needs yourself. In fact, planning and managing their retirement and financial portfolios is a serious hobby for some people.

It’s concerning, however, that only about a quarter of Americans have a written financial plan. What’s more, the rest don’t know where to begin or how to get started.

So What’s Keeping You from Working with a Financial Advisor?

If you’re among the majority of Americans not working with an advisor, it may be time to address your concerns.

“My modest assets are not worthy of a professional advisor”

Morethan a few investors feel that they don’t have enough wealth or investable assets to warrant the attention of a professional advisor. Financial planning is a service for the wealthy.

While some firms cater to mass-market investors, it’s true that the majority set minimum requirements for investable assets that are beyond the reach of the average investor. In a recent survey, Cerulli Associates found that while 71% of households reported less than $100,000 in invested assets, only 8% of advisors serve that market. Furthermore, just 29% of advisors serve investors with $100,000 to $500,000 in assets.

Firms are not intentionally ignoring the needs of moderate investors. The problem is their traditional fee structures make it difficult for them to figure out a financially viable business model.

“I can’t afford the fees”

Speaking of the business model, traditional percentage and flat-rate fee structures may seem out of reach for moderate investors. In fact, the bigger problem may be that the fee structure is confusing and less than transparent. Investors have to work to understand how they will be charged. And when comparing firms, it can be difficult to ensure you are comparing apples to apples.

Advisors trying to retain traditional fee structures may feel compelled to abandon moderate investors to direct-to-consumer models. But that is starting to change. With the advent of new financial models, many firms are facing the growing commoditization of financial services that is (and will continue) to change the industry. More on that in a moment.

Financial advisors put their interests before mine”

According to a CFP Board Research study, while about 90% of American investors feel that client interests should come first, 60% believe that in practice advisors’ interests take precedence. Investors repeatedly say they want to work with a fiduciary, not a sales rep for financial products.

As long as advisors receive commissions on transactions and the products they sell, there will be conflict of interest in the industry. However, a new SEC investor protection rule (Regulation Best Interest) goes into effect in June 2020. It requires more advisors to act in a fiduciary capacity, putting client interests first rather than satisfying the “suitability” standard. More financial professionals will be required to disclose conflicts of interest in compensation and in many cases eliminate the conflict.

Regulation Best Interest doesn’t resolve all irregularities and loopholes, but it may prove to be an important step toward rectifying the problem.

Robo-Advisor Planning Comes of Age

The power and sophistication of machine learning, natural language and artificial intelligence are changing most industries today. And financial advisory services are no exception.

Commonly called robo-advisors, digital financial planning services are commoditizing the industry and making low-cost advisory services available to many young, new and mass-market investors who want access to financial planning services.

Here’s what you get: A range of services for analyzing one’s financial health, budgeting and creating a financial plan. Account access, including services, tools and real-time reporting are available 24/7 from any location or device. There’s no need for face-to-face meetings or disclosure of your financial information with an advisor.

Here’s what you don’t get: You won’t receive individualized analysis and planning based on a consultation with a financial advisor. Your financial planning and investment management is based on algorithms, which take most of the choice and guesswork out of investing. While there are differences in services and areas of expertise from one robo-advisor firm to another, most apply modern portfolio theory and passive management investing strategies designed to optimize indexed portfolios and balance asset classes.

For investors who don’t think their assets worthy of a financial planner, a robo-advisor may provide the financial planning necessary to get young investors started and help moderate investors grow their assets.

Interest in robo-advisors is catching on with clients and traditional financial institutions alike. Among the latter, many are starting to offer digital services or partner with an established robo-advisor. They see robo-advisors as a way to attract new and young investors with moderate resources with a business model that works. Digital services can help them start planning and grow into the next generation of full-service clients.

When selecting a robo-advisor, visit their websites, review their FINRA filings and do your homework. Find a firm with the strengths, expertise, fees and areas of specialization that most closely match your objectives.

Chopping Fee Structure Jargon Down to Size

While trying to make sense of a firm’s fee structures can be both time consuming and daunting, it’s time you break through the confusion and obfuscation and learn how to evaluate advisors and their firms based on their compensation models. While there are several models, they are all variations on commissions, fee-based services or some combination/hybrid.

Commission-based compensation: Traditionally, financial advisors—even very client-focused advisors—have been paid based on the products sold and the number of transactions made. Because third-party firms pay the commissions, financial services are free to clients. This, of course, sets up a potential conflict of interest, which is the source of most investor concerns that their needs may not come first.

Fee-based on percentage of AUM: When clients are paying for services, firms have several basic fee structures. One of the more common models is a fee based on a percentage of the value of the assets under management (AUM).

