If you are looking to hire a financial advisor for help managing your retirement savings, you have just been treated to the same ignominious fate as Charlie Brown in the classic Peanuts cartoon. You know, the one where Lucy tees up the football, only to yank it just as Charlie Brown lines up his kick.

The football, in this case: a new federal regulation—long fought for by consumer advocates—that required anyone giving retirement advice to put the best interests of their clients, a.k.a. savers like you, ahead of their own.

The yank: A federal appeals court ruled in favor of Wall Street, in a  lawsuit that objected to holding brokers and insurance agents to this high standard. That effectively killed what proponents viewed as a commonsense protection for retirement savers. 

“When push came to shove, these firms went into court and argued they are no different than car salesmen and should be regulated as sales people,” says Barbara Roper, director of investor protection at the Consumer Federation of America. “Is that who you want to rely on to manage your retirement?”

The death of what’s known as the “fiduciary rule” before it was even fully implemented means that working with a financial advisor will remain a risky endeavor. And the stakes couldn’t be higher.

“For baby boomers nearing retirement, if you blow it now your options for recovering are limited,” says Roper.

When you really need trustworthy advice

As long as you’re saving for retirement in a 401(k) plan at work, you enjoy certain protections against bad advice: Federal regulations require the plan to put the bests interests of participants first, which in practice means that it should offer you a broad selection of low-cost investments.

When you retire or switch jobs and look to move your money into an individual retirement account (IRA), however, you no longer are covered by this explicit fiduciary protection.

That opens the door to conflicted advice. A financial pro may be able to steer you from a low-cost 401(k) into IRA investments that charge high commissions or earn a firm high fees, as long as the investment meets a much lower “suitability” test. (Essentially, that means that the investment is okay for you, but the broker doesn’t have to put your interests first.)

A 2015 government study estimated that this kind of conflicted advice costs retirement savers $17 billion annually in extra investment fees. At potential risk is the more than $9 trillion in IRAs and the share of the $8 trillion in 401(k)s that is eligible to be rolled over into IRAs.

Why proposed help probably won’t help 

The Securities and Exchange Commission, which oversees some financial advisors, is considering a “best interest” proposal that would, among other things, include more disclosures about the adviser-client relationship, but that is likely to be less effective than the now-dead fiduciary rule.

Jack Waymire, founder of the Paladin Registry, a service that vets advisors, is dubious that consumer protection will win out. “The SEC is to a large extent controlled by politicians who are to a large extent controlled by Wall Street,” says Waymire, co-author of 5 Steps for Selecting the Best Financial Advisor.

How to find the right financial advisor

Entrusting someone with your retirement savings calls for a big flashing “caveat emptor” sign. “If you want someone who consistently acts in your best interest you really need to seek out an advisor who doesn’t have conflicts of interest,” says Roper. Here’s how:

Take titles with a bucket of salt. There are two main types of financial pros: advisors who act as fiduciaries—the fancy term for advisors who are legally required to make recommendations that are in your best interest—and brokers, who don’t.

But there’s no law governing what financial pros can call themselves. “All the brokers call themselves advisors. You can’t rely on the title,” warns Roper.

“If you want someone who consistently acts in your best interest you really need to seek out an advisor who doesn’t have conflicts of interest.”
Barbara Roper
Consumer Federation of America

Fiduciary advisors, who might be registered investment advisers, certified financial planners, or any one of many other professional designations, don’t earn commissions for any product they recommend. More commonly they charge a flat annual fee.

A broker is a salesperson who works on commission, which can be a conflict of interest. For instance, if a broker earns a commission every time you buy and sell a stock, that can lead to more active trading than you’d get with an advisor who isn’t paid based on trades.

Get the F-word in writing. There is a very simple litmus test to ensure that you are working with a bona fide advisor: a signed document confirming that he or she is a fiduciary. 

Financial pros make lots of promises in pitch meetings. “Trust what you see, not what you hear,” says Waymire. An advisor that flinches at documenting that he or she is working in your best interest should set off a red flag.

Bring up money early on. While you’re at it, ask for a written list of the fees that you will pay. Most advisors who are fiduciaries charge a percentage of the assets they manage for you, typically 1% a year. That’s on top of the underlying costs of the mutual funds, exchange traded funds (ETFs), or other investments your own.

“Trust what you see, not what you hear.”
Jack Waymire
Paladin Registry

You can work with a fiduciary for less if all you’re looking for is help picking mutual funds or ETFs for your retirement account. So-called robo-advisors offer automated portfolio advice for a fraction of the cost of an investment advisor. 

Some robos combine automated stock/bond allocations and rebalancing with access to human advisors. Vanguard Personal Advisor Services uses this hybrid model, as does United Income, a robo-advisor that specializes in helping retirees create a sustainable income.

Go independent. For more hands-on or comprehensive help, you’ll want a person, not a computer. In that case, Roper recommends working with an advisor who isn’t employed by a big financial service firm, where there may be pressure to recommend in-house mutual funds or meet sales quotas—all potential conflicts. 

The National Association of Personal Financial Advisors (NAPFA) has a free advisor search tool to help you locate advisors who work as fiduciaries.

If you are interested in hiring someone for a one-time job (say, a retirement income plan), the Garrett Planning Network has a searchable database of fiduciaries that work on an hourly or flat-fee project basis.

Don’t be wowed by acronyms. There are dozens of impressive sounding professional designations. Some require hours of study and rigorous tests, others, well, not so much.

Professional designations that carry weight include chartered financial analyst (CFA), chartered Institute of Management accountant (CIMA), certified financial planner (CFP), and certified public accountant (CPA). 

Don’t be bowled over by anyone saying they are licensed. Series 6 and Series 7 licenses are required for someone to act as a salesperson. That’s a low bar.

There are dozens of impressive sounding professional designations. Some require hours of study and rigorous tests, others, well, not so much

The Paladin Registry has a free Check a Credential tool that rates designations on a 5-star system. You can also download the free Tips That Help You Select the Best Financial Advisor.

Trust, but verify. With a few keystrokes you can learn whether an advisor or broker has had any legal or enforcement problems. BrokerCheck, a free one-stop site maintained by Wall Street’s regulatory arm, includes background info on advisors and brokers.

You should also check in with your state’s securities regulator and, if you are being pitched any insurance products (anything with the word annuity in it), you also should confirm with your state insurance commissioner that there are no red flags on that financial pro.

Yes, all of that is a bit of work. Much of it would be moot if the fiduciary rule had not been killed.

The editors of Considerable.com determine the recommendations of products and services that appear in articles through rigorous reporting. If you buy a product from a retailer through a link on the site, Considerable.com may be paid a commission through our participation in an affiliate marketing program. These fees in no way affect our reporting or recommendations.

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