I would like to take a few minutes of your reading time to clear up a minor investment advice issue. This issue I am sure is minor for you. I run into this issue several times each week.
401(k) investment advice is not financial planning. This is an important distinction to understand.
Ask yourself one or both of these two questions. Your responses are important.
Do you need help with the selection of your 401(k) mutual funds?
Do you need guidance on all aspects of your financial life?
401(k) investment advice will assess your stock and bond market risk tolerance. This advice will also help you select an appropriate asset allocation. And help you select the best mutual funds available on your default 401(k) menu.
You may need help analyzing future retirement income needs. Or help drafting a will or a trust. There are always insurance needs to consider. And income tax strategies. There is a myriad of other financial questions to consider with financial planning.
The individual investors I talk to each week need both 401(k) advice and financial planning. I am an expert in the former. I am not qualified to provide the latter.
Here is one example of the confusion created in the financial services industry. The titles “investment advisor” or “financial planner” are not regulated. The burden of proof is one the individual investor to figure out which set of skills you need.
To add to the confusion, consider this. Some investment advisors do comprehensive financial planning. Some sell financial products like insurance and annuities. A third group sells no products at all. They only provide investment advice.
Medical professionals claim board-certifications. Attorneys need certification from state bar associations. Contractors, electricians and plumbers have state license requirements. Even the person who cuts your hair.
Determine if you need a specific financial product. Some investment advisors sell financial products to fit those needs. Those advisors receive compensation through commissions.
You may only need investment advice on the default menu mutual funds in your 401(k) account. The mutual funds are already chosen for you. You only need to know “what to buy.” Independent, third-party, unbiased advice is all you need.
Find a fiduciary-level investment advisor who does not have a conflict of interest. No financial products to sell. Only an investment advisory fee for investment advice.
Products or advice? The investment advisory community works hard to keep you confused. Ask yourself a few questions. Common sense will provide the best answer for you.
I have spent the last several years trying to figure out the best way to share my 401(k) advice content. I have tried Twitter, Facebook, company web site, and LinkedIn Groups. I now realize nothing beats a well-crafted newsletter delivered to your inbox once a week. Sign-up here.
Do you need advice on your current 401(k) mutual funds? If so, comment below. Let’s start a conversation. The preservation of your 401(k) principal might be at risk.
