By: Jesse Black
“What should a federal employee look for when considering a financial advisor?” This comes up quite often in my meetings and it’s a great question. So let’s talk about some things to look for and some red flags to watch out for.
I want to answer that question specifically for federal employees, because federal employees do have a unique situation. They have a different system than a lot of financial advisors are familiar with. When you’re setting out to find a financial advisor, I want to make sure you know what to look for and how to search for a federal financial advisor.
I am under the belief that you, as a federal employee should have a couple of relationships in place as you approach retirement. You want to have a relationship with an HR representative or somebody in your benefits department. Get their e-mail address and/or a phone number and reach out to them to establish a connection, even if it’s just introducing yourself and letting them know when you think you’re going to retire. If you’re having a hard time finding the right person to talk with, ask your supervisor, your colleagues or somebody who recently retired from your agency. Ask them who they talked with in HR? Keep in mind that almost every HR and benefits department is overrun. They’re overworked, they’re understaffed, they have a lot going on. So when you e-mail them a question, because of their busyness and also the urgency of other requests, it takes them a while to get back to you. They may not be able to answer your question right away. Sometimes it can take a couple weeks. The reason I want you to establish that relationship is not only to hopefully get some of your questions answered, but also so that in the future when you do decide to retire or make some kind of big change in your career, you have somebody in the benefits department that’s on your side.
As I mentioned, when you try to ask a question, you’re going to have a hard time getting an answer right away, and that’s why the second relationship that you should establish is with a financial advisor. One of the first things to look for as a federal employe, in my opinion, is somebody who really knows the federal system. And not only knows the federal system but has at least a few years of experience with federal employees, preferably five years or more. You can tell if they know the federal system pretty quickly just by asking them a couple of questions. Quiz them on simple things like, “What are the funds of the TSP?” They should be able to list all 5 and the objective of each fund.
Another question you could ask is, “When is a FERS eligible to retire?”, “When am I eligible for an unreduced pension?” or “What is the FERS system?” Ask just a few questions like that right off the bat, and they should be able to answer pretty quick for you. If they say, “Well, I don’t know,” or “I’ll have to get back to you” or “I know the C fund” or something like that, that’s your cue that they’re not the right fit for you, or they’re not familiar with the federal system. Ideally your advisor should know a lot more about the federal system than you do as the federal employee.
The second thing that you want to want to look for is that they’re asking you questions when you’re talking to them. Questions like “What are your goals in retirement?”, “When do you want to retire?”, “How much per month do you need in retirement?”, “When are you eligible to retire?”. Make sure that they’re trying to set up your investments, your TSP, or allocate your TSP based on when it’s best for you specifically. A red flag in my opinion is if they just immediately try to sell you something, and they didn’t ask what your goals are, they didn’t ask when you’re retiring, they didn’t ask what your income looks like, etc. If they’re not looking at your income and just saying “Hey, have I got a vehicle for you!” or “I’ve got this best fund that last year everybody got 15%!” and they immediately just go into the benefits of something without knowing if it’s a fit for you, you can tell that they’re more of a salesman rather than an advisor or consultant.
Finally, in my opinion you want to try to find somebody who will tell you that they’re a “Fiduciary”. A Fiduciary is going to put your best interest at heart and make a decision on which investment vehicle they’re going to use because it’s going to achieve your goals, not what’s best for the financial advisor or line their pockets or things like that. I have been around. I have spoken to advisors all over the country. I study retirement and federal retirement nonstop. I read articles and posts everywhere, and I am under the belief there are great financial advisors out there. I’ve met some that are extremely ethical, great people. I really enjoy talking to them. Then there are other people that do not have the best intentions. That’s every industry out there. In every industry you have the good and the bad. Sometime you have to sift through the bad to find the good.
As a bonus tip, my opinion is that it would be ideal to work with somebody who can utilize many different investment types with different companies, not just works for one company. It’s what I look for when I work with somebody.
So when looking for a financial advisor, look for someone who has multiple years of experience helping federal employees, knows the federal system, asks questions about your goals in retirement, and ideally is a Fiduciary.
There’s another question that I get asked a lot. We live in a world of information. There are a lot of articles out there, and a lot of gurus who provide free information. It’s easy for people to think, “Do I even need a financial advisor?” In my opinion, yes you do need a financial advisor. Again, this is strictly my opinion, but you especially need one as you get close to retirement, which is when you get close to what’s called the distribution phase of your life. This is when you start pulling from the assets. You need a retirement planner who can help set up an efficient distribution plan for you.
The distribution phase is really one of the most important times to get your people in place, because a good advisor will compare and contrast still using your TSP. You don’t have to pull out of your TSP when you retire. It’s crazy how many people think you do. So it’s very beneficial to look at your options within and outside of the TSP so you can have all the information to make an educated decision.
There are a lot of unbiased reports and studies out there, and statistics have shown that somebody who has a financial advisor makes less emotional decisions and makes more decisions based on logic. When you’re working with a good financial advisor, statistically your money does usually last longer and the returns are actually usually higher. For example, Vanguard did their own unbiased research asking the question “Does working with the financial advisor actually help?” In their study, they saw that people that worked with financial advisors on average make about 3% more per year even after paying a financial advisors fee*.
It’s all about trying to prepare you for your specific retirement. Having a knowledgeable advisor and a relationship with someone in your benefits department, will help you create a specific plan for you and plot your course to your destination, retirement.
* Source: Quantifying Vanguard Adviser’s Alpha By Vanguard Research Brief June 2020
Tags; FERS, Federal Retirement, Federal Retirement Planner, FedSmart, FedSmart, FedSmart Retirement Planners, Financial Advisor For Federal Employees, Thrift Savings Plan, TSP, Steven Puckett, Steven Puckett Financial Advisor, Steven Puckett Financial Planner, Steven Puckett Federal Retirement, Jesse Black, Jesse Black Financial Advisor, Jesse Black Financial Planner, Jesse Black Federal Retirement, Federal Employee Retirement Planning, Federal Employee Retirement Income, federal employee retirement planning
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