8 Steps to Avoid When Choosing a Financial Advisor

The number of consumers who end up taking financial advice from the wrong advisors is horrifying, please don’t be those people! Choosing a financial advisor is a major life decision that can determine your financial trajectory for years to come. Let’s just go ahead and say it right upfront, the number of mistakes people make when they choose a financial advisor is they make an emotional decision instead of a financial decision.

They work with someone who was a college friend, or they go to church with. A family member that is starting a new career path as a financial decision. If I were to make a list of the professions I distrust the most. Financial Advisors would be in the top 5. Of course, lawyers are at the top of my list.

I heard it said one time that “99% of lawyers give the other 1% a bad reputation”. 

Regardless if we are talking about financial advisors, lawyers, or any other profession, there are good people out, you just have to look harder.

In business, life, and money, I have always believed that the most important question we can ask ourselves is “Who is this person, and why should I be listening to them?” That simple question would keep more people from making bad financial decisions, and following the wrong business mentors, more than any question I can share.

A 2019 Northwestern Mutual study found that U.S. adults who work with a financial advisor report “substantially greater financial security, confidence and clarity than those who go it alone.”

The value of working with a financial advisor varies by person and advisors are legally prohibited from promising returns, but research suggests average additional investment returns can range from 1.5% to 4% more each.

Some many new apps and tools make it easy to find the right financial advisor near you in just a few minutes. Our exclusive, no-cost tool matches you with up to three local fiduciary financial advisors that have passed a rigorous screening process. We confirm each is registered with the U.S. Securities and Exchange Commission (SEC) or the appropriate state regulator, possesses the proper licenses and has no pending or valid regulatory disclosures within the past 10 years.

Being aware of these eight common blunders when choosing a Financial Advisor can help you find peace of mind, and avoid years of stress.

1. Hiring a Financial Advisor Who Is Not a Fiduciary

By definition, a fiduciary is an individual who is ethically bound to act in another person’s best interest. This obligation eliminates conflict of interest concerns and makes an advisor’s advice more trustworthy.

All of the financial advisors on most client matching platforms in the market are registered fiduciaries. If your advisor is not a fiduciary and constantly pushes investment products on you, there are many tools to find an advisor who has your best interest in mind.

2. Hiring the First Financial Advisor You Meet

While it’s tempting to hire the advisor closest to home or the first advisor in the yellow pages, this decision requires more time. Take the time to interview at least a few advisors before picking the best match for you.

3. Choosing a Financial Advisor with the Wrong Specialty

Some financial advisors specialize in retirement planning, while others are best for business owners or those with a high net worth. Some might be best for young professionals starting a family. Be sure to understand an advisor’s strengths and weaknesses – before signing the dotted line.

4. Picking a Financial Advisor with an Incompatible Strategy

Each advisor has a unique strategy. Some advisors may suggest aggressive investments, while others are more conservative. If you prefer to go all-in on stocks, an advisor that prefers bonds and index funds is not a great match for your style.

 5. Not Asking about Credentials

To give investment advice, financial advisors are required to pass a test. Ask your advisor about their licenses, tests, and credentials. Financial advisors tests include the Series 7, and Series 66 or Series 65. Some advisors go a step further and become a Certified Financial Planner, or CFP. Regardless, how many initials they have behind their title is not the real issue, but should be taken into consideration?  The real issue is asking to talk to some of their other clients.

6. Not Understanding How They are Paid

Some advisors are “fee-only” and charge you a flat rate no matter what. Others charge a percentage of your assets under management. Some advisors are paid commissions by mutual funds, a serious conflict of interest. If the advisor earns more by ignoring your best interests, do not hire them.

7. Trying to Hire a Financial Advisor on Your Own

Chances are, there are several highly qualified financial advisors in your town. However, it can seem daunting to choose one. There is a no-cost tool available that makes it easy to find the right financial advisor for you. Now you can get matched with up to three local fiduciary investment advisors that have been rigorously screened for regulatory disclosures and to confirm their licenses. The entire matching process takes just a few minutes.

8. Not taking Responsibility for Your own Personal Education

If you are a regular reader of the Save Your Bucks website then there is a great possibility that you take responsibility for your financial education and future, that is why you are here, right?

So, I will remind you one more time to have an attitude of responsibility and personal education and always ask yourself, “Who is this person, and why should I be listening to them?


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