Choosing a Financial Advisor

How much should a financial advisor cost?

The average financial advisor either charges a management fee of 1% – 2% or gets commissions from the company that provides the products.  Not both.  Some advisors charge for consultations.  That fee generally ranges from $100 – $300 per hour or is a negotiated flat fee.

Who are the best financial advisors?

That’s easy…Kopman Financial !

Seriously, the best financial advisor for you is one that is good at what they do and makes you feel comfortable discussing your financial goals and the best ways for you to get there.  We like to think we’re the best in the business, but the truth is, we’re not everybody’s best choice.  Are we your best choice for a financial advisor?  Make an introductory appointment and find out.

How do I know if my financial advisor is good?

A good financial advisor will take the time to get to know you and your financial goals. A great financial advisor will examine your goals and make sure you understand them and that they are realistic.  An in-depth conversation regarding your risk tolerance is just as important.

A good financial advisor with help you understand what you have in your current retirement accounts and take the time you need to educate you to whatever extent you desire.  “My engineer clients want to know every detail including historical details, calculations, and every word of the fine print.  On the other hand, my business owner clients often tell me, “Just go ahead and tell me what I should do.” Not everybody wants every detail.  What most people want is somebody that they can trust to always do what’s best for them.  The client should make the most money, not the advisor!

Financial advisors are a lot like physicians and surgeons.  You want one that knows how to diagnose, recommend the best treatments available, and take the time to explain why they are making their recommendations.  And…they should return your calls in a timely manner.



How do I know if my financial advisor is bad?

A bad financial advisor:

  • Doesn’t listen.
  • Is not educated.
  • Only offers the same few products to everyone.
  • Doesn’t return calls, texts, or emails in a timely manner.
  • Makes you feel rushed.
  • Doesn’t take the time to get to know you and your family’s financial goals.
  • Tells you they can get better returns than the last advisor.
  • Doesn’t explain the pros and cons of each investment including the “fine print.”
  • Is not trustworthy.
  • Makes you feel as though your best interests are not their priority.


What are 5 benefits of hiring a financial advisor?

1  Knowledge and Expertise

Financial advisors have years of training and education.  They are experts in their field and are aware of products and investment choices you may not be aware of.

2   Stress Relief

Financial decisions can be overwhelming and stressful.  A good financial advisor will alleviate that stress and overwhelming feeling by organizing your portfolio, addressing your goals in a logical manner, simplifying what each financial product is supposed to do, and explaining it in a way that helps you fully understand it all.  They will help you develop a step by step financial plan that you can understand and implement.

3   Investment returns 

A good financial advisor helps you make more money than you could on your own.  Period.

4   Lifetime Income

Good returns aren’t the only important component in your financial plan.  In fact, the main reason to grow your retirement account is to provide income in your later years.  A good financial advisor can help you determine how much you can afford to take from your portfolio each year and not run out of money.  For many people, the right annuity can provide growth and a guaranteed lifetime income.

5   Tax Planning

Converting some of your IRAs into Roth IRAs is one way of reducing your taxes in retirement, but to convert you have to pay the taxes now.  Convert too much each year and you may pay more taxes than necessary.  Up to 85% of your social security may be taxed.  There may be ways you can avoid that tax by careful tax planning.  A financial advisor that specializes in retirement tax planning is essential to do the necessary calculations and file the proper forms.  CPAs are great for limiting your taxes while working, but they are not trained to find ways to eliminate taxes in retirement.


What are the 10 best questions to ask financial advisors?

The 10 best questions to ask a financial advisor are, “Will you always give me advice that is in my best interest and aligns with my risk tolerance and, ethical and financial goals?”  Repeat 9 more times.

• Can you trust financial advisors?

It’s no secret that we at Kopman Financial are not big fans of Dave Ramsey, but I have to admit some of the things he says are in fact, correct.  Like this quote pulled from his website:

“The truth is, most financial advisors are not crooks—they actually have your best interests at heart.”

