Javascript is not enabled.

Javascript must be enabled to use this site. Please enable Javascript in your browser and try again.

Skip to content

EMERGENCY: Send assistance to victims of Hurricanes Helene and Milton and your gift will be matched.

Content starts here
CLOSE ×
Search
Popular Searches

Games

Car rental

AARP daily Crossword Puzzle

Hotels with AARP discounts

Life Insurance

AARP Dental Insurance Plans

Travel

Suggested Links
Help Show me my account info Change my Address How do I contact AARP? Where is my membership card? How do I get a digital card?
Red Membership Card

AARP MEMBERSHIP 

AARP Membership — $12 for your first year when you sign up for Automatic Renewal

Get instant access to members-only products, hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. 

 

120x30-AARP-logo-red
Join
Renew
Enroll
Rejoin

AARP en Español

Join
Renew
Enroll
Rejoin
Leaving AARP.org Website

You are now leaving AARP.org and going to a website that is not operated by AARP. A different privacy policy and terms of service will apply.

Continue Cancel

How to Get the Best Financial Advice

Be sure to ask the right questions

By

Carole Fleck,

 
AARP Bulletin
Comments
Published March 23, 2015
Counselor going over papers with older couple
Fiduciaries are your best resource for unbiased financial advice.
Istock

 

When it comes to protecting your retirement savings, what could be more important than making sure you're getting the best financial advice when you need it?

Unfortunately, that can be a tough slog. More than 400,000 people in the U.S. call themselves financial advisers today, using any number of so-called professional designations to sell financial products and give advice. Some of these credentials — there are 157 out there — don't require much training or expertise, or a code of ethics.

So when looking for help, start with an adviser who identifies himself or herself as a fiduciary: someone who puts your interests ahead of his or her own. While it's not an ironclad guarantee about their abilities, they are typically considered the safest bet for unbiased advice that's free of conflicts.

Get retirement savings tips in the AARP Money Newsletter

Standards defined

"Fiduciaries have to put themselves in your shoes when giving investment advice and say, 'This is the best you can do.' And they're held to that level of liability," says Peter Mallouk, author of The 5 Mistakes Every Investor Makes and How to Avoid Them: Getting Investing Right. "Believe it or not, the great majority of financial advisers are not fiduciaries."

Many brokers and others who call themselves advisers follow the "suitability" standard, meaning they can sell you products that are suitable based on your age, risk tolerance and other factors but may not meet your needs. Those products can come with high fees or commissions, or hidden payments from mutual fund companies they don't have to disclose. So be sure to ask your prospective adviser which standard — fiduciary or suitability — he or she observes, and if there is any hesitation to give a clear answer, walk away.

Something else to watch out for: dually registered advisers, Mallouk says. They're like the Jekyll and Hyde of the advice industry: Sometimes they're fiduciaries, sometimes they're not, and most people can't tell which hat they're wearing when. In fact, a study done by AARP in 2013 found that an overwhelming majority of 401(k) participants wanted their financial planners to follow the fiduciary standard.

7 steps to take when choosing a financial adviser

1. Do a credential check

Make sure a prospective financial adviser has current credentials and hasn't been disciplined by any regulatory authority. The Commodity Futures Trading Commission has bundled all the major regulators online at smartcheck.cftc.gov for easy checking access. One caveat: Brokers can often get negative marks expunged from their records, so just checking this site may not be enough. For advisers who sell insurance products such as annuities, check them out through your state's division of insurance.

2. Fees

Ask how your adviser is being compensated: on an hourly basis, by commission , or as a percentage of assets under management. If it's a percentage, fees should be under 1 percent annually. (Note: That's on top of fees mutual funds charge.)

3. Beware of performance promises

Many advisers tout their past returns. Remember, past performance is no guarantee of future gains.

4. Recommendations

Ask to speak with other clients. If the adviser refuses or can't provide any, consider walking away.

5. Get it in writing

Ask your adviser to put in writing why an investment is the best for you. Many advisers also prepare what's known as an investment policy statement, which outlines in detail how he or she will meet your investing objectives.

6. Know what you're buying

If your adviser can't explain an investment to you in terms you understand, don't buy it.

7. There's no free lunch

If an adviser promises returns that are much better than the market average, walk away. If it sounds too good to be true, it probably is.

Need-to-Know Financial Terms

  • Fiduciary A fiduciary is required to act in the best interest of his or her client. Registered investment advisers must adhere to this rule; people known as broker-dealers (who may also call themselves advisers) generally do not.
  • Registered investment adviser (RIA) An RIA is registered with the Securities and Exchange Commission (SEC) or state regulators and is compensated for providing advice on different types of investments. An RIA must be a fiduciary.
  • Broker This financial professional traditionally buys and sells stocks, bonds and mutual funds and charges a fee or commission for handling orders submitted by an investor. Brokers are regulated by the SEC and by the states, and they must be members of FINRA, the securities industry's self-regulating body.
  • Financial planner A financial planner assesses every aspect of your financial life and may also manage your investments. The financial-planning profession doesn't have its own regulator. But planners may be regulated based on the services they offer. For example, financial planners who are also investment advisers would be regulated by the SEC or their own states.

Sign a petition to close the retirement advice loophole

  • 401(k) plan This employer-sponsored savings plan allows a worker to save for retirement and defer income taxes on both contributions and earnings until withdrawal. Employees contribute a portion of their pretax wages; employers may match some or all of workers' contributions.
  • Individual retirement account (IRA) A savings account for individuals, an IRA lets you contribute as much as $6,500 a year (for those 50-plus). Earnings are tax-deferred until you start taking out the money, after age 591/2. In a variation called the Roth IRA, contributions are made with posttax money and earnings are tax-free in the future.
  • Mutual fund This pooled-investment fund buys securities based on the fund's objectives.
  • Load fund A mutual fund with a sales charge or commission is called a load fund. The investor pays the fee, which in turn compensates the broker. The load can be paid when the fund is purchased (called a front-end load) or when shares are sold (a back-end load). -—Compiled by Tara Finnegan Coates

Unlock Access to AARP Members Edition

Join AARP to Continue

Already a Member?

Benefits Recommended For You

See All