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WE RANK THE TOP ONLINE BROKERS p44

PERSONAL FINANCE

10 Great

SPECIAL REPORT

Find the

right financial

adviser

p 28

Places to

Retire

Here’s to your health!

Our choices offer

plenty of opportunities

to stay fit, relax and

revive. p 58

With miles of

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Naples, Fla., is one

of our top retirement

destinations.

AUGUST 2016


» MONEY // SPECIAL REPORT

When It’s Time

to Call In a Pro

Our guide will help you find the right adviser to get

your financial life in order.

By LISA GERSTNER and

KIMBERLY LANKFORD

ILLUSTRATIONS BY

VIDHYA NAGARAJAN

AMER

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the

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28

KIPL

INGE

R’S PERS

ONAL FINANCE

N

08/2016

016


»

MONEY

Plus, hiring a pro seems out of reach

to many because they think they don’t

have enough money to manage or

won’t be able to afford the fees.

Our guide will walk you through

the steps to find the right financial

adviser for you, no matter how much

you earn or how much you have in savings

and investments. You can develop

a long-term relationship with an adviser

or get an affordable, one-time

checkup to see if you’re on track with

your financial goals.

Do I need a

financial adviser?

AT CERTAIN CRITICAL JUNCTURES,

hiring someone who will make sure

you’re heading in the right direction

is well worth the cost.

Deploying a retirement strategy is

one of the top reasons to see a financial

adviser. Ideally, you’ll get help

while you still have plenty of time to

save and invest your money. James

Kinney, a certified financial planner

(CFP) and owner of Financial Pathways,

in Bridgewater, N.J., says that

many clients first visit when they’re

within a few years (or months) of their

anticipated retirement date. “The

question most often on their minds is,

‘Can I afford to retire?’ At that point in

their lives, what if the answer is no?”

says Kinney. Although many of the

clients of Rick Rodgers, a CFP in Lancaster,

Pa., come to him a year or two

before retirement, he would prefer

to start working with them 10 years

before their planned retirement date.

Retirees and people close to retirement

can get help designing a withdrawal

strategy that minimizes taxable

income, says Ann Gugle, a CFP,

certified public accountant (CPA) and

principal at Alpha Financial Advisors,

in Charlotte, N.C. Gugle often works

with clients in their sixties who have

a few years left before they must start

taking required minimum distributions

from their tax-deferred retire-

ment accounts at age 70½. That’s valuable

time they can use to separate

money into different buckets—perhaps

by cutting back on tax-deferred savings

or converting some holdings in

a traditional IRA to a Roth IRA.

Getting married or divorced, starting

a family, dealing with the death or

disability of a family member, or starting

a new job are all good times to seek

out an adviser. Any change in your

family situation may necessitate an

update in your estate plan and documents.

When you have kids, an adviser

can help you juggle college and retirement

savings or manage your budget

if one parent decides to stop working.

When taxes loom large, you can get

help from tax advisers and preparers.

You may want someone to prepare

your returns and help spot tax breaks.

Self-employed people may need a hand

with calculating quarterly estimated

tax payments and claiming deductible

business expenses. If you own a rental

property, an expert can help you sort

through the convoluted tax rules.

An inheritance or some other windfall

may present you with extra cash

that you’re not sure how to handle.

You may also have more funds as a

result of, say, steady progress in paying

off debt or a hike in income. An adviser

can help you figure out what to

do with the money.

Depending on how complicated

your estate is, you may want to enlist

experts in tax planning and other areas.

You may need advice, for example, if

your assets will be subject to estate

tax. (For 2016, assets transferred to

heirs are exempt from federal tax if

they’re worth $5.45 million or less

for individuals or $10.9 million or less

30

KIPLINGER’S PERSONAL FINANCE 08/2016


for married couples. But a number

of states tax estates at much lower

levels.) “It’s also important to seek

estate-planning guidance in the case

of a second marriage or any nontraditional

family situation,” says Jordon

Rosen, an accredited estate planner

and CPA in Wilmington, Del.

What kind of adviser

should I look for?

YOU MAY NEED HELP WITH JUST

a slice of your finances. But the more

complex your situation, the more

likely you’ll need a group of experts to

cover all the bases—perhaps a financial

planner to take a holistic look and

to act as “quarterback” of the team, an

accountant to prepare your tax return

and delve into the finer details of tax

planning, and a lawyer to handle your

estate documents. In some cases, a single

person or firm may be able to take

on multiple duties. Some CFPs, for instance,

are also CPAs, with in-depth

tax knowledge.

Use the guidelines below to search

for a professional who can help you

reach your goals. Some credentials

carry more weight than others. Be

wary of “senior specialists,” for example,

whose bona fides may be flimsy,

says Eleanor Blayney, consumer advocate

for the CFP Board. See a list of designations

at www.finra.org/investors/

professional-designations, including

the issuing organization and educational

requirements for each. To minimize

conflicts of interest, look for a

fee-only planner, who receives compensation

only from clients and accepts

no commission for selling investments

or other products (search for a

fee-only planner at www.napfa.org).

