What should you ask a financial adviser?

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Anya Kamenetz

A reader wrote recently about a common conundrum. At 65, he and his wife are nearing retirement and had plans to meet with a financial consultant to discuss how to make their investments last.

“I wish you could be there with us,” he wrote, “but since that isn’t going to happen, I would like to ask you: What are some of the most important questions we should be asking him? I want to be prepared to learn everything I can, and what to do to keep our money coming in.”

I called up Alin Lozada of Sarasota, Fla. to find out. He’s been a financial adviser for 24 years and is a retirement income certified professional, a highly specialized designation from the American College of Financial Services.

Here are five key questions to ask.

1) What’s your background?

One of the first things to ask a new adviser is, how long have you been in business? You can check the background of a broker, adviser or other financial professional on the BrokerCheck page at the website of FINRA, the financial industry’s regulatory body. See http://brokercheck.finra.org. But it also helps to ask an adviser face-to-face whether you’ll turn up any complaints or regulatory findings against them.

2) How do you get paid?

Lozada said it’s also important to understand how your adviser’s bread is buttered. For example, a Series 7 and Series 6 license simply requires that a broker recommend “suitable” investments — not necessarily the best investments for you. This suitability clause can cover so-called wealth managers and certified representatives (for example, the folks from your company’s retirement plan).

Bottom line: brokers earn commissions and fees from the financial products you buy. It doesn’t mean they can’t give good advice, but it means they may have other priorities besides your wealth and security. A fee-based registered investment adviser, by contrast, has a “fiduciary duty” to put clients’ interest first, including full disclosure of all risks and fees.

Once you’ve decided that you want to work with a particular adviser, and have established trust, the rest of the conversation should be all about you.

3) Am I paying too much in fees?

High fees can torpedo your long-term returns. A good adviser will walk you through your current portfolio and be able to point out where you may be paying too much. The initial conversation, said Lozada, can take two hours.

4) Do my current investments match my risk tolerance?

All too often, said Lozada, individuals nearing retirement have been steered into portfolios that are more aggressive than they should be. This can also happen when the account holder fails to rebalance their portfolio over time. In any case, a course correction may be in order to bring more predictable payoffs.

5) What should I do about long-term care?

“Long-term care is the No. 1 thing that will devastate a portfolio,” Lozada said. Compare it to other situations we typically insure against. “You have a 2 percent chance of having your house burn down, a 6 percent chance of getting in a car accident, but a 70 percent chance of needing some type of care before you pass away.”

Even those lucky enough to have a few million dollars in the bank, he said, can have it wiped out if both spouses have health issues for several years.

Lately, Lozada has been innovating by having some of his clients put a portion of their IRA into a policy that rolls up long-term care insurance with an annuity and a life insurance policy. Depending on what life brings, you can draw the annual income from the annuity for a while, then convert to the care benefit, and finally leave the insurance policy to your kids.

“It’s all about having a plan,” Lozada said. And ideally, a trusted adviser you can build a long-term relationship with to help you design and carry out that plan.

Anya Kamenetz welcomes your questions at diyubook@gmail.com.

© 2015 Anya Kamenetz. Distributed by Tribune Content Agency, LLC