But even if they do have your best interests at heart and may not try to cheat or mislead you, they can still give you bad advice!  As with most professionals, some are better than others.

• What is the difference between a financial planner and a financial advisor?

By definition, a planner takes a look at where you’re at, where you want to be, and maps out the best way for you to get there.  An advisor is a person who gives advice in a particular field.

How does this relate to the financial world?  One could ask, “I’d like some help planning for my retirement.”  A planner might answer, “Earn money, save some of it somewhere where it will grow in value, then start spending it at the proper time in the most efficient way.  Here is how to do that.”  An advisor might answer, “Put those savings into a diverse portfolio of  stocks and bonds, or into a life insurance policy that has a growing cash value.  Here are the products I’m recommending.”  So the planner makes the plan, the advisor tells you what products to use to implement the plan.  Simple, right?  Sorry, no.

The reality is, planners also act as advisors and advisors also act as planners. Insurance agents often act as planners and/or advisors.  So… is it a “difference without a distinction”?

According to the SEC and the NASAA:

Neither the SEC nor NASAA endorses any financial professional titles. We encourage you to look beyond a financial professional’s title to determine whether he or she can provide the type of financial services or products you need.

In other words, the titles of financial planner and financial advisor these days are pretty much interchangeable.  As with many designations, there are professional who take their destinations seriously and others that merely use them as marketing gimmicks.  One thing’s for certain, the lines between what “financial planners” and “financial advisors” do have blurred to the point of being meaningless.

The SEC and NASAA jointly issued an investor buletin to address the issue.  You can read the original bulletin here or read an abridged version below.

The Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy and the North American Securities Administrators Association (NASAA) are jointly issuing this Investor Bulletin to help investors better understand the titles used by financial professionals. The requirements for obtaining and using these titles vary widely, from rigorous to nothing at all. To use certain titles, a financial professional may need to pass exams, meet ethical standards, have relevant work experience, and undertake continuing education. Other titles, however, may be obtained with little time, effort, and experience.

Neither the SEC nor NASAA endorses any financial professional titles. We encourage you to look beyond a financial professional’s title to determine whether he or she can provide the type of financial services or products you need.

Some titles are granted by private organizations, such as a trade group. While some private groups that grant titles may provide a method for you to complain about one of their members and can discipline a member for misconduct, there are other groups that do not take complaints or discipline their members.

Still other titles may be simply purchased, or even made up by financial professionals hoping to imply that they have certain expertise or qualifications; such titles are generally marketing tools and are not granted by a regulator. As with any title, you should verify a financial professional is really qualified to advise you.

Retirement Accounts

My 401(k) is with my former employer. Should I leave it there? If not, how do I move it?

If you have a 401(k) at a previous employer you should move your funds into an IRA.

Some employers offer Roth 401(k) plans where your contributions go into the Roth side and the employer match goes into the tax-deferred side.   You can move the Roth funds into a Roth IRA, but the tax-deferred funds will have to go into a traditional IRA.

Why should you move your money?  Here are 6 good reasons:

  1. 401(k)s usually have higher fees than your own IRA.
  2. The choices of funds to put your money into also have higher fees.
  3. Most 401(k) plans have a limited number of funds to choose from, whereas you can invest in almost any fund in your own IRA.
  4. Moving your money into an IRA gives you more control over your assets.
  5. It’s unlikely, but if your previous employer goes out of business or changes 401(k) custodians, your account could be lost or difficult to locate.
  6. If you want to buy something other than mutual funds, bond funds, or money markets, you need a self-directed IRA.  As an example, if you want to buy land, you can do that with your IRA as long as there is enough money in your account (you can’t add outside funds to make the purchase).