General financial planning. A CERTIFIED

FINANCIAL PLANNER can make a broad

assessment of your finances. A CFP

must complete coursework in personal

financial planning, pass an exam, have

two to three years of planning experi-

ence, and commit to a code of ethics

and standards. He or she will review

your cash flow (including budgeting,

savings and debt), insurance coverage,

estate and tax planning, and investment

allocation. A CHARTERED FINANCIAL

CONSULTANT (CHFC), who also meets

advanced education and experience

requirements, can provide general

financial planning services, too. A

CHARTERED FINANCIAL ANALYST (CFA) is an

investing specialist who has successfully

completed a three-part exam,

including testing on portfolio management

and wealth planning.

After the analysis, you should receive

an action plan with steps toward

improvement, and you may also get

projection reports that show how

much you need to save to reach goals

such as retirement and funding college.

Fee-only planners may charge a flat

annual retainer (which could run a few

thousand dollars or more); on an hourly

basis (often from $100 to $250 per

hour); by the project (from $1,000 up

to $10,000 for a comprehensive plan);

as a percentage of assets, if they’re managing

your investments (from about

0.5% to 1.25% of your investable assets);

or some combination of those models.

Tax advice. If you’re looking for a professional

to prepare your tax return,

* KipTip

Getting Advice Online

IF YOU’RE UP FOR THE TASK OF ORGANIZING YOUR FINANCES ON YOUR OWN,

you’ll find no shortage of free or low-cost online tools to help you do the job. With a

budgeting app such as MINT.COM, for example, you can track bank, credit card and loan

balances, monitor your investment portfolio, set savings goals, and see your credit

score. HELLOWALLET ($100 a year or free as an employee benefit from participating

companies) also provides budgeting and investment-tracking tools, plus a financialwellness

score that digs into such areas as insurance coverage and emergency savings.

You can use a calculator that determines how much you should have in your emergency

cash stash free at www.hellowallet.com/emergency-savings. At KIPLINGER.COM, the

Retirement Savings Calculator estimates the future value of your retirement savings

and projects how much you need to save monthly to meet your goal.

Web tools can go a long way toward shaping up your finances, but they can’t do it

all. Along with taking a more comprehensive and personalized look at your situation,

a human adviser can hold your hand in a crisis. If you’re prone to panic when the market

goes into free fall, for example, you may be better off working with someone who can

be “a barrier between you and an overreaction,” says Arielle O’Shea, investing expert

with personal finance site NerdWallet.com. And if you’re dealing with a considerable

amount of wealth or don’t want to do the research and other legwork required to

manage your own money, you’re better off hiring a person.

Some outfits supplement their online components with counsel from live advisers.

At LEARNVEST.COM, for example, you can use a free budgeting tool without any further

commitment. If you want to work with a fee-only certified financial planner (or an

investment adviser), you can have a relationship with one over the phone or via e-mail

for a one-time fee of about $300, plus $19 monthly.

PERSONAL CAPITAL offers a free online tool that tracks cash flow, budgeting and

investments, plus an investment checkup with recommendations and an analysis of

fees. If you’d like to consult a human investment adviser, you’ll be charged from 0.49%

to 0.89% of your investment account balance, depending on its size.

08/2016 KIPLINGER’S PERSONAL FINANCE 31


»

MONEY

make sure he or she is credentialed—

anyone can hang out a tax-preparer

shingle. ENROLLED AGENTS have passed

an IRS-issued test on preparing tax

returns (or they have worked for the

IRS). They must also meet continuingeducation

requirements, and they have

full rights to represent you before the

IRS. You can find an enrolled agent at

www.naea.org. The average price to

have a professional complete an itemized

Form 1040 with a Schedule A

and a state tax return was $273 for

the 2014 tax year, according to the

National Society of Accountants.

If you want help with your overall

finances but with an emphasis on tax

*

Rights and Protections

planning, a CERTIFIED PUBLIC ACCOUNTANT

who is also a PERSONAL FINANCIAL SPECIALIST

(PFS) or CFP may be the best choice.

A certified public accountant has a

high level of expertise in tax law, must

pass a rigorous series of exams and is

licensed by the state. A CPA who has

a PFS designation has also passed a

separate test about broader financial

planning. At www.aicpa.org, you can

find contact information for each

state’s CPA society and search for CPAs

near you. And at www.acplanners.org,

you can search for tax-focused, feeonly

planners who charge clients on

a retainer basis.

If you have a broad relationship with

If the Relationship Sours

IF YOU HAVE ANY PROBLEMS WITH AN ADVISER OR SUSPICIONS ABOUT HIS OR

her recommendations, you can contact the Securities and Exchange Commission’s

office of investor assistance at 800-732-0330 to ask questions or file a complaint.

You can also file a formal complaint online at www.sec.gov/complaint.shtml. The SEC

sends the complaint with a letter to the adviser, who is required to respond to the investor

and the SEC in writing. A trade may be reversed, or there may be a settlement

offer, or the complaint could go to arbitration or mediation. If the SEC sees multiple

complaints about one adviser or firm, it may pass the information along to investigators,

who in turn could take enforcement action.

