Need Help Choosing A Financial Advisor? Watch Out For These Mistakes

Hiring a financial adviser is an important life choice that may affect your financial future for decades. According to research conducted by Northwestern Mutual in 2020, 71% of U.S. citizens acknowledge their financial planning needs better. Nevertheless, just 29% of Americans work with a financial counselor. 

Working with a financial advisor has different values for each person, and the law prohibits advisors from guaranteeing returns. Still, research indicates that financial advisors can make people feel more at ease about their finances and could help them save 15% more for retirement.

A recent Vanguard research indicated that a hypothetical $500K investment managed by an adviser would grow to over $3.4 million over 25 years, while self-management would provide an anticipated value of $1.69 million, or 50% less. In other words, a professionally managed portfolio would average 8% annualized growth over 25 years, whereas a self-managed portfolio would average 5% annualized growth.

When selecting a financial adviser, these seven frequent mistakes will help you discover peace of mind and perhaps save you years of anguish.

1. Recruiting a non-fiduciary Advisor

A fiduciary is a person who is morally committed to behaving in another person’s best interests. Conflicts of interest must be avoided by fiduciary financial advisors, and any conflict of interest must be disclosed to clients.

 If your adviser is not a fiduciary and continuously pushes investing products on you, you should consider finding a fiduciary financial advisor. 

2. Hiring the Advisor You Meet Initially

This selection demands more time, despite the temptation to hire the counselor nearest to home or the first advisor listed in the yellow pages. Take the time to conduct at least a few interviews with potential advisors before selecting the greatest fit.

3. Selecting an Adviser with the Incorrect Specialization

Some financial advisers specialize in retirement planning, while others are ideal for company owners or those with high net worth. Some may be ideal for young professionals planning to establish a family. Before signing the dotted line, you must know an advisor’s strengths and weaknesses.

4. Choosing a Consultant with an Incompatible Strategy

Each adviser employs a distinct technique. Some counselors may recommend risky investments, while others are more cautious. If you like investing solely in equities, there are better fits than a financial advisor who favors bonds and index funds.

5. Not Requesting Credentials

To provide investment advice, financial advisers must pass an exam. Inquire about your advisor’s licenses, examinations, and qualifications. Tests for financial advisers include Series 7 and either Series 66 or Series 65. Some advisers attain the Certified Financial Planner (CFP) designation.

 6. Not knowing how they are compensated

Some advisers are “fee-only” and charge a set cost regardless. Some charge a percentage of the value of your assets. Some advisors receive compensation from mutual funds, which creates a significant conflict of interest. Do not select a financial advisor who makes more by neglecting your best interests.

7. Not Employing a Qualified Advisor

There are probably several highly skilled financial counselors in your city. Yet, selecting one might seem intimidating. It is important to ask questions and meet with them to make sure they are the right fi