To move your money, you’ll need a transfer form, from the custodian that holds your 401(k). Obtain the form and have your bank, broker or whatever institution has your IRA (or new IRA) help you fill it out.  Then send it to the 401(k) custodian.  If you are buying an annuity with the money, you can usually give your insurance agent or financial advisor the transfer form and they will fill it out and send it in for you.

Either way, you must sign the form where indicated and have it notarized.  Some institutions insist on a “signature guarantee” or “medallion signature guarantee.”

What’s an IRA?

An IRA is an Individual Retirement Account.  It is used to hold assets with either tax-deferred or tax-free growth for the purposes of funding your retirement.  If you want to take some of your income and put it away for retirement and not pay taxes on it until you take it out, then a traditional IRA is for you.

Traditional IRA = Tax-deferred (money not taxed until distributed) 

If you want to take some of your income that you’ve already paid taxes on,  put it away for retirement and never pay tax on the gains, then a Roth IRA is for you.

Roth IRA= Tax-free (already taxed money not taxed later, any interest earned is never taxed)

Required Minimum Distributions (RMD)

Starting at age 72, a portion of your money (approximately 4% of the balance) in a traditional IRA must be distributed and taxed each year.  Don’t need or want the money?  You still have to take the distribution or incur a 50% penalty!  Roth IRAs have no RMD requirements.

SEP IRAs and SIMPLE IRAs are used for business owners and self-employed individuals and function pretty much the same as traditional IRAs.

All IRAs have IRS guidelines that dictate income and contribution limits which are subject change based on legislation.


What’s the difference between tax-deferred and tax-free?

Tax-deferred means you are “deferring” paying the taxes on that bucket of money.  You will pay taxes later.
Some good examples of tax-deferred accounts are IRAs and 401(k)s.  In a tax-deferred account, the interest on your money is also deferred until you take distributions.  Annuities are usually tax-deferred, but if you buy an annuity within a Roth IRA, then those distributions are never taxed.

Tax-free means you will not have to pay taxes on any distributions.  Some good examples of tax-free accounts are Roth IRAs and many forms of life insurance.  A financial planner can put together a L.I.R.P. (Life Insurance Retirement Plan) that will grow in value over time.  Then in later years, you can take money out tax-free.

So what’s a tax-free retirement?  A tax-free retirement means that you will pay no taxes in your retirement years on any distributions or social security payments.  If you have a L.I.R.P. and a Roth IRA, and your standard deduction offsets your social security payments, you may not be subject to taxation.  Generally, if you have a pension you can get close, but you won’t be able to have a completely tax-free retirement.

See your financial advisor for details and to see if you can implement a plan like this.

What is a Roth IRA?

A Roth IRA is an individual retirement account that provides tax-free growth and tax-free withdrawals after age 59 1/2. The only caveat is you have to have owned the account for at least five years.  The other benefit of the Roth is that there are no RMDs (required minimum distributions).

The maximum contribution per person in 2020 is $6,000 up to age 50.  It’s $7,000 if age 50 or older.

To be eligible to contribute the full amount to a Roth IRA, in 2020 your income must be below $125,000 if single and below $196,000 if filing jointly.

You are eligible to contribute a reduced amount to a Roth IRA, in 2020 if your income is between $124,000 and $139,000  if single and between $196,000 and $206,000 if filing jointly.


How do I convert a Traditional IRA to a Roth IRA?

You can convert a Traditional IRA to a Roth IRA using one of these 3 methods:

  1. Rollover:  Take a distribution from your traditional IRA (check, wire, direct deposit) and put it into your Roth IRA account.  This must be done within 60 days or you will incur a 10% penalty for early distribution unless you are 59 ½ or older.
  2. Trustee to Trustee Transfer: Contact the financial institution that holds your traditional IRA and tell them to transfer your funds into your Roth IRA located at another institution.
  3. Same Trustee Transfer: Contact the financial institution that holds your traditional IRA and tell them to transfer your funds into your Roth IRA located at that same institution.

You will have to file IRS form 8606 with your tax return and pay the tax on your distribution as if it was ordinary income.


