|Baby boomers shopping for better advisors |
By Gene Walden
(From the Minneapolis Star Tribune 6/17/07)
Retirement is barreling down on Baby Boomers like a runaway tram.
Born post-World War II (1946-1964), the Baby Boom generation turned 60 last year and many are wondering how their modest nest egg can possibly bankroll two or three decades of retirement.
To compound matters, many parents are facing a dual challenge of trying to save for their own retirement while funding the college costs of their children. What to do—leave your children with a mountain of debt or under-fund your own future?
“That’s a common question I get,” says Susan Stiles of Stiles Financial in Minnetonka. “They well tell me, `I have only so much money. Should I be paying for college or saving for retirement?’
“I think the best investment you can make is in your children’s education. Education and income have never been more closely related but, if you can help it, don’t leave them saddled with debt.”
Great for the kids, but what about your retirement fund? Ultimately the answer for many boomers will be to continue to work beyond 65 to make ends meet.
“Employers will need baby boomers to fill some voids in the work force,” says Stiles.
But boomers are also starting to look elsewhere for a solution to their anemic retirement funds. They’re looking for a better investment advisor with a better long-term plan.
Time for a change?
Once spellbound by the spiraling tech stocks of the 1990s, baby boomers have long since realized that picking winners in the market is not as easy shooting ducks in a barrel. They’re also beginning to see that there is more to investing than trading stocks. There are other issues they need to address, such as retirement planning, college savings, insurance, and estate planning.
If you’re looking for an advisor who can offer you better service, greater expertise, steadier performance, and a greater emphasis on long-term planning, where should you turn?
There are many levels of financial advisors with a veritable alphabet soup of designations. Here is a quick primer on who’s out there.
· Registered representative. Known more commonly as brokers, many registered reps are limited to the sale of mutual funds and, in some cases, insurance products. Others are also licensed to sell stocks and bonds. Most professionals in the investment business fall into this category. Although registered reps are sometimes stereotyped as glorified sales reps who simply `move product’ to jack up commissions, there are some outstanding registered reps who do provide good service at a fair price. Most registered reps earn their pay through mutual fund loads and annual fees, stock commissions, and insurance premiums.
· Insurance agents. They can sell you life insurance and annuity products and often mutual funds, but many agents are not trained or motivated to provide you with guidance on the bigger picture.
· CLU. A step up from an agent, a Chartered Life Underwriter has completed the life insurance and personal insurance planning training.
· ChFC. An even higher ranking in the insurance side of the business, a Chartered Financial Consultant is similar to a certified financial planner. They offer a higher level of planning and expertise than a CLU.
· CFP. To gain the Certified Financial Planner designation, an advisor must pass a 10-hour exam on the elements of financial planning. CFPs and other professionals who do comprehensive financial planning often charge an upfront fee in the range of several hundred dollars to several thousand dollars to do the plan plus a fee to manage the account. Others will waive the upfront fee if you hire them to manage your account. Financial planners typically earn their living through fund fees and insurance premiums, although some charge a fee based on assets under management that may range from 1 to 2 percent.
· CFA. The Chartered Financial Analyst is a big step up from the CFP and puts a much greater emphasis on money management. The designation is earned through three exams taken over a period of three years.
· AIF. A relatively new designation, the Accredited Investment Fiduciary has completed a comprehensive study of global fiduciary standards.
· RIA. A registered investment advisor is licensed to manage a portfolio of stocks and bonds and charges a fee based on your assets under management (usually in the range of 1 to 2 percent). They often do not provide comprehensive financial planning, but may have access to other professionals who can handle planning and estate work.
The ideal advisor is someone who provides good service, looks at the big picture, and keeps you informed not only on how your portfolio is performing but what you are spending for his or her services.
“You want to know three basic things,” says Stiles. “How did I do, how does that compare to my benchmark and what did it cost me. Most of the people who come to us do so because they can’t get those answers from their current broker.”