Many people get to stages in their lives when they realize it’s time to hire financial advisors. Frequently, they come to that conclusion when their wealth begins to grow. Then, they want advice about how to manage it. However, there are often mistakes people make when hiring financial advisors. Knowing about some of them can help you steer clear of those pitfalls.
Common Mistakes People Make When Hiring Financial Advisors
When you know more, you have the opportunity to make better decisions. Here are some of the mistakes people make when hiring financial advisors — and ways to avoid them.
Hiring Financial Advisors Without Researching Them
The internet makes it substantially easier than it once was to research virtually any professional provider of financial services. You can find reviews on these financial advisors by spending only a few minutes of time online.
However, some people are in such a hurry to start working with financial advisors. They make the decision to proceed hastily without doing any external and independent research. Choosing to research financial advisors helps you feel more informed about the professionals that interest you. For example, you may have specialized needs that one financial advisor on your shortlist will not be able to handle. If you conduct thorough research, you may discover there is someone else more equipped to meet your needs.
Not Understanding How Financial Advisors Get Compensated
Generally speaking, financial advisors help their clients manage money. Despite that common purpose, there are still some differences in the types of financial advisors you could hire, and more specifically, how they get compensated. This can lead to some of the mistakes people make when hiring financial advisors.
For example, a fee-only financial adviser may charge you:
- an hourly rate
- a per-session fee
- or take a percentage of the managed assets each year
There are also commission-based financial advisors that get compensated by brokerages or fund companies for making sales to their clients.
Rest assured, a certain financial compensation structure for a given financial advisor does not necessarily dictate the quality of service they give you. But, it’s still a good idea to be aware of the kinds of compensation that financial advisors get. If an advisor doesn’t mention that they are a fee-only professional, you could explicitly ask if they receive commissions. You can take their answer into account when making a decision.
Hiring a Financial Advisor Who Uses a Blueprint Plan for Clients
All clients who need financial advisors have different needs and backgrounds. However, some advisors use a blueprint plan when working with clients. Another one of the mistakes people make when hiring a financial advisor is to settle for that kind of universal technique. In other words, they give similar advice to all customers through a one-size-fits-all approach.
Be wary of anyone who claims to have an investment plan that works for anyone.
A good financial advisor will take the time necessary to listen to your situation and your needs. Only then will they be successful in recommending the right investment strategy for you.
Two things that you can do to avoid hiring someone who gives the same advice to all clients:
- ask for references
- check them thoroughly
If you notice a pattern in the advice people say they received from a given financial advisor, that’s a potential red flag.
Blindly Accepting the Advice Given
You may find it becomes possible for you to naturally develop rapport and a sense of trust towards your financial advisor over time. However, you should not begin to quickly accept the advice they give you without exercising independent thought. This means it’s also wise to ask questions before accepting something they recommend. That is why it is smart to research financial advisors before hiring them.
A financial advisor who acts professionally will always have the interests of the client in mind. But, you should still consider taking an active role in your investment strategy instead of being a passive participant.
Examples of ways to be an active participant in your investment strategy include:
- gaining an inquisitive viewpoint
- getting informed about investment options before choosing one
Doing this can ensure that you are more active in your own investment strategy. It can help you cut down on the mistakes people make when hiring a financial advisor.
Your Money, Your Choice
Hiring a financial advisor isn’t always easy, but you don’t have to feel overwhelmed by the prospect. These are just some of the mistakes people make when hiring financial advisors. Be cognizant of the above information when making decisions. It can help you avoid some of the problems that can occur before, and after, hiring a financial advisor.
AUTHOR LaTia Longuemire
My name is LaTia Longuemire. I enjoy writing, singing, and cooking in my spare time. My passion is helping others. At this stage in my lifetime, I'm primarily focused on my children. They are everything that keeps my world spinning.