How to Choose a Financial Advisor?

The number one retirement concern is running out of money.

If the number one issue is running out of money shouldn’t your advisor’s number one focus be to make sure you don’t?

All too often I see advisors and their firms focus on average annual returns and asset allocation strategies versus what’s really most important; income strategies designed to help protect you from running out of money.

When you hire an advisor think of it as hiring a personal trainer. You don’t want pro/con lists. You want your advisor to tell you what to do and when to do it. You want them to be focused on building you a better portfolio – planning for income, reducing your risk, keeping your costs reasonable, owning a variety of investments, and deploying different investment styles across the portfolio to address the various retirement risks. The goal should be to establish a plan with the least amount of risk to achieve your goals, the highest probability of success with a steady, sustainable income. What’s your advisor’s plan to do this for you?

An advisor should also make it very easy to work with his or her firm. For example – at Kraus Capital, we don’t make it a requirement for first-time visitors to complete 10-page questionnaires or visit websites to answer profiling questions or log on to websites to spill their entire financial history. Set a phone or in office appointment and come in. It’s not required that you bring anything. There is plenty of time for that later. Up front, we are just getting to know each other.

Advisor Selection – Do You Know the Difference?

Retail versus wholesale advisor? I like this analogy – are they a middleman or woman for the investment products manufactured by their firm or do they represent their clients? This is important because it makes clear who the advisor works for – you or their company. Start your search by looking for an independent financial advisor with a Registered Investment Advisory (RIA) firm. This lets you know right away that the advisors have a legal obligation to put your best interests first. This also means they’re not forced or limited to selling you products their firm wants them to sell or to meet specific account opening or sales quotas. More on this later.


Many designations in the investment advice universe are designed to get a few letters behind someone’s name as fast as possible and most mean absolutely nothing. It makes the advisor seem more “professional.” Having no credentials does not imply an advisor isn’t competent – they could be an excellent advisor – but, meaningful credentials indicate a certain level of dedication to your craft and professionalism to you – the client. If any line of work wants to be perceived as a recognized profession, there has to be unified standards. Unfortunately, that’s not the financial services industry. There is a minimal barrier to entry, and this has been bad for consumers. It’s confusing because just about anybody can call themselves a financial advisor. You probably have a hard time telling financial people apart and don’t know and don’t care about designations. You want someone competent and someone you trust. Think about other professional career fields like law, accounting or medicine. If somebody is an attorney, or a CPA or a doctor – they are an attorney, CPA or a doctor. You know what it took for them to earn those titles/designations and because of that probably don’t care where your doctor went to school or where your attorney graduated. That’s why for the financial services industry I like the Certified Financial Planner designation. The rules have changed over time but now if someone is a newly minted Certified Financial Planner professional they must have a college degree, 3 years of industry experience, complete a study program that takes most people about 2 years to complete and sit for a 2-day, 10-hour exam. Carrying this designation also holds that professional to a fiduciary standard. What’s that you say? It means they have to put your best interest in front of their own. This is a very confusing topic for consumers right now because lawmakers and industry professional groups, lobbyists, etc. can’t seem to agree on a unified standard but we’ll discuss that in more detail in a later post. Here’s some info from the CFP Board website to further underline why I believe – though the designation is not perfect – but is a good starting point for standardizing the financial services industry to help build trust with consumers and clarity within the profession as to who is in the business of providing financial advice.

Check Out More from the CFP Board Website Here:’s


For clarity – in my opinion, the term fiduciary should not revolve around what investment products are being presented or sold or where your advisor works or the price they charge, as some would lead you to believe. Its focus should be on delivering what’s best for you. Not how they are compensated – fee or fee-only versus commission. What matters most is that services are offered honestly, that how much you are being charged is disclosed whether you see it or not – and most importantly – that your advisor is helping you solve your most significant concerns – that they are serving you and helping you make sure that your money will outlive you, versus you outliving the money.

*Look to see if the advisor or their firm has a third-party custodian – vital that you understand where your investment dollars are being deposited. You absolutely want a third-party custodian that generates statements and maintains a website that your advisor does not control.

