Why? The largest group of nonplanners--35%--said they "don't make enough to worry about it."
A sizable share of financial advisors might agree. Forty percent of advisors focus on clients with more than $500,000 in investable assets, according to a survey by Cerulli Associates in cooperation with Morningstar. But that doesn't mean planning isn't accessible to folks with less wealth. Thirty-five percent of advisors told Cerulli they focus on clients with assets ranging from $100,000 to $500,000, and many will dip below that range--some even will do one-shot plans for as little as $1,000.
At a time when retirement security has eroded, a plan for retirement has never been more important--especially for middle-class families who might be facing deficits in retirement savings, sharp declines in the value of their homes, and unforeseen loss of income from employment.
Do-it-yourself planning certainly is an option, but a little help from a professional advisor can be well worth the time and money. The rationale for hiring an advisor is simple: Money spent now could make a big difference in helping you achieve a secure, happy future retirement down the road.
Different Kinds of Advisors
Middle-class retirement savers often get assistance from advisors at wirehouses, banks, and insurance companies. But that's mainly asset management advice. I often urge readers to get the bigger picture by hiring a fee-only planner who will examine the client's complete financial picture--investments, insurance, debt, and estate planning.
Another key benefit: Fee-only planners are Registered Investment Advisors. This type of planner is required to meet the so-called fiduciary standard, which is a legal responsibility requiring an advisor to put the best interest of a client ahead of all else.
Stockbrokers, broker-dealer representatives, and people who sell financial products for banks or insurance companies adhere to a weaker suitability standard. (The Dodd-Frank financial services reform law kicked off a lengthy regulatory wrangle that may conclude with adoption of the fiduciary standard--in some form--by non-RIAs, but the rule-making process isn't complete yet).
The difference between "best interest" and "suitability" can be huge. A fee-only planner has no vested interest in recommending any particular financial product. But advisors who work on commission at big brokerage firms often have marching orders to sell proprietary in-house products, such as mutual funds or shares of initial public offerings that they manage. These products often come with much higher fees and other costs than could be obtained outside the firm. A product like that might be "suitable" for you without necessarily being the best solution available in the marketplace.
You'll also encounter an alphabet soup of professional designations that planners can earn from an array of private professional associations--CFP, CFA, CLU, and the like. The designations indicate that a planner has taken a specific course of training that usually comes with a specific continuing-education requirement. But the designations don't really represent any specific seal of approval (see sidebar at left).
If you decide to go the fee-only route, you may discover that finding a good advisor can be challenging. Most of them work as independent practitioners or for small firms that don't have multi-million-dollar national ad budgets to promote their services.
So, it's worth the extra effort to find a great fee-only planner; following are six steps to take when interviewing and hiring a financial planner--including those who are willing to work with clients of modest means.
1. What do you need?
Are you looking for someone to take over management of everything, or just someone to do portfolio management and investing? Do you need someone to do a one-time checkup and financial plan or an ongoing relationship?
"You need to determine not so much how the process will work, but what both sides expect from the relationship," says Sheryl Garrett, founder of the Garrett Planning Network of fee-only advisors. "Is there a specific issue, or a small number of issues that require immediate attention?"
Also give consideration to the investment philosophy that would make you comfortable. Do you want an advisor who prefers index or active funds or individual securities? Buy-and-hold or more active investment?
The most frequently used strategy among financial planners (52%) is strategic allocation with a tactical overlay, according to a survey by Cerulli Associates in cooperation with Morningstar. That means setting a long-term goal for asset allocation and periodically rebalancing to stay on target, but mixing in some degree of active portfolio management that takes advantage of specific market conditions. A much smaller percentage of financial planners use pure tactical allocation (10%), strategic allocation (10%), or mean variance optimization (14%).