Feds have unique and intricate retirement income benefits packages. Working with a general knowledge Financial Advisor may lead to unexpected, careless and even negligent outcomes. Working with someone that understands and focuses on these benefits would be a judicious election to develop and manage ones’ retirement plan.
This is the 4th piece in my 5-part series on FedSmith.com: Federal Retirement Facts and Myths: Do You Know the Difference?
The question of finding a “qualified” advisor was the 3rd most asked question by readers and one which I address in this article.
Most Feds that responded to my articles understood that their retirement stability may well hinge on finding a trusted, experienced and knowledgeable Advisor. But, they weren’t having any luck in finding this almost mythical creature known as a qualified financial advisor with extensive knowledge of federal employee retirement programs and benefits.
So, what parameters should an advisor meet in order to set himself/herself apart as a qualified advisor when working with Feds?
First and foremost, they must have extensive experience and understanding in and of federal retirement income benefits. I’ll admit that (until recently) I assumed (yes I am old enough to know better) that anywhere there were Federal Employees, quality federal employee focused advisors would be nearby.
I now know that this was a grossly misconceived notion.
Because of this fact and since most Feds themselves don’t understand the complexities of federal retirement income benefits, many Feds will settle for “General” advisors.
What does a “General” advisor look like?
- They are well dressed.
- They are well spoken.
- They understand markets and financial planning
- Their success is raved about by their clients.
- They can make nearly anyone they work with happy with the results.
- They work out of an impressive looking office.
Yep, they look like a financial advisor, but, they don’t FOCUS on Feds or their retirement benefits. They don’t FOCUS on any one group of investors. They strive to be all things to all people and may well be in a nearby strip mall or just around the corner from you.
Wendell Wealth is a retiring Fed that fortuitously contacted my office as I was preparing to write this column. When I explained the essence of this piece, Wendell (not his real name) agreed to let me use his story.
Wendell is 56, in good health, single, under FERS and has been a Fed for 25 years. He felt he was ready to retire thus, he began inquiring with current and past co-workers to find an advisor. A couple of retired co-workers suggested he check with an advisor they both worked with.
They told Wendell that this advisor didn’t “specialize” in working with Feds, but, she had done a fantastic job for them.
Wendell contacted this “trusted advisor” in an effort to ascertain his financial readiness for retirement. The advisor assured Wendell that she could handle his retirement planning, that Federal retirement systems weren’t that unusual. She noted that she worked with doctors, engineers, small business owners and even a few Feds. If she could handle their retirement planning, Wendell’s would not be a complicated matter.
Prior to their third meeting, Wendell had read a recent column I posted on FedSmith.com and it led to him questioning the direction the advisor was taking his retirement plan.
During their third meeting, Wendell probed the advisor as to why she wasn’t calculating his temporary Special Retirement Supplement (SRS), also known as the “bridge” payment, as part of his plan. It made him nervous that she also based his plan on Wendell depleting his TSP much earlier than he had hoped. Ultimately, to Wendell’s horror the advisor admitted that she didn’t realize there was a difference between CSRS and FERS retirement systems.
It turns out Wendell’s retired co-workers that referred this advisor were both CSRS employees.
No harm was done to Wendell’s retirement as he didn’t proceed with this advisor. But, miscalculations on this scale are far too common. If Wendell hadn’t noticed the problems with the plan, his retirement could have been subjected to a disastrous conclusion. It became extremely apparent to Wendell that he needed to find someone that was fully familiar with not only investing, but, the federal retirement income benefits package as well.
Benefits of using quality, federal employee focused advisors. They will:
- Help make prudent decisions that will aid in preparing for tax liability issues.
- Assist in making proper and appropriate allocations to fit individual needs.
- Direct funds to pursue proper diversification within the desired allocations, based on risk tolerance as well as income and growth needs.
- Manage with a dispassionate, long-term vision to elude short term “panic” moves. Panic is often detrimental to long term goals.
- Efficiently design a distribution plan to provide the greatest (tax friendly) income strategy.
Is it important for a quality, federal employee focused advisor to be close to home? Not necessarily. If they are near your home, all the better.
However, since it is obvious that quality, federal employee focused advisors are sparsely scattered around the country, it may require looking farther away. It may be necessary to work with someone that is in another part of your state or even the other side of the country.
Note: For many Feds there will be concern about handing over assets to an advisor that is not local. Yet, it should be understood, FINRA, SIPC and broker/dealers are the police, judges and juries in the investment world. They all have a genuine desire along with a mighty mandate to protect you from fraudulence and incompetence. Their reach extends to every corner of the country. In this case, I don’t believe safety and proximity go hand in hand.
What Does a quality, federal employee focused advisor look like?
- They should possess a Series 7 licensed for at least 10 years. This may demonstrate the necessary experience and knowledge. Let the less experienced advisors cut their teeth and make their mistakes on someone else’s retirement accounts.
- Practice is focused on federal employees. You can find the focus of an advisor by reviewing their website. If Feds aren’t mentioned or are mentioned only as one group in many, keep looking. An advisor with a focus on federal employees will proudly display their propensity for federal retirement benefits.
- Someone you are comfortable talking with. You could be working with them for a long time, so you need to know that this is someone that you have a good rapport with.
- They listen to your needs. The ability to listen is maybe the most important attribute this type of financial advisor will possess.
- They explain options so you can understand and avoid trying to wow you with jargon.
- FINRA/SIPC listed on the bottom of their website.
Finally, if you have a hard time finding a qualified financial advisor, contact my office. We are willing to advise Feds anywhere in the country. If we find that we are not a good fit for one another, my office will work with you to search for another advisor who specializes in working with federal employees.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risks, including the loss of principal. No strategy assures success or protects against loss.
Securities offered through LPL Financial, member FINRA/SIPC.