What is a Roth IRA conversion? Is the same thing as a backdoor Roth conversion?

Roth IRA Conversion

A Roth IRA conversion is a transfer of retirement assets from a Traditional, SEP, or SIMPLE IRA into a Roth IRA.  A Roth IRA conversion is often utilized to create a “tax-free retirement.”  If you expect taxes to  increase in the near future, then this strategy can save you money.  Sometimes quite a bit of money.  It also has the added benefit of removing RMDs from that account.  There is no maximum transfer amount.  However, you may not want to transfer it all in one year as this may put you into a next higher tax bracket.

So, what’s the catch?  There’s really no catch per se, but you will have to pay the taxes on the money you transferred in the year you make the transfer. Fortunately, the early withdrawal penalty does not apply.

Backdoor Roth IRA Conversion

A backdoor conversion is a Roth conversion that is used to subvert the contribution rules for Roth IRA contributions.  If you make too much money to contribute to a Roth, you can open a traditional IRA, contribute a “non-deductible” amount using already taxed funds, up to the maximum, and then convert the IRA into a Roth IRA.  You pay the taxes due just like a regular Roth IRA conversion. Some advisors use the term IRA conversion and backdoor conversion interchangeably, but that is technically not correct.

So what’s the point of having that maximum income rule for Roth IRAs if you can do this–and is it really legal?

According to Donald Kieffer Jr., tax law specialist and IRS employee, on an IRS sponsored broadcast on 3/10/18 stated:

Although an individual with [adjusted gross income] exceeding certain limits is not permitted to make a contribution directly to a Roth IRA, the individual can make a contribution to a traditional IRA and convert the traditional IRA to a Roth IRA. 

Mr. Kieffer has also been directly quoted saying:

“I think the IRS’s only caution would be whenever we see words like ‘back door’ or ‘workaround’ or other step transactions that are putatively enabling a way to get around limits — especially statutory contribution limits — you generally find the IRS is not happy and prepared to challenge those,” Kieffer said. “But in this one that we’re talking about, it’s allowed under the law.”



Taxes in Retirement

Can I really have a tax-free retirement?

The short answer is maybe.  If you will be receiving a sizable pension, you can minimize your taxes greatly, but you will most likely be taxed on your social security.  If you will not be receiving a pension, then with careful planning, you can in fact have a tax-free retirement.  Careful planning is the key here.  Please talk to your advisor about this.  At Kopman Financial we do this for our clients every day, so it’s easy for us.  For most people costly mistakes are easy to make.  Don’t try to do it yourself.

If you will be living on social security alone, you will not have to pay any income tax and probably will not have to file.


How is social security taxed? What is provisional income?

Most people who collect social security will pay taxes on that income.  In fact, up to 85% of your social security may be taxed.  As of 1983, social security payments have been subject to taxation, depending on your other income.  Seniors living only on social security will not be taxed.  But…you may be able to limit your taxes by taking certain steps.

With careful planning, you can limit this taxation.  There is a calculation used to determine how much of your social security will be taxed.  This calculation is generally referred to as Provisional Income.  Add up all your taxable income, whether it comes from a 401k, IRA, salary, capital gains, etc. even tax-free muni bonds and then add in 1/2 of your social security payment.  If you are single and your provisional income is over $34,000 then up to 85% of your social security will be taxed at your ordinary tax rate.  If you’re married, the threshold is $4,400 for that 85% taxation.  Rather than going through the entire exercise, here is a handy calculator to do the math for you.

When do the Trump tax cuts expire?

January 1, 2026

What are the tax rates for 2019? What will they be when the Trump tax cuts expire?

Click here to view a tax bracket chart comparing 2017 to 2019 tax brackets.  The trump tax cuts are scheduled to sunset (expire) in 2026.  At that time, taxes will automatically revert back to 2017 levels.

Insurance Products

What is an annuity? Why would I need one?