When analyzing costs, look for a table that shows the annual fee as a percentage of the account value. The smaller the account, the higher the percentage you can expect to pay. The basic services include the creation of your financial plan, recommendations on how to implement the plan and an annual or semi-annual review and plan adjustment.

While rates vary among firms and according to the value of the account, key an eye out for additional fees on specific services and products, including brokerage commissions on ETFs and load fees on mutual funds.

Flat-rate fee based on AUM: The major difference here is that instead of paying a percentage of AUM, you pay a flat rate based on the value range (or bucket) your assets fall into. If you are a modest investor, you’re probably better off paying a percentage based on your actual AUM than a flat rate for a value range.

An annual retainer is another form of flat-rate fee based on AUM but the rate is set according to the complexity of your finances and the services you require.

Hourly fee: Hourly rates allow you to pay only for the service(s) you need when you want them, thus making wealth management more affordable and selective. Expect the cost per hour to vary by firm, geographical location and services provided, ranging from estate or retirement planning to debt management and investment advice.

Financial packages: Theseare comprehensive services bundled according to a particular solution that an investor may want. Think of these packages as the soup-to-nuts solutions for an investor who wants a specific solution or strategy, such as financial planning, asset allocation strategies, retirement planning or tax strategies. It’s all included for one flat rate.

Net worth pricing: According to ThinkAdvisor magazine, net worth pricing may be a win-win for investors and advisors. Fees are based on a client’s total net worth rather than AUM, which may incentivize advisors to help clients increase their wealth by overseeing all their financial needs—from debt resolution to tax strategies to business financing. It further has the potential to satisfy the growing desire among clients for a trusted advisor that offers a holistic, comprehensive financial service.

Hybrid: Increasingly, you can expect firms to offer a wider range of services based on more than one fee structure (e.g., full-service packages, fees based on AUM and even hourly rates for specific services). This enables an advisor to meet the needs of a wider range of investors.

Bottom Line Strategies to Help You Start Planning

Are you an experienced investor who takes your financial planning seriously? There may be any one of several reasons for now seeking out professional advice:

  • Perhaps your business obligations are growing and you don’t have enough time to focus on your portfolio; you want a wealth manager.
  • Is your financial situation is changing? Whether you’re getting married, starting a family, buying a house, starting a business, getting divorced, changing jobs or getting a big raise, your financial needs are changing and you probably need to adjust your financial plan.
  • Or maybe you’re concerned that you won’t know how to prepare for a market correction. A professional advisor may help you adjust your financial plan ahead of the curve and make the right decisions about buying and selling in a bear market.

As you prepare to hire a financial advisor, research firms; check their websites for fees and areas of expertise; and look them up on FINRA. Gather background on financial advisors from LinkedIn and broker search services. Take advantage of free consultations to see if there’s the right chemistry. Does the advisor listen to you and factor your concerns into the recommendations?

In addition to the consultation, come prepared to interview a prospective advisor. Here are a few questions that may help you get started:

  • Are you a fiduciary? Explain how you plan to put my interests first.
  • How are you compensated? How are your firm’s fees structured?
  • Who has custody of my assets? (If a firm uses a third-party custodial service, you know that you have an easy way to validate your account management and verify your assets.)
  • What are your qualifications and credentials? How much time do you spend on continuing education?
  • Do you ascribe to active or passive management investing strategies? (Active managers tend to try to time the market, which can result in more aggressive and volatile trading.)
  • Can you provide me with references?

At the end of the day, decide if you’ve met an advisor that you’ll be able to work with for several years to come and whose compensation you both understand and can justify.

Finally, if you’re a new investor, just beginning to think about your financial and retirement needs, or if you’re a moderate investor who is ready to up your game, financial planning is within your grasp.

If you think you have the discipline to manage your portfolio and implement your own financial plan, find a firm that offers hourly services. Pay for a consultation. Sit down and talk with a professional advisor and pay for a formal, written financial plan that meets your needs.

Then be diligent about implementing the plan. Also take advantage of the rich resources available online to learn as much about planning for your financial needs as possible.

Or if you think you need help implementing your plan but require an affordable solution, open a robo-advisor account. Do you research, but if you think you might want to get your foot in the door with a traditional firm, look for one that is offering digital financial planning and investor management services. You can open a relatively low-cost account with a small minimum asset requirement.

In this early phase, learn as much as you can from your robo-advisor account. Take advantage of all the analysis and planning tools. Run real-time reports to stay up to date on your progress.

Your retirement and the financial security of your family depend on the plans you make today. Take charge of your future.

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