Get your parents some financial help

Older people can be targets in a number of financial scams. Here are a few tips to find your parents a professional planner.

Question: My parents plan to retire in five years and I’m trying to help them find a financial planner who can take a comprehensive look at their liabilities and assets (investments and a small business), review their financial needs and then tell them what they must do to be sure they’re prepared for retirement. What kinds of qualifications should we be looking for and what questions should we ask? And there’s one extra challenge: I live in Washington, D.C. and they’re in California. —Ela S.

Answer: I’m seeing more and more people like yourself taking an active role in helping assure that their parents, whether preparing to retire or already retired, will have a comfortable and financially secure post-career life.

And overall I think that’s a good thing. Not that I want to suggest that all seniors need such help. I’m sure that most are perfectly capable of handling their own finances prior to and during retirement.

On the other hand, older people today are increasingly being targeted by everyone from outright scamsters to putative advisers with dubious professional credentials whose idea of retirement planning is selling high-commission annuities or pushing reverse mortgages whether they’re needed or not.

Given that unfortunate reality, I think it’s a good idea to at least consider giving parents a hand with their retirement finances - or offering to act as a sounding board - although you certainly want to be sensitive about making that overture since some parents may consider such an offer an intrusion on their privacy.

Get certified

In any case, if your parents really require someone to take a comprehensive look at all aspects of their finances - as opposed, say, to just providing some investment advice - then they probably ought to be dealing with a certified financial planner, or CFP.

The term "certified" is important here because virtually anyone can call himself a financial planner. But to earn the CFP moniker, an adviser has to demonstrate proficiency in a broad range of financial planning topics and abide by certain ethical standards. Dealing with a CFP doesn’t guarantee your parents will get totally competent and honest advice, but it dramatically improves the odds. So I think the ranks of CFPs are a good place for you and your parents to start your search.

Naturally, you’ll also want to deal with someone who has plenty of experience in retirement planning and, since your parents own a small business, expertise in advising business owners. And, indeed, if you go to the Find A Planner section of the Financial Planning Association site, you can screen for planners who specialize in a variety of areas, including retirement planning, elder issues and business planning. Ideally, you should be able to identify CFPs near where your parents live who have experience in all these areas.

Talk cash upfront

You’ll also want to consider a few other issues, starting with how the planner will charge for his or her services. Basically, planners fall into three groups: those who are compensated by sales commissions from the products they sell; those who charge fees only (usually a percentage of the assets being managed, although some may charge an hourly fee or have some other arrangement); and those who receive a combination of commissions and fees (typically, the commissions are subtracted from whatever fee is set).

No compensation system can totally eliminate conflicts. But I prefer the fee-only approach because it has the least potential for them, particularly the possibility that your parents might end up buying investments or services that the planner recommended because they paid the most generous commissions. That said, if you have a relatively small pool of retirement savings, the annual charge in a fee-only arrangement could eat up a big chunk of your resources, making it uneconomical.

Whatever compensation system you and your parents go with, make sure you understand what initial and ongoing services they’ll receive, how much they’ll pay for them (get that in writing) and be sure to get referrals from a few current clients.

Set boundaries

Another thing you and your parents should discuss is what sort of relationship they would like to have with the planner. Do they envision working with a planner who will assess their needs, manage their investments on an ongoing basis and essentially be on call to provide advice as new developments come up? Or would they prefer to have a planner analyze their situation and make recommendations that they would then carry out and monitor on their own?

Depending on how much hand-holding your parents feel they need, either way can work, although most planners are more comfortable with an ongoing relationship that generates regular fees. Some planners, however, are willing to work on a short-term basis and charge an hourly fee or a flat fee to provide advice on a specific question or problem, such as rolling over a 401(k) or setting up a portfolio that can generate reliable income.

Put in face time

As for your geographical challenge, there are any number of ways you can address that. For example, you could pre-arrange meetings with several planners to coincide with your next visit to your parents. This way you and your parents could interview the planners together and see which one seems like the best fit.

If that’s not a possibility, you could help your parents come up with a handful of potential candidates using the FPA screen and/or referrals from your parents’ friends and colleagues. They could then interview that group on their own. Once they’ve narrowed down the field to two or three they liked, you could make follow-up calls to those planners. You and your parents could then compare notes by phone and come to a decision.

Whether you’re doing those interviews together or not, you and your parents should have questions ready that deal with everything from the planner’s credentials, to how the planner will be paid to whether the planner has had run-ins with law enforcement officials or regulators.

Finally, while you certainly don’t want to drag this process out longer than necessary, you shouldn’t rush things either. You don’t want to sign on with a planner unless both you and your parents are confident you can really trust this person. If achieving an acceptable comfort level means you’ve got to interview a second round of candidates, so be it.

After all, better to put in some extra time upfront and end up with a planner you and your parents are satisfied with than to make a quick choice and regret it later on.

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