5 Mistakes to Avoid When Hiring a Financial Advisor

Woman sitting at a coffee shop table: common mistakes to avoid when hiring a financial advisor.

A major step in securing your financial future is hiring a financial advisor. This is not like hiring a repairman. Simply hiring a financial advisor based on a friend or family member’s recommendation is ill-advised and even reckless for your financial well-being. When you are looking for the right financial advisor, here are five common mistakes to avoid.

1. Not Shopping Around

Simply selecting the first financial advisor who seems competent is a mistake. You may really like the first advisor you come across, but there might be a better fit. Don’t settle until you have shopped around a bit. This process includes speaking with various advisors and interviewing some of their clients. Don’t hold just one interview with a potential advisor, either. Take the opportunity to reach out two or three times to get a solid idea of their communication style.

2. Relying on Past Performance

A financial advisor is more than just a money manager. Their track record of investment returns, while important, is not the entire picture. Financial advisors should be holistic in their approach and not just asset allocators. Advisors who are concerned only with investment performance could lead you down the wrong path and away from your goals. You’re looking for a partner and strategies that fit your long-term needs.

3. Failing to Vet Them

Once you find a financial advisor you like, don’t fail to vet them. Don’t just look at their client roster or office suite. Ask for a background check and multiple references. Relying on the word of your friend or co-worker won’t be good enough here. Ask about their specific experiences and typical clients. Confirm their credentials as well. Many regulators and oversight boards have search functions for verifying advisors and their designations.

The biggest part of designations and credentials lies in finding an adviser with the expertise you need. But remember, you’re hiring the person and not the credentials they hold.

4. Getting Hung Up on Cost

The Cost of the financial advisor should not be your main concern. It will definitely be a factor, but the more important question is — how are they compensated?

Low fees sound great, but make sure to get an understanding of what you’re paying for. Saving a couple of hundred dollars will pale in comparison to the wrong guidance that costs you thousands of dollars.

Fee-only advisors are paid flat fees for helping you. A commission-based advisor collects fees based on the products they sell or trade or on their performance. Some advisors will charge a combination of the two.

The biggest part of the cost is transparency in understanding what you’re paying for and what you’re getting. If your investing plan includes only some small investments in low-fee funds right now, you don’t want to end up paying large fees for asset allocation services.

However, you might be willing to pay for a needs analysis or action plan to boost your investing over time. An action plan can include a flat fee structure that helps you on the course toward your financial goals. Don’t get hung up on how much one advisor charges per hour, and don’t be short-sighted by being unwilling to pay commission fees.

5. Choosing the Wrong Style

Finally, picking an advisor who doesn’t fit your style can lead to all sorts of issues. There is more to “style” than an advisor’s investing style. Does their communication style also work for you? What’s their specialization?

A good financial advisor should serve as a financial coach and partner in your financial future. Some financial advisors have specialization in just one part of finance, such as investing or retirement. Is that what you need?

Or are you looking for a financial advisor who can help with those and other areas? If you’re a business owner or have a unique family situation, then you’ll want an advisor with experience in helping similar individuals.

Start Planning for the Future Today

Now that you know the major mistakes most people make when hiring a financial advisor, are you ready for the next step? Schedule a meeting with one of our certified financial planners at Good Life Mt. Pleasant to see if we’re a good fit for you.

We offer discovery meetings that come with zero obligation, and we’d be happy to learn about your current financial situation and long-term financial plans. While our focus is on you, we’re happy to answer any questions about us and our process. Contact us today to explore how we can help!