Can You Trust Your Aging Relative’s Financial Planner?

i-social-2Aging has transformed remarkably over the last few generations. It wasn’t very long ago that aging comfortably was a luxury reserved for the lucky few. A longer life often meant penury and misery, not to mention ill-health. Advances in medicine began to change that, as getting older no longer just meant sickness. More importantly, Presidents Roosevelt and Kennedy sought to stamp out the scourge of our retirees living in poverty because they could no longer work, had no source of income, and their pensions were small or nonexistent. Social Security, Medicare, and other advancements meant that retiring and getting older was a new beginning—not an end.

That didn’t mean money wasn’t important. Indeed, as we began to live longer, money became arguably more important, since it had to last even longer. More advances in medicine could mean a longer lifespan, with its attendant need for more income. That’s why it is vitally important that caregivers make sure the person planning their aging loved one’s finances are acting with their best interests at heart. There are several different types of planners and you want one who is, by law, bound to do right by their client. That’s the best way to ensure a healthy and happy future.

Understanding What “Best Interest” Means

“Best interest” is a strange term, and if you aren’t familiar with the world of financial planning, it might seem redundant. After all, isn’t anyone you hire supposed to work in the best interest of the client? Yes and no. The world of financial planning is rife with conflict of interest, obscure incentives, and strange payment methods.

Let’s say you go to a stockbroker. A normal stockbroker isn’t required to disclose how they are getting paid, nor are they legally required to give you advice that is only in your best interest. They may be getting pressured by their bosses to push investments toward a hot new stock the firm is trying to boost. This isn’t to say it is a scam or it is a bad stock, but that there are several different interests at play.

In contrast, there is something called a fiduciary, a class of financial advisors bound by the fiduciary trust. This was created by the Investment Advisors Act of 1940, and it states, quite simply, that fiduciary advisors must put the best interests of their clients first. They are required to disclose how they are paid, their qualifications, and many other factors before giving advice or making a move. They are not allowed to act in a way that benefits themselves or the firm at your expense. This usually means giving very sober and practical advice, something that could really benefit someone whose savings goals are for a literal lifetime.

Fiduciary vs. Non-Fiduciary In Practice

Let’s take a quick look at what this means in the real world. Imagine you have $5000 to invest. In one scenario, you go to a fiduciary who advises you to open a self-directed IRA where you have some say in where your money goes. He advises you to direct the bank to put some of it in an investment group that develops mixed-use buildings in major cities. He says that over the long run, real estate will provide solid if unspectacular growth, and that if you put your savings in an annuity it will last for 25 years after retirement.

By contrast, the stockbroker or a non-fiduciary might want to take your money and invest in a company that is making a new virtual reality headset that can connect directly to a smartphone, letting people easily play games or watch movies. This could be the next big thing. What isn’t disclosed is that the firm is trying to make a play on this and so is funneling a lot of their client’s investments into this pool.

Now, of course, this stock could go through the roof, transforming your $5000 into $500,000. After all, the firm isn’t trying to lose money; they wouldn’t invest in something if they didn’t legitimately think it would be good. But it could also disappear with a shrug, and your money could be gone due to bad luck and a firm putting their interest ahead of yours.

What Good Planning Really Means

We all know the risks of bad planning. If money is tight, you may not be able to live your retirement dreams. You might not have enough if there is an emergency, especially as medical bills begin to increase. You won’t be able to help your children if they need it. And, most unfortunate of all, you might not be able to enjoy the benefits of the longer lifespan that astonishing new developments in medicine are promising. One of the great fears of a longer life is outliving your money, something that is more possible now.

The financial implications of a long life are something that needs to be considered before retirement, but even if you or your loved one hasn’t, it isn’t too late. That’s the flip side of a longer life. Investments made even after retirement have more time to mature. It’s literally never too late to start planning. Retirees can have both long and short term plans. There are just a few things to keep in mind.

  • Start with a realistic assessment of your goals. What will you or your loved one need for the next 10-20 years? How can they be comfortable and have some flexibility and a cushion? How do we make sure that they don’t run out of money?
  • Pick someone with your best interest as their sworn duty. If you only have one advisor, you should use a fiduciary. Present them with your goals and needs (which can also be crafted with an advisor) and they will come up with the best plan for meeting them.
  • It’s okay to seek out second opinions. It’s crucial that this is done right, so get advice from multiple professionals.
  • Be diverse, too. A good advisor won’t just say that your money should “only go to real estate.” There are multiple paths, including maybe putting some money in the virtual reality headset. A flexible and diverse portfolio is the sign of a smart investment plan.

The last thing you want is for you or your aging loved one to have that stomach-gnawing fear of money keeping them up at night. These are the golden years, and by making sure that investments are being made with that in mind, money can be a source of comfort, not of anxiety.

Proper financial planning is a key part to maintaining independence. At the Institute on Aging, we work with families so that they know what is needed to ensure as much comfort and health as possible. Contact us today to learn more about our programs.

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Institute on Aging

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