One would think that the author of such books as Ernst & Young’s Personal Financial Planning Guide and Ernst & Young’s Retirement Planning Guide would be a trustworthy source of information. Not necessarily so. On May 30th, a grand jury indicted Martin Nissenbaum, an Ernst & Young partner, on eight counts of tax evasion, conspiracy to defraud the Internal Revenue Service and other charges.
The scheme that Nissenbaum and three other current or former E&Y partners were indicted for was the sale of fraudulent tax shelters to high-income investors. Those of us who are current or retired federal employees will never get caught in such schemes as this one. Nevertheless, we need to exercise caution in selecting financial advisors. What are some of the things of which we should be aware? The following list is not meant to be all-inclusive.
- Be wary when the first question asked by a financial planner is “How much do you have to invest?”. This indicates that the planner is thinking first and foremost of him/herself. A good planner should be interested in your goals and dreams, and should ask you questions designed to help you figure out where you’re going and how much it will take to get you there.
- Understand how your financial advisor is compensated. If they are compensated by commission, that has the potential to color their advice.
- Try to find a planner that understands federal benefits. The following items are particularly important.
- You must elect a survivor annuity to ensure that your spouse will have access to federal health insurance, should you die first after retirement. Be concerned if a planner suggests you not elect a survivor annuity in favor of buying a life insurance policy. Having said that, there are some situations (e.g., being married to another fed, or someone else entitled to post-retirement health insurance in their own right, etc.) that might make life insurance attractive.
- As a federal retiree (either CSRS or FERS) you will derive a large portion of your income from annuities. Both your federal annuity and Social Security will last you for the rest of your life and are indexed for inflation. You might not want to (or need to) annuitize any more of your retirement savings.
- Check out your advisor. If is is a Certified Financial Planner, check with the organization that registers CFPs. Either the Securities and Exchange Commission, or your state keeps disciplinary records on financial planners. See if yours is listed.
An ounce of prevention is worth a pound of cure when it comes to protecting your finances.