Your financial planner wants to manage all of your retirement assets. Is it a good idea?


As you approach retirement, you hire a financial planner to help you manage your investments. Expect three things to happen:

1. The advisor will ask you to review the account statements for all of your assets and design a comprehensive strategy for investing those assets in a prudent and diversified manner, consistent with your goals and risk tolerance.

2. In developing the strategy, the advisor will naturally want to take into account the assets you hold elsewhere. Examples include defined contribution plans such as 401 (k) or 403 (b) that you get through your employer.

3. The advisor will encourage you to move all your money, including workplace accounts, to their business.

It is this latter request that may or may not make sense. Consulting firms love to own all the assets of a retiree.

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Skeptical consumers might think, “They want all my money back so they can collect more fees.” While this may be true, there are also valid reasons for advisers to suggest that you close employers’ accounts and transfer the funds to them.

Your job is to weigh the pros and cons. Ask smart questions before closing employer sponsored accounts and transferring money to your advisor.

To get started, carefully review your work plan to determine the range, cost, and quality of your menu of investment options. Some plans offer a wide variety of reasonably priced funds managed by reputable financial services companies. Others limit your choices or only include chronically underperforming funds that come with disproportionate fees.

“Fifteen or 20 years ago, a 401 (k) or a 403 (b) maybe had bad options,” said Allan Roth, counselor in Colorado Springs, Colorado. “About 60-70% of the time, I used to recommend rolling a 401 (k) into an IRA to get better options. Now it’s 5-10% of the time because the 401 (k) s have improved so much. “

Consolidating accounts also simplifies record keeping and portfolio tracking. Asset management companies often provide their clients with a secure online portal that allows them to track their investments in real time with constantly updated data on asset allocation, level of risk and performance comparisons.

Of course, these digital tools have a downside. Clients who frequently check their holdings may be hesitant if their returns are below market benchmarks such as the S&P 500 SPX,

Advisors who charge a percentage of assets under management (say 1%) – and buy safe U.S. Treasuries with a yield well below 2% – may leave clients wondering if they are getting their money’s worth by making use a consulting company. This can cause an advisor to place larger bets to outperform the market.

“They might invest your money in risky investments like MLPs [master limited partnerships] and junk-bond funds ”to juice returns, Roth warns.

Fees may also reduce returns. Transferring from an employer account to an IRA may incur higher costs, depending on the expenses of the fund inside the IRA.

Before agreeing to transfer their money to an IRA held by the adviser’s firm, Roth urges clients to ask, “If I do this, what would be my total fees, including your asset under management fee, the ratio of underlying investment expenses and other costs that I should be aware of? “

Advisors can add value by reviewing the details of your employer’s plan to decipher the administrative and record-keeping fees you pay for your 401 (k). They might conclude that if your plan offers a diverse mix of low-cost investment options, you should stick with it. Additionally, the Employee Retirement Income Security Act (ERISA) protects the assets of most employer-sponsored retirement plans, while IRAs are not covered by ERISA.

“We ask our clients to go to their HR [human resources] ministry to get the plan documents so we can review them, ”said Trisha Qualy, a certified Minneapolis-based financial planner. “Some of these documents can be confusing when it comes to understanding fees. And the expenses an employee pays may be different from the expenses an ex-employee pays.

That’s why she asks her clients to ask their HR representative, “Will there be any changes to my plan fees if I’m no longer an employee?” “

If you plan to retire in your late 50s, there are special considerations that come into play. The 401 (k) and 403 (b) plans allow people aged 55 and over to access their funds without a tax penalty. Traditional IRA holders must wait up to 59 and a half years to avoid an early withdrawal penalty.

“So if you expect to need assets between 55 and 59 and a half, you might want to leave some money in your 401 (k),” Qualy said. “This gives you flexibility in the allocation of your assets. “


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