7 Mistakes People Make When Choosing a Financial Advisor

Written by Arthur

A financial advisor can make major life changes that will affect your financial future for years to come.

According to a 2020 study by Northwestern Mutual, 71% of Americans admit that their financial planning is substandard. Only 29% of Americans own a financial advisor. While the value of working with advisors varies from person to person, advisors cannot promise returns. However, research shows that people who have more control over their finances are likely to spend 15% more money in retirement. According to a Vanguard study, an average $500,000 investment would amount to $3.4 million if managed by an advisor for 25 years. However, autonomy will bring in $1.69 million, or half the value. Advisor-managed portfolios grew at an annual rate of 8% over a 25-year period, compared to 5% for self-managed portfolios.

1. Hire a non-trust advisor

By definition, a trustee is a person who has a moral obligation to act in the best interests of others. This commitment eliminates conflicts of interest and makes the advisor’s advice more reliable.

2. The first advisor you meet

While it may be tempting to choose the advisor closest to you or one listed in the Yellow Pages, it takes more time. You should consult with at least three advisors before making a final decision.

3. Choosing the wrong professional consultant

Some financial advisors are experts in retirement planning, while others specialize in serving business owners and high net worth individuals. Some counselors are best for young professionals looking to start a family. Before you sign the dotted line, make sure you understand your advisor’s strengths and weaknesses.

4. Select advisors with incompatible policies

Every consultant has their own strategy. Some advisors may recommend aggressive investing, while others are more conservative. If you want to invest heavily in stocks, an advisor who favors index funds and bonds is not for you.

5. Don’t ask for credentials

Financial advisors must pass the test to give investment advice. Ask your advisor about their certificates, licenses and tests. Financial advisors are required to take the Series 7 and Series 66 exams. Some advisors go a step further and become certified financial planners or CFPs.

6. Not sure how to get paid

Some advisors charge a flat fee and charge you nothing extra. Some advisors charge a percentage of the assets you manage. Some advisors receive commissions from mutual funds. This is a serious conflict. Don’t hire a more profitable consultant than you for ignoring your best interests.

7. You can hire a consultant yourself

There may be many highly qualified financial advisors in your area. It can be difficult to choose one.

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