Do They Work with Clients Like You? How Do They Solve Their Problems?

What tools do they use? Technology is not a replacement for a one-on-one relationship, but it can offer significant advantages to advisors who embrace it.

Most advisors miss the fact that growth is important but protecting your life savings against loss is more important. Capital preservation is underrated. Eliminating or reducing/minimizing losses reduces pain and uncertainty. Two things – in my experience – most retirees would rather do without. It also reduces the chance of bad decisions driven by fear and emotion and increases the likelihood that the investor will stick to the strategy.

Help Diagnose Your Optimal Retirement Age

This takes work. It takes planning. It takes getting to know you and understanding your goals and objectives because determining that right retirement age is challenging, and opinions can vary. Also, understanding your pension if you have one. If you work for a company like AT&T, it’s crucial in determining that optimal retirement age and making sure that you’re pension-eligible, that you’ve got the age requirements and the years of service requirements met so that you walk away with the maximum amount of money.

More importantly, what you should expect from a retirement planner is helping you determine how much savings you need to have the retirement that you want and/or what you need to accumulate it if you are falling short of accomplishing those goals. Understand the difficulty here – you are trying to determine these things in the face of complete uncertainty. What makes it so tricky is two things – not knowing how long you will live and not knowing what the market will do and in what order. It should be a defensive approach – with conservative estimates.

Also, they should help you evaluate whether a rollover from a company 401k or savings plan is appropriate. A good advisor should review all your options. Most plans will allow you to leave the money in the plan – as long as you’ve got more than a few thousand dollars there, many will let that money stay in the plan indefinitely. If you are taking a job someplace else and they also host a retirement savings plan, does it make sense to roll your previous employer 401k or savings plan into your new employer’s plan.? You could take a direct distribution to yourself. Something you want to be careful with — it will create a taxable event. If you’re under 59 1/2, you’ll not only have taxes but possibly a 10% penalty as well. Usually, it’s not the wisest choice – you could have a large tax bill as a result. Consult with your tax advisor before doing this, so you know what to expect. You could also roll the funds over to an individual retirement account (IRA), which, by far and away, tends to be the most common choice. Most 401(k) plans were not built for the distribution phase of people’s lives. They were not made to distribute retirement income over 20, 30 plus year retirements. Most 401(k)s are built for the accumulation phase of your life during your working years, not for your retirement years. Many are missing a significant number of asset classes that you would want to have represented in a well-diversified portfolio. Most of the 401(k)s that I review have a handful of index funds to choose from that only represent four or five major asset classes, not the 12 to 14 asset classes that we might be looking to serve in a well-diversified retirement income portfolio. Also, many employer-sponsored 401k plans don’t have any way to guarantee that income in retirement, either. So, the choices tend to be more limited if the money remains in the employer plan. It doesn’t mean it’s not the right choice. You just want to make sure that any advisor you meet with is laying out all those choices so you can make the best decision.

Helping you structure a spending strategy or a withdraw strategy in retirement. It’s essential to determine the percentage of your portfolio that you will draw from each year in retirement so you can plan your lifestyle accordingly. A good advisor will look at your fixed income or guaranteed sources of income like pensions and social security, review current spending and help project (inflate out) how much you’ll be spending in the future to calculate your distribution rate while factoring in tax consequences. One of the biggest challenges most people face in retirement is generating the supplemental income they need and preserving it for the rest of their lives. This becomes a delicate balance of 3 main themes in your retirement income investment portfolio – safety, growth, and income. Test different scenarios for taking social security and pensions. This can help you determine the best age to claim Social Security benefits. It seems trivial. More often than not people walk in with the mindset of taking it as early as they can. It may not be the best choice for everyone. You definitely should expect a retirement planner to spend some time here, working through the best timing and having a discussion on that.

A good advisor will help show you what’s possible. Help you envision your retirement. It can be a great time of your life, but you have to be financially prepared.

