Planners Can Help
With Complexities
Retirement isn't as simple as it used to be, and even getting the right help can be a chore.
By Albert B. Crenshaw
(c) The Washington Post
Tuesday, October 31, 1995; Page Z11
Retirement, and the transition into it, were once as simple as collecting a gold watch and waiting
for the pension checks to come in. No more.
Today's older workers and retirees are left to their own devices to an extent unseen in 50 years.
The decisions they must make are immensely complex, and the consequences can last a lifetime.
These pressures are impelling more and more older people to seek professional financial advice.
Experts say the cost of such help is usually money well spent.
Finding the right adviser, however, can be a problem. "I get lots of calls" from older people, said
Barbara Hughes, who works in consumer affairs at the American Association of Retired Persons.
Financial planning is regulated in only a few states. This means that untrained people, as well as
professionals in a variety of fields such as stock brokerage, insurance, accounting and law, can
legally offer planning services. In addition, there are all sorts of fee and commission arrangements
that make prices difficult to compare.
But beware. The growing demand for advice and the lack of financial sophistication of many of
those who need it have created a fertile field for crooks. State security regulators found that more
than 20,000 consumers lost nearly $400 million in the late 1980s to scam artists who claimed to be
financial planners.
"Obviously, there are con artists in every field," said Greg Sullivan of Sullivan, Bruyette, Speros &
Blayney, a planning firm in McLean. Protecting yourself "really just requires doing some digging,
checking into the person's background," he said.
There are individuals who are sophisticated enough, or whose financial lives are uncomplicated
enough, to manage on their own. They may need technical assistance, such as an attorney to draft
a will or an accountant to do their taxes, but they can manage the broad picture themselves. But
for most people a planner can be very helpful.
This is true even for people who are affluent, said Kathryn K. Ioannides, a lawyer and planner at
the National Endowment for Financial Education, a nonprofit educational group in Denver.
Planners can coordinate insurance and estate planning and pension withdrawals and taxes, she
said.
For the less well-off, "it really comes down to what choices I should wisely make with my more
limited resources," Ioannides said. "I know I have some hard choices to make. I need to know
something about how the choices might interact, and I need someone who could help me put it all
together realistically."
For still others, a planner may help with a specific question, such as assessing an early retirement
package, discussing the financial impact of changing careers, or handling a lump-sum payment from
a pension plan.
The next step is choosing the planner.
The financial planning field went through a period of rapid growth in the early 1980s. It was fueled
by the boom of those years in limited partnerships and tax shelters, followed by a sharp
contraction when tax law changed, wiping out a lucrative source of commissions.
Many planners quit the business. Others restructured their practices to become more genuinely
advisory and less focused on selling things such as insurance, mutual funds and other financial
"products" to generate commissions.
In the long run, the changes will be good for both clients and practitioners, Sullivan said, but in the
meantime "there aren't enough good, qualified people out there today."
Word of mouth is probably the most common way of finding professionals. But be cautious. Check out the planner, just as you would if you found the name in the phone book.
To get more names, you can turn to professional organizations representing planners who meet
their standards. The groups will provide lists of members in your area.
If you haven't obtained a list but are considering a planner who claims to be a member of one of
these groups, call and check. Some "people are including that in their bios" these days when they
shouldn't, Sullivan said.
The changing market is also attracting some big-name players. American Express Financial
Advisors, a unit of American Express, boasts of 8,000 financial advisers and 1.8 million clients
across the country.
When you have the names of planners who seem suitable, meet with them and get a sense of their
methods and how well you get along. Ioannides suggested dividing your questions into "soft" and
"hard" issues.
Soft issues are things like how the planner keeps in touch with clients, sensitivity to special needs
(large type in documents, for example) and how clearly situations are explained. "The choice has
much to do with how the person feels working with this planner," she said.
Hard issues are specific planning areas: insurance, taxes, investments, retirement and estate
planning. All of these are complex and technical, and it is unlikely that any one planner can master
them all. Clients need to know where the planner will get expert help.
Many larger firms have in-house experts that individual planners can turn to. Smaller ones usually
work with other professionals such as lawyers and stockbrokers. Clients should be comfortable
with these outsiders as well as with the planner.
Remember that financial planning is a continuing process. The relationship you are entering should
be for the long term, so choose carefully.
For more information about choosing a planner, the AARP, in cooperation with the Federal Trade
Commission, offers a 16-page booklet called "Facts About Financial Planners." Free copies can
be obtained by writing to Facts About Financial Planners (D14050), AARP Fulfillment, 601 E St. NW, Washington, D.C. 20049.
What Your Planner Should Tell You
Here are questions about financial planning you will want answered:
* Ask how the planner carries out your financial planning. It's no good if you don't act on it. How
will the planner handle changes in your situation, or in laws that affect you?
* Ask about affiliations. Is the planner an insurance agent or stockbroker? There is nothing wrong
with that, but you should know about it.
* Ask about investment strategy. How does the planner assess the adequacy of an investment
program, determine a client's insurance needs, coordinate the client's resources and needs?
Be wary of anyone who starts selling financial products right off the bat or promotes an all-purpose
approach before learning the details of your situation.
For example, insurance can be used to deal with problems ranging from retirement income to
estate taxes. But there are other approaches that may be better, depending on your circumstances,
and you should expect your planner to consider these alternatives.
* Ask how the planner is to be paid. Some work for fees only, much like a lawyer or accountant. Others charge nothing for planning services but derive commissions from selling you financial
products to implement your plan. Still others charge a mix of fees and commissions.
(There has long been a debate in the industry about fees versus commissions. Fee planners say
commissions create a conflict of interest, while commission planners say they have a better
incentive to make sure your plan is implemented. The main thing is to understand how your planner
works and to make sure you are not locked in to investing or buying insurance through a single
company or brokerage.)
* Ask for a written estimate of what services you can expect and what they are likely to cost.
Resources
The major associations of financial planners, which can supply lists of members and their
qualifications and other consumer information:
* Registry of Financial Planning Practitioners, International Association for Financial Planning, 2
Concourse Parkway, Suite 800, Atlanta, Ga. 30328; 404-395-1605.
* Chartered Financial Consultants, The American College, 270 Bryn Mawr Ave., Bryn Mawr, Pa. 19010; 610-526-1000.
* Institute of Certified Financial Planners, 7600 East Eastman Ave., Suite 301, Denver, Colo. 80231-4397; 800-282-7526.
* National Association of Personal Financial Advisers, 1130 Lake Cook Rd., Buffalo Grove, Ill. 60089; 708-537-7722, 800-366-2732
* American Institute of Certified Public Accountants, Order Department, P.O. Box 2209, Jersey
City, N.J. 07303-2209; 800-862-4272 (press 5 on automated phone menu).
Request personal
financial specialist list.
