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An employer-sponsored 401(k) is one of the most popular retirement savings vehicles in America, but just having one doesn’t guarantee a fruitful retirement. While many individuals rely on 401(k) plans to secure their future, making the right decisions with your investments can mean the difference between a comfortable retirement versus having to work longer than one would like.
Having a knowledgeable and trustworthy advisor who can guide you in making the right decisions can be the key to that difference. There are times when it becomes evident that an advisor is not serving you well as a client and a change in 401(k) advisors is necessary. In this article, we will discuss several key indicators that can help you identify when it may be time to begin the search to change your 401(k) advisor.
A fiduciary advisor is obligated to act in your best interest, putting your financial well-being ahead of their own. If your advisor does not explicitly acknowledge or fulfill this fiduciary duty, it may be a sign that they are not prioritizing your interests. Transparency and clear communication are essential when it comes to understanding the fiduciary relationship, so if you feel your advisor is not sharing this liability with you, it might be time to explore other options.
An experienced 401(k) advisor should go beyond simply recommending investments. They should also offer guidance on plan design and oversight, ensuring your retirement plan aligns with your goals and needs. If your advisor neglects these crucial aspects and fails to provide valuable input on optimizing your plan's structure and monitoring its performance, it may be an indication that they are not delivering the comprehensive support you require.
As you progress through life, your financial situation is bound to change. Whether it's getting married, starting a family, or nearing retirement, these milestones necessitate adjustments to your retirement strategy. If your advisor fails to recognize and adapt to these changes, continuing to provide the same generic advice without considering your evolving circumstances, it may be a sign that they are not adequately attentive or responsive to your needs.
At a minimum, your investment strategy should be changing as you draw nearer to retirement. In your early years, your portfolio can withstand a slightly higher level of risk (equities), as the market tends to perform in a cyclical nature. As you draw closer to retirement, your portfolio should be moving away from risk and towards safer investments that offer a level of protection against market downturns when you need your savings the most.
If your advisor is not rebalancing your portfolio as you get older, that is a sure sign that you may need to find another advisor who better understands risk mitigation in relation to your retirement horizon.
A robust financial wellness program is an essential component of a comprehensive retirement plan. It encompasses various aspects such as budgeting, debt management, and education on financial literacy. If your current advisor does not offer or actively promote a financial wellness program, it could indicate a lack of commitment to your overall financial health. Consider seeking an advisor who places importance on your holistic financial well-being and education.
A transparent fee structure is crucial for understanding the costs associated with your retirement plan. If your current plan has a convoluted fee structure that is difficult to comprehend and your advisor is not willing to explain it to you clearly, it raises concerns about their transparency and whether they have your best interests at heart. A trustworthy advisor should be forthcoming about all fees and actively address any queries or concerns you may have.
If you discover hidden fees that change the overall costs of your investments as your plan progresses, that may present a red flag that should be addressed. An advisor’s fees may be negotiable, but hidden fees that weren’t previously disclosed may be reason enough to shop for a new advisor.
Investment decisions should be based on careful analysis and alignment with your long-term goals, not on impulsive buy or sell recommendations. If your advisor only contacts you to push certain investments or suggest frequent trades without providing comprehensive explanations or reasoning, it could be a sign that they prioritize their own commission over your financial well-being. A reliable advisor should focus on your overall investment strategy rather than short-term gains.
If this happens often, you could be in a situation in which your advisor is committing a practice called “churning.” This may fall under SEC Rule 15c 1-7, which governs any deceptive or manipulative conduct enacted by a broker. If you feel that your advisor is committing “churning” by overtrading your account to grow commissions, you may file a report with the SEC or FINRA.
Effective communication is crucial for a successful client-advisor relationship. If you find that your advisor consistently fails to listen to your concerns, goals, and preferences, it indicates a lack of attentiveness and understanding. Your advisor should actively engage in conversations, address your questions and doubts, and tailor their recommendations to your unique circumstances.
Trust is the foundation of any professional relationship. If you feel hesitant or fearful to reach out to your financial advisor, it is a significant red flag. Open communication is vital for effective financial planning, and if you are uncomfortable discussing your concerns or seeking clarification, it may be a sign that you should consider finding an advisor with whom you can establish a more trusting and transparent connection.
Some advisors prefer to use complicated financial lingo or explain things in overcomplicated ways to either keep their clients in the dark, beholden to the advisor's decisions, or in some cases purely to stoke their own ego. If your advisor makes you feel apprehensive about speaking with them because of the way they communicate, it isn’t likely to lead to a positive working relationship.
In order to achieve the best possible outcomes from your retirement planning efforts, you and your 401(k) advisor need to be able to work together as a team. If you observe any of the following warning signs, it may be time to reevaluate your relationship with your current advisor and explore other options that align better with your needs and goals:
Making the right choice for your financial future is essential, and finding the right advisor is a crucial step toward achieving your retirement aspirations. If you find that any of the warning signs outlined above are present within your current 401(k) advisor, it may be time to find a new one.
Planning for your retirement is one aspect of life in which time is extremely important, as you have a finite amount of it in which to save enough money to last through your Golden Years. If you feel for any reason that your 401(k) advisor does not have you on the right path toward your retirement, it’s time to find one who will guide you in the right direction.
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