The biggest fear for most retirees and baby boomers is running out of money. Life expectancies continue to increase, rising health care costs are putting many at risk of outliving their assets.

Risk assessment and management is one of the biggest challenges facing advisors today. Helping you understand the risks you are taking and the expected outcomes of those risks. At Kraus Capital, we stress test portfolios regularly to help educate clients and provide realistic expectations as risk tolerance tends to change in real time when markets begin to decline.

Framing goals and objectives, setting expectations, creating engagement and managing distractions. You have unique goals and objectives for your retirement. A good advisor will make sure they have a clear understanding of those goals and review them regularly. Your goals become the foundation for your financial plan – your investments are the funding mechanism.

How Many Advisors Should You Interview?

Meeting with 4,5,6 or 10 advisors and trying to determine who’s best – I really don’t know how you’ll do that. Nothing you’ll experience today will shed any light on how any of those advisors or their investment recommendations will deliver ten years down the road. It’s like saying “I’m going to hire every CPA in town and whoever saves me the most on my taxes is the one I’m going to hire.” That would be absurd – and nobody has the time to do that. In the end, you need to focus on hiring an advisor that you trust. That you feel comfortable with and one who’s focused on your best interests. Sometimes it involves hearing things you don’t want to hear. Hiring an advisor is no silver bullet. Some will hire an advisor with the expectation of beating the market. This should not be the focus nor is it realistic with any sort of consistency. We emphasize, in our practice and in financial planning, “Are they meeting their goals and objectives?” That’s what’s most important, not beating some index. Understand that no amount of talent, experience or advice can make up for an investor’s bad decisions. Retiring too early, not working long enough or going back to work, not saving enough or overspending is not something any advisor can help you with. And they are not to blame. If you are exhibiting these behaviors, especially at a time when there is a bad stock market, low-interest rates or both, it can make the situation much worse in a hurry. Know what you spend and realize you might need to cut expenses and get back to work or make plans as to what you’ll do if/when the money runs out.

Frequent Communication

You are busy living your life. You should like and trust your advisor without question. They should instill confidence and a feeling that they care more about you and your investments, goals, and objectives than anyone else, and that they will do their best and put you first and keep a watchful eye on your investments and best interests. You should expect them to focus on managing your investments, staying tech proficient, and communicating with you consistently.

Whether it be account updates by e-mail or phone call or monthly newsletters or quarterly updates, you should have a review schedule that has been jointly established. You should understand how many times or how many meetings you’re going to have with your financial planner upfront. The benefit that we emphasize to our clients is that yes, this is our formal process. We want to have a structured formal approach to communicating with you so that you know, and we know that we’re going to be talking x number of times per year. But there should be emphasis that the door and phone lines are always open. Our clients know that they can communicate and contact us anytime. If something has changed, if they feel they need a meeting or are worried about something or if they just have questions, the door is always open, and that’s important.  So, there should be — that expectation should be set up front, and it should be consistent and frequent.

Meetings with your advisor should not be all about performance. Through technology, consistent communication, and monthly statements you should be up to date on your account balances. Meetings should be focused on you – a market update is fine but a review of your investment holdings and investment strategy, spending time reviewing goals and progress towards them, suitability and changes that may have taken place or adjustments in the portfolios … by phone or online, with the occasional face to face get together should be fine. Obviously, you want to have a conversation if there have been significant changes in your life or if something big is about to change, but I can’t see any reason why anyone would need to have a sit-down, formal meeting with their financial planner any more than 1 to 2 times per year.

Monitoring and Updates

Your financial advisor should have a means and the technology to monitor your accounts, provide frequent updates through a client portal of some sort, communicate regularly, and offer reports in a simple to understand, automated approach. Even better if there are few user IDs and passwords to enter and you can see all those accounts and how they’re working together all in one place.


It should be a structured approach. We try and keep it simple, and we don’t overdo it. That process is built in, and we review that frequently. Not only from a firm level but a household level and an individual client level throughout the year. Make sure your advisor has a plan.

