Are you managing your TSP and your IRAs? Or are you getting advice from financial professionals about how to invest (and later withdraw from) your funds?
Not all financial planners are created equal; in fact, anyone can call themselves a financial planner. There are, however, certain designations that indicate an individual has put some time and effort into educating themselves about finance and investing. In addition, not all financial planners are required to be fiduciaries. A fiduciary must act solely in the best interests of the client at all times and must disclose all real, or potential, conflicts of interest.
What follows are descriptions of some of the more common designations that require the holder to have a certain level of knowledge
· Certified Financial Planner. CFPs have to complete a course of study that lasts 18 to 24 months and must pass a six-hour examination. They are required to act as fiduciaries. In addition, they must pass a background check and have three years experience as a financial planner.
· Registered Investment Advisor. RIAs must act as fiduciaries and must register with the Securities and Exchange Commission (SEC). You can view their registration documents on the SEC website.
· Personal Financial Specialist. PFS’ must also be Certified Public Accountants (CPAs). They must act as fiduciaries and, in order to be designated a PFS, must pass an exam that covers personal financial issues.
· Chartered Financial Analyst. CFAs must pass a series of three six-hour examinations and must have at least four years’ experience in the financial industry. They also must act as fiduciaries.
· Registered Representative. To be a Registered Representative one has to pass an examination and receive a state license. RRs must also register with the SEC and with FINRA (the Financial Industry Regulatory Authority). Unlike the other designations here, RRs are not required to act as fiduciaries. They must adhere to a “suitability” standard in recommending investments.
The National Association of Personal Financial Advisors (NAPFA) is a trade association of fee-only financial advisors and requires their members to act as fiduciaries.
An advisor can have one of the above designations and still not know the first thing about federal retirement and benefits. In vetting a financial professional, you should inquire as to what they know about federal benefits. They should understand that:
· Though OPM calls the FERS benefit an “annuity”, it is in reality an old-fashioned defined benefit pension.
o It has no lump-sum distribution option;
o It will pay you for as long as you live; and
o It has a modified cost of living adjustment.
· You must elect a FERS survivor benefit for your spouse if you want him/her to be able to continue enrollment in the Federal Employee Health Benefit Program (FEHBP) after your death. Some advisors want you to forgo electing a spousal survivor benefit so that you can get a higher monthly benefit.
· Your FEHB enrollment continues after retirement and even past the age of Medicare enrollment.
Advisors will not be able to manage your FERS benefit and your Social Security, but they can provide assistance in managing your TSP and any IRAs you might have. Take care in selecting one.