Save The Date – December 3rd
Please join us on December 3rd at our More than Money World Headquarters as we host Santa Claus, Mrs. Claus, and their elves to celebrate the season. We will be raising funds for the Children’s Home of Easton to make the holidays a bit brighter for children who need our love. Please join us, enjoy the live radio show with Alyssa and Gene, bring the kids to meet Santa, bring your dogs for treats from Duke’s Delites, and bring your checkbook (cash still works, too) to give generously to the Children’s Home of Easton.
Real Life Questions – Real World Answers
“I’m 66 and expect to work another 4 years. I’m very unhappy with my 401(k) at work. It’s dropped over 30% since last year. This is the 4th 401(k) plan we’ve had in the last ten years. Nobody here seems to know where to turn.
I had a financial advisor look at it and she agreed the performance was dreadful. When I asked her to move it – she refused. She said the fees inside the plan were very, very low and she couldn’t compete. I said – what good are low fees if the investments drop like a stone? She just said she couldn’t do it.
Would a second opinion meeting be in line here or am I stuck?”
You are most certainly not stuck.
And, yes, a second opinion meeting would be in line.
The rules governing 401(k)s give you the option to roll your 401(k) into an IRA and then choose whatever investments you wish from the universe of available investments. You do not have to retire or leave the company. This is referred to as an ‘in-service’ rollover. The mechanics are quite straight-forward. It is not difficult to do. It is something you should explore.
So, why would the advisor you consulted refuse to help? While we can’t read her mind, we can perhaps understand some of her concern. Financial regulators at all levels are concerned that consumers (you) get the best advice possible on their retirement funds. Your 401(k) likely represents the vast majority of your life savings intended to support you in your senior years. Advice that is not in your best interest can be devastating to you and your family for the rest of your life.
Regulators require that advisors act in your best interest (as a fiduciary) when making any recommendations around your retirement funds. Point of fact, advisors are required to provide you with a written analysis comparing your 401(k) to whatever plan they might recommend. That analysis must take into account the services you receive and the cost of those services. In this case, the advisor you spoke with did not feel the services she would provide you would off-set the higher fees she would charge compared to your current plan.
A second opinion meeting with another advisor might well produce a different result – or not. A second advisor – following the required analysis – might well find their specific services to you would be adding so much value that their higher fees are appropriate. They might provide services like asset allocation, on-going monitoring, tax planning, retirement planning, social security planning, estate planning, etc. etc. If, after reviewing a detailed comparison, you feel moving your 401(k) into an IRA is in your best interests then you’re on your way.
However, that same second opinion meeting might find it in your best interest to stay in your current 401(k). Another advisor might find that simply changing your investment allocation inside your 401(k) takes care of your concerns. Those changes might be done simply and inexpensively. You might find you have no real need for any additional services. You might find it in your best interest to sit tight.
Which way will this go for you?
Without sitting down, taking the time, asking all the questions, analyzing all the answers, and determining what is in your best interest – an advisor simply cannot know. The first advisor you spoke to talked only about fees. She may know that she adds no additional value. Or she may be afraid she can’t meet the regulatory requirements. Or she was a bit too busy that day.
Secure a second (and a third if necessary) opinion meeting. Take the time to explore your situation and your goals. Then take the course of action that best fits you, your family, and your financial future.
“As we get near the end of the year, we need to take our RMDs – based on last December’s high account numbers! I know there is a way to get this to our church without paying taxes, but I don’t remember how it goes.
Please remind two forgetful listeners.
Also, will this get us an audit from the IRS?”
Thank you for your questions. Forgetful? No worries.
First, getting your RMD to your church is done by simply instructing your IRA custodian to direct those funds to your church. The custodian will issue a check to your church and you will not report this as income on your tax return.
Second, this is a qualified charitable distribution. This is a provision provided in tax code so it’s not likely going to cause an audit by the IRS.
Thank you for your generosity.
“I thought all financial advisors charge the same percentage fee, but I guess I was wrong. We’ve talked to three advisors and their percentages go from 1.50% down to 0.75%. It’s not a huge difference, but it will add up over time.
Why are they different and how do we know which one to pick?”
Thank you for your questions. Seems like a simple matter, but – unfortunately – it is not.
Financial advisors are free to set their fees, hourly rates, and charges at whatever level they feel best fits their business. As you have found, the differences can be significant and require you to extend your research into comparing what you will receive from your advisor for whatever fee they charge.
Some advisors never meet their clients face to face. Some provide investment advice only. Some use technology to minimize their actual contact with their clients. As you might expect, these advisors tend to have fees on the lower end of the spectrum.
Some advisors meet with their client often – four or more times a year. Some advisors meet with their clients face to face, or zoom, or by phone – at the choice of their clients. Some advisors offer investment advice, retirement planning advice, social security planning, estate planning, insurance planning, tax planning, and more. As you should expect, these advisors tend to have fees on the higher end of the spectrum.
How do you choose? First, determine exactly what you expect from your financial advisor. Use these descriptions as a starting point and clearly decide what’s best for you and the relationship you want from an advisor. Then you can confirm from the advisors you are considering that they meet your needs – or not. Once you’ve identified the advisors who do meet your needs select the one you believe you would be mostly likely to work with for the next twenty (20) years. Having done all this good work you can be comfortable that the fee you pay will be an investment in your financial future and peace of mind.
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