Tax Planning

They should help you with tax management and tax loss harvesting. If there is some planning that could be done to help save on taxes, it’s something that the advisor can control, then there should be some discussion — particularly on non-qualified accounts, on how and what the tax management strategy will be. Also, choosing a tax-efficient strategy for retirement plan withdrawals. Investigating whether a Roth conversion is appropriate. A lot about helping clients save money on taxes comes down to what we call asset location — where the money came from and how it will be taxed when it’s withdrawn. Will it be ordinary income tax rates or capital gains treatment? The point is to maximize tax effectiveness and efficiency in retirement because that’s something that can be controlled. We can’t control the stock market, but we can help control the amount of taxes being paid. Your advisor should be able to make a referral to a CPA if you don’t already have one. If you do, consider making an introduction so your accountant and financial planner can work together as a team in serving your best interest.

Back Up Plans

A good advisor educates their clients. They should work towards helping you understand all the various tools/strategies out there and how they may apply to your specific situation. Your house, as a financial asset – may be your most valuable possession. Most don’t think of it as a potential retirement income planning tool. What I’m talking about here is a reverse mortgage. Hear me out. For most people in America, their largest and most valuable asset is their home. For those that have their homes paid off or have substantial equity in their home, and are stretched to make ends meet in retirement, it might be one way to supplement your income. Opinions on this subject are changing, and more is being written about it in the retirement income planning community. Certainly not for everyone, but you should expect a good planner to know that a standby reverse mortgage strategy could help provide the necessary income you need in retirement when all else might fail.

Also, they should be able to help you out with health insurance and long-term care products and questions. You may have health insurance covered by your previous employer until you turn 65 and go on Medicare. You will need a supplemental plan and anticipate over time that those costs will continue to go up. Whether it be for Medicare Part D, prescription plans that are going to best suit your needs, hospice care or something at the end of life. There are a substantial number of things to consider.

Your Estate

Most Americans don’t have an estate plan. Your estate encompasses everything you own. For most, it’s just not something they want to think about. We don’t like to be reminded of our own mortality. Many feel or think they don’t have enough money – no matter how large or modest – everyone has an estate to protect. Making sure beneficiary designations are up to date and accurate and that your wishes will be followed is part of your legacy. Depending on what state you live in, some states, like Texas, are very probate friendly. And so, for most families, a will and accompanying documents, like durable powers of attorney for healthcare or financial issues, are strong enough and good enough for most. In more probate complicated states like California, it may be that you’re best served by a living trust. A good planner should be able to give you an overview of problem areas and recommend an estate planning attorney.

A Lot to Think About

To summarize, I wanted to touch on some things you should come to expect when working with a financial planner. As I got deeper into this article, I quickly realized that I could write an entire book on this subject. I’ll definitely come back to and expand on this subject in future posts. With 20 years of experience, hundreds of relationships and countless hours spent with retirees – in my opinion, the single biggest problem comes down to the investors’ own behavior. It is the number one determining factor of how well a financial plan and investment strategy will work. It may be a lack of discipline, cognitive error – classic behavioral finance mistakes like herding, anchoring, availability bias or overreaction. Or simply letting their emotions take over. Managing your investments is a difficult task to go at alone. We have developed a methodology in helping our clients recognize these issues and understand they are not hard-wired to make the best investment decisions – especially in the face of great market/financial distress. Panic selling after a stock market drop is the most predictable mistake in personal finance. Our goal is to help dispense realistic advice about how to make good financial decisions. Having a third party like a financial planner helps facilitate good investor behavior. Find out what your advisor’s communication plan looks like and how they’ll work to keep you on track.

Choosing a financial planner can be confusing and stressful. If you know anyone who is thinking about hiring an advisor, please share this post with them. I know many people are getting conflicting advice out there and my goal in writing this blog post was to try and educate in an objective, straight-forward way. If you have any questions at all, please feel free to reach out to me from our Contact Page. I’m happy to set a phone appointment to answer any questions you may have and can even provide some additional resources to help you make an informed decision. Thanks for your time –

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