What You Should Ask Your Financial Adviser at Your Annual Meeting


The decision to work with a financial adviser is not a one-and-done type of deal. You need to stay engaged and informed. While you probably covered most of your key financial questions in your first meeting or two, you should continue to meet at least on an annual basis. Here are some important questions to explore when you do.

Is my investment mix still appropriate?

When your adviser first put your financial plan together, he or she probably had you fill out a risk tolerance questionnaire or asked you questions directly. That information, coupled with your investment time frame, helped determine your portfolio's optimal asset allocation — the mix of stocks and bonds that's generally best for someone in your situation.

But your situation is ever changing. You're getting older, which could spell the need to make your portfolio a bit more conservative. Or changing market conditions might reveal something about your risk tolerance that the questionnaire couldn't catch. There's nothing like a real market downturn to find out just how risk-tolerant you really are.

So, one key question to keep on the table is whether your portfolio is allocated appropriately. (See also: The Basics of Asset Allocation)

How will you help me navigate the next bear market?

This question could just as easily be, "How will you help me navigate the next bull market?" It depends on where we are in the market cycle. At the moment, we're still in the midst of a very long-running bull. But just as surely as night follows day, bear markets follow bull markets. President Kennedy once said, "The time to repair the roof is when the sun is shining." Right now is a good time to talk about your adviser's plan for the bear market to come.

When the market changes direction, are you expected to grit your teeth and ride out the storm? Or does your adviser plan to make changes to your investment holdings? If so, what changes will be made and what will trigger the need to make them? If your adviser plans to make adjustments, hopefully he or she will base them on clear, objective criteria. Make sure you understand them.

This is all about expectations management. The better you prepare yourself for challenging market conditions and the actions your adviser may take to steer your investments through those conditions, the better you'll be able to sleep at night when they appear. (See also: 6 Investment Truths to Remember When the Stock Market Is Down)

What if a bear market hits at the start of my retirement?

If you're within 10 years of retirement, it's not too early to ask this question. For the unprepared, a bear market that hits right at the start of retirement can be devastating. This is why some advisers recommend taking a "bucket approach." One bucket contains cash, or very conservatively invested money. It should contain enough to cover three to five years' worth of the living expenses that your adviser predicts you'll have once you've spent your monthly payouts from Social Security or other guaranteed income sources. The other bucket is more traditionally invested.

When the market is in decline, you use the first bucket to draw money for living expenses. That way, you can avoid selling more volatile investments while they're falling or recovering. When the market is growing again, you draw from that bucket and also use it to replenish your cash bucket.

What's your adviser's perspective on this approach? What else does he or she recommend if the start of your retirement coincides with a market downturn?

What's my Social Security contingency plan?

Your financial plan surely includes an assumption about the age when you plan to take Social Security. If you intend to wait at least until your full retirement age (67 for anyone born in 1960 or later), what contingency plan does your adviser recommend in case you're not able to wait that long?

Many of today's retirees left the workforce earlier than they expected due to medical problems, the need to care for a loved one, or a corporate downsizing. Your plan should include a contingency in case something similar happens to you. (See also: How to Plan for a Forced Early Retirement)

Should I consider an annuity at some point?

An immediate annuity purchased upon retirement or shortly thereafter could provide some invaluable peace of mind, especially if it covers much or all of your essential living expenses. Generally, what does your adviser think of immediate annuities? And how does he or she recommended sorting through the myriad decisions related to annuities, such as: whether to base benefits on your life only or your spouse's as well, whether to include an inflation rider, whether to include a "period certain" provision whereby benefits would continue being paid to your spouse or heirs even after your death.

What annuity companies does your adviser recommend and will he or she earn a commission from the sale of an annuity provided by one of those companies? Are there other annuities available to you that may offer better terms but no commission to your adviser?

Also, what does your adviser think of longevity annuities? This type of annuity helps protect against the financial risk of a long life. You might purchase it for a lump sum when you are 65 or 70, with benefits not kicking in until you are 80 or 85. Should you plan to purchase one?

Just because you're working with a financial adviser doesn't mean you can think of yourself as having outsourced your financial life. Stay involved, see it as a partnership, and keep asking informed questions.

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