When you decide to work with a financial adviser, you are, in many ways, buying the invisible. They can make a lot of promises, but how much of that is real, and how much of it is sales? In many cases, it is hard to gauge how well your financial adviser is doing until after the honeymoon phase, or about six to 12 months. Even then, what metrics are used to grade them?
Often, when people think of financial advisers, they think “investments.” If your adviser is managing only your investments, you might be missing opportunities and leaving money on the table. You could also be overpaying in fees, since you could receive more services for the same cost. Do not let your adviser be lazy with your hard-earned life savings.
While that may seem to be the most objective method, the real value of a financial adviser is much more nuanced. Fortunately, Vanguard and others have put together studies recently to help quantify this value. Vanguard’s study concluded a potential value-add of up to 3% or more, based on a number of categories. In order to achieve this value, though, an adviser will need to do much more than select an investment portfolio. Proactive management in the areas of tax, income and investment planning is critical if the value of the adviser will justify or exceed the fee.
Since most of the people who come to us are already working with an adviser who is not providing the full range of services they need — and they are not aware of what they’re missing — we put together our own checklist as a litmus test to help them discern whether they are getting the type of planning they could really benefit from.
Here’s a checklist to see if your current financial adviser is doing what you deserve:
1. Are they a fiduciary?
Explanation: A fiduciary is legally obligated to act in your best interest. If your adviser has primarily sold you products (annuities and life insurance), they are likely not operating as a fiduciary.
2. Do they review your tax return annually?
Explanation: If your adviser is not reviewing your tax return annually, then they are likely missing things. Moreover, they should be reviewing your tax plan before the end of the year, taking advantage of charitable strategies, Roth conversions and tax-loss harvesting, among a plethora of other opportunities to maximize benefits for that tax year.
3. Have they been doing Roth conversions for you?
Explanation: In 2026, tax rates are slated to increase with the sunset of the Tax Cuts and Jobs Act. Many forward-looking advisers have been preparing for this by performing annual Roth conversions for their clients, taking advantage of lower tax rates to better position their clients for the tax increases to come. Most of our clients are doing Roth conversions right now.
4. Have they discussed how to avoid the Social Security tax torpedo?
Explanation: Any adviser working with retirees should be well-versed in Social Security taxes and be developing a plan to avoid the Social Security tax torpedo. If you are going to receive any income in retirement in addition to Social Security (including pensions and RMDs from your IRA or 401(k) plan), then planning for this tax is pivotal. Not planning for this could lead you to pay a 40% to 50% tax rate.
5. If you give to charities, have they put together a donor-advised fund (DAF) for you or started qualified charitable distributions (QCDs)?
Explanation: Has your adviser asked about your charitable giving? There are myriad strategies, including QCDs starting at age 70½ and DAFs at any age, that can be implemented to save on taxes.
6. Are you being charged for internal expense fees in addition to a management fee?
Explanation: Many mutual funds come with internal expenses, which pay not only your adviser but also the fund manager/investment company. Depending on how you are invested, your management fee, in addition to your internal expenses, can create a high, even excessive, fee, reducing any growth in your portfolio. This is a fee that could be reduced if you work with a financial adviser who manages investments in more cost-efficient ways.
7. Have they developed an income plan for your retirement that protects a portion of your portfolio from losses in a down market?
Explanation: Are you investing in traditional stocks and bonds in your portfolio? How did you feel in 2022 when stocks were down 20% and bonds were down 15%? The most top-of-mind issue for most retirees is income, and any income plan that involves withdrawals from investments at risk of loss is subject to sequence of returns risk. (See my YouTube video about sequence of returns risk.)
8. In the past year, have they brought a new opportunity to your attention? Did they tell you about I bonds in 2022 when they were at a 9.62% guaranteed interest rate?
Explanation: Does your adviser call you when new opportunities arise? This is one of the clear signals as to how hard your adviser is working to proactively improve your plan.
9. How often do you meet? Are investment returns the main topic of conversation, or is your adviser bringing additional value and proactive solutions to the table?
Explanation: If your review meetings are spent primarily looking at the investment returns of your portfolio, then you could be paying more in fees for just investment advice. Ask yourself what percentage of the review meeting is spent looking at the past and what percentage of the meeting is spent planning for the upcoming year. Are you looking in the rearview mirror or through the windshield?
10. Does your adviser work with a team, or is your retirement plan in the hands of only one person?
Explanation: Every adviser has a capacity as to how many clients they can serve well. Simultaneously, every adviser has areas of strength and weakness. How many clients they have, and how many team members they have, will give you a clue into how much of their time they are able to spend working on your plan each year.
If you can positively and confidently answer most or all of these questions, then you probably have a good adviser and should be grateful that you have found a trusted guide who is working hard on your behalf.
If you’re left with more questions than answers, or wondering what it is that your adviser actually does, then maybe it’s time to get a second opinion on your plan. As they say, you can’t get a second opinion from the person who gave you your first.
As CEO of Peak Retirement Planning, Joe Schmitz Jr. specializes in comprehensive retirement planning. Joe focuses on helping clients grow and preserve their wealth. Through tax-efficient strategies, Social Security optimization and proactive health care planning, Joe helps clients feel confident in their financial future and the legacy they leave behind.
Joe graduated with a Bachelor of Science in finance and financial planning from Mount Vernon Nazarene University. His book, I HATE TAXES, will be available soon on Amazon.
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