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Does my mom need a financial planner?

November 15, 2013

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

financial planner

Q: Ever since my mom got $200,000 in life insurance after my dad's death, she's been hounded by financial advisers trying to get their hands on her money. She's already living comfortably on Social Security and other income, so I think she should just split the $200,000 between money market accounts and CDs. What would she need a financial adviser for?

A: It's wise to be wary of financial advisers, but a good one might be useful in a limited capacity. To begin with, while your mother is comfortable financially now, there are a few key questions about what the future holds:

  1. How old is your mother, and how good is her health? The crux of this that if you expect your mother to have a long life ahead of her, you need to be aware that money market accounts and CDs are steadily losing ground to inflation these days. Over the short-term, that won't matter much, but over the long-term it could be significant and might be helped by some diversification into growth investments.
  2. What will happen if her expenses rise? While your mother is comfortable financially now, you need to plan for what would happen if she needs a more expensive level of care later in life.
  3. Besides Social Security, is her other income guaranteed for life? You mention income in addition to Social Security, so you just need to make sure whether the source of this income is likely to remain reliable, and the amount provided reasonably stable, for the remainder of your mother's likely lifespan.

If you decide to retain a financial adviser, here are some key things you should ascertain as background:

  1. How will the adviser be paid? Be vigilant for conflicts of interest, such as advisers who get paid more for recommending certain investments. You might be best served by a "fee-only" adviser, whose income is independent of what financial products you choose.
  2. What are the total fees and expenses associated with a recommended program? Scrutinize any program carefully for total fees and expenses. Be especially wary of loaded mutual funds, which can cost you a flat fee to get in or out of, and "funds of funds," which may layer multiple mutual fund fees on top of one another.
  3. Where will the money be held? You might be more comfortable working with a bank independent of the financial planner's organization, and not giving the planner direct access to your mother's money.

Finally, do a background check of any would-be adviser with both local business organizations and relevant national regulatory agencies (such as the Securities and Exchange Commission) before you share any financial or personal information.

Got a financial question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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