There are fixed annuities and variable annuities.  Fixed refers to a product sold by an insurance company and variable refers to a product sold by an investment company.  A fixed annuity is an insurance product that will guarantee you an income for life.  You generally deposit money at the time of purchase and it will grow over time either with a fixed interest rate or in the case of an index annuity, at a rate corresponding to a stock market index like the S&P 500.  The advantage of an index annuity is it gives you much greater opportunity for growth, and in a down market year you don’t participate in the losses.  In other words, when the market takes a dive, the worst return you can get is 0% instead an unlimited loss.

A variable annuity is very similar to a fixed index annuity except that you actually own the underlying stocks instead of participating in returns tied to an index’s performance.  The advantage of a fixed annuity is the potential for higher growth than an index annuity, but the disadvantage is you also get to participate in the losses in a down year.

Both types of annuities offer tax-deferred growth.  Because tax-deferred growth is built into the product, many advisors advise against buying an annuity with an IRA.  Why put a product into a tax-deferred account that already has tax-deferral?  What these advisors are missing, is the opportunity to get “risk-free” tax-deferred growth on money that is already in an IRA.  Just as importantly, annuity payouts are taxed as ordinary income.  If you buy an annuity inside a Roth IRA, the payouts are completely tax-free.

While all annuities will give you the option of turning on a lifetime income you can’t outlive, in the past many annuities kept the balance of your account when you passed away.  If you died 30 years into the payout period, you collected a whole lot more money than you put in, but if you died 3 years into the payout period, the insurance company made out like a bandit!  Not so anymore.  Now most annuities, especially fixed index annuities, accrue interest on your balance while in the accumulation phase and will pay out every penny either to you or your heirs. As in the previous example, if you die 3 years into the distribution phase, there will be most your balance left in your account.  Your beneficiary will receive the full amount that’s left.

Some annuities have “bonus” features.  As a hypothetical example, in an index annuity tied to the stock market, you may receive a 40% bonus on your growth each year, so if you are credited 10% due to market growth, you will receive an extra 4% added to your account–making your credited interest amount 14%.  Yes, there can be some “fine print” so be sure to ask your advisor or broker to fully explain the proposed product.

For someone that wants to lock in a guaranteed income for life, an annuity can be a very wise choice. For a risk averse investor, a fixed index annuity gives you the best of both worlds.

I’ve heard annuities have high fees. Is that true?

Like anything else in the world of finance and insurance, products have fees that can vary greatly by product and company.  Annuities have received a bad reputation from poor designs and high fees levied in the past.  Even today, there are some annuities with very high fees and burdensome miscellaneous charges–especially variable annuities.  On the other hand, there are several new annuity designs from responsible carriers like Allianz and Athene that have very low fees.  There are some annuities with no fees at all.



What is the S&P 500 and the Dow Jones Industrial Average (DJIA)?

The S&P 500 (Standard & Poor’s 500) and the Dow are the two most popular indexes that give a snapshot of the stock market.  When the S&P or Dow goes up, most stocks go up as well.  The S&P is a group of 500 large-cap American stocks. The Dow Jones Industrial Average, Dow Jones, or simply the Dow, is a stock market index that measures the stock performance of 30 large American companies listed on the stock exchange.

There is some overlap of stocks in the two indexes, but each index chooses it stocks independently.

What are FANG stocks?  FANG is an acronym for Facebook – Amazon – Netflix – Google.  These are 4 of the hottest technology companies in the market today.  Some people think Apple should also be included, which would make it F.A.A.N.G.

CNBC’s “Mad Money” host Jim Cramer coined the acronym FANG in 2013 to collectively refer to the four high-growth internet stocks–and it stuck.

Get In Touch

Kopman Financial

8901 E. mountain view rd. #110  Scottsdale, AZ 85254
480 991 2815

Rob Kopman, Principal
Cell: 480 991 2815