“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.
I want to answer that question specifically for federal employees because they have a unique situation. They have a different benefits system with which a lot of financial advisors are not familiar. 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.
Human Resources Department
You want to have a relationship with an HR representative or somebody in your benefits department.
Get this person’s e-mail address and/or 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 who they talked with in HR.
Keep in mind that almost every HR and benefits department is overworked, understaffed, and has a lot going on, so when you e-mail them a question it can sometimes take as much as a couple of weeks to get a response.
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.
Financial Advisor
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.
Finding the Right Kind of Financial Advisor
One of the first things to look for as a federal employee, in my opinion, is somebody who really knows the federal system. The right financial advisor will not only know the federal system but should have at least a few years of experience working 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.
Other questions you could ask are, “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 quickly. 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 a 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. They should ask you 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 Thrift Savings Plan (TSP), or allocate your TSP based on when it’s best for you.
Be Wary of Sales Pitches
One red flag to watch for is if they just immediately try to sell you something without asking about your goals, when you’re retiring, what your income looks like, etc. If they’re not looking at your income and instead are 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.
Look for a Fiduciary
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 because it’s what’s best for the financial advisor.
I study retirement and federal retirement nonstop, and I have spoken to advisors all over the country. I am of the belief that there are great financial advisors out there. I’ve met some that are extremely ethical, great people. I really enjoy talking to them. However, there are other people that do not have the best intentions. That’s true of every industry. Sometimes you have to sift through the bad to find the good.
Investment Diversification
As a bonus tip, you ideally want to work with somebody who can utilize many different investment types with different companies, as opposed to a financial advisor who only works for one company. It’s what I look for when I work with somebody.
To recap, when you are 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.
Do Federal Employees Need a Financial Advisor?
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, especially as you approach retirement because this is the time when you get close to what is called the distribution phase of your life. This is when you start pulling from your saved 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 your options. For instance, you don’t have to pull money out of your TSP when you retire. It always surprises me how many people think that 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 usually lasts longer and earns higher returns. For example, Vanguard did its own unbiased research asking the question, “Does working with the financial advisor actually help?” The study found that people who worked with financial advisors on average make about 3% more per year even after paying a financial advisor’s 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.
Securities and Advisory Services Offered Through Creative One Securities, LLC Member FINRA/SIPC and an Investment Advisor. FedSmart Retirement Planners and Client One Securities, LLC are not affiliated. Not Affiliated with OPM or any federal agency.