You can file a complaint against a CFP through the CFP Board. (Go to www.cfp.net,

click on the “About CFP Board” tab, and go to the ethics and enforcement section to

file a complaint.) For problems with insurance agents, contact the state insurance

department (find links at www.naic.org).

If you have a problem with your broker, Finra recommends first talking with your

broker or the broker’s manager, then contacting the compliance officer at the brokerage

firm, says Gerri Walsh, senior vice president of investor education for Finra. If that

doesn’t work, then file a complaint with Finra at www.finra.org/investors.

Your rights and protections will get even stronger in the next two years. The Department

of Labor’s new fiduciary rule is designed to ensure that anyone getting paid to

provide investment advice for your retirement account must put your best interests

ahead of his or her own; the rule will especially affect advisers who charge commissions

rather than transparent fees. Its main provisions, including imposing a fiduciary

status on advice providers, take effect on April 10, 2017. The extra requirements for

financial professionals who accept commissions don't fully kick in until January 1, 2018.

Regulators and financial-services firms are still figuring out the details, but insurers

and brokerage firms are already changing the structure of some of their products to

move away from up-front commissions.

your tax adviser, he or she may charge

an hourly or retainer fee, by the project,

or as a percentage of assets if he

or she manages investments for you.

Estate planning. You’ll need a LAWYER to

draft a will that states how you want

to divvy up your assets and appoints

a guardian for your children or other

dependents. Other documents to draw

up include a living will, which outlines

your wishes for end-of-life medical

care; financial and health care powers

of attorney, which designate who will

handle decisions if you become incapacitated;

and possibly a revocable

living trust (see “Game Plan,” on page

42) to streamline the transfer of assets

to heirs after you die, says Michael

Novak, president of the Estate Planning

Council of Cleveland.

Your financial planner, accountant

or other adviser may be an ACCREDITED

ESTATE PLANNER (AEP), who has taken

specialized coursework or has at least

15 years of experience in estate planning

(search for an AEP at www

.naepc.org). An estate planner’s fee

depends on how he or she charges in

general practice. To have a lawyer

draw up documents, you may pay anywhere

from several hundred dollars to

several thousand dollars, depending

on their complexity, says Rosen.

What if I need help

with my investments?

MANY CFPs WILL ALSO MANAGE

investments. Or you could choose a

broker who works for a brokerage

firm or hire an independent REGISTERED

INVESTMENT ADVISER (RIA), who may also

be a CFP. A lower-cost option is a

robo adviser (see “Best of the Online

Brokers,” on page 44).

An adviser who manages your

investment portfolio may require a

minimum amount of investable assets.

The floor could range from $50,000

or $100,000 up to $1 million or more.

Ask advisers you’re considering how

32

KIPLINGER’S PERSONAL FINANCE 08/2016


much their clients typically have in

assets to see how experienced the firm

is with people who have finances similar

to yours. At www.letsmakeaplan

.org and www.plannersearch.org, you

can search for CFPs based on asset

minimums and fee structure.

Most money managers are paid by

a percentage of assets under management—typically

about 1%. Find out

which assets are included in the fee

calculation. Some advisers include

only the assets they manage; others

add your 401(k) balance, even though

they don’t administer it; and a few

assess the fee on all assets.

RIAs must put your best interests

first, according to the fiduciary standard

(see the box on page 32), and provide

you with a Form ADV, which outlines

the services they offer and their fees.

Working with a commission-based

broker may be less expensive if you

buy and hold your investments. But

ask questions to make sure brokers

are putting your interests first. “Ask if

they use proprietary products and, if

so, why? Do they think they’re better

than everything else? Do they get paid

commissions when they use them?”

says Brooks Herman, head of data and

research for BrightScope, which provides

information about advisers. Also

ask about fund fees and share classes

(you can compare fees at www.finra

.org/fundanalyzer).

How do I find

a good adviser?

GET RECOMMENDATIONS FROM

other financial professionals, such as

your accountant, insurance agent or

lawyer, or ask your friends and colleagues.

Talk with people who have

similar goals and situations to yours.

You can look up advisers who hold

the CFP credential at www.letsmake

aplan.org or find fee-only advisers at

www.napfa.org. Both databases let

you search by zip code. Don’t have

a sizable (or even measurable) net

worth? You can search for a CFP who

requires no asset or income minimums

through the XY Planning Network

(www.xyplanningnetwork.com), whose

members focus on Generation X and

Generation Y clients, or the Garrett

Planning Network (www.garrett

planningnetwork.com)—a great option

if you want a one-time check-up, because

its planners charge by the hour

and require no long-term commitment.

Come up with half a dozen advisers

who look like a good match. With

today’s technology, you can work with

an adviser from a distance, but many

prefer to at least start the relationship

in person. Before you contact them,

check them out.

34 KIPLINGER’S PERSONAL FINANCE 08/2016

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