Choosing a financial advisor is a major decision that can determine your financial trajectory for years to come.
The value of working with a financial advisor varies by person, and advisors are legally prohibited from promising returns. But research suggests that people who work with a financial advisor feel more at ease about their finances and could end up with about 15% more money to spend in retirement.1
A recent Vanguard study found that, on average, a $500K investment would grow to over $3.4 million under the care of an advisor over 25 years, whereas the expected value from self-management would be $1.69 million, or 50% less. In other words, an advisor-managed portfolio would average 8% annualized growth over a 25-year period, compared to 5% from a self-managed portfolio.2
SmartAsset’s no-cost tool simplifies the time-consuming process of finding a financial advisor. A short questionnaire helps match you with up to three local fiduciary financial advisors, each legally bound to work in your best interest. The whole process takes just a few minutes, and in many cases, you can be connected instantly with an expert for a free retirement consultation.
Being aware of these seven mistakes when choosing an advisor can help you find peace of mind and potentially avoid years of stress.
1. Hiring an 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 SmartAsset’s matching platform are registered fiduciaries. If your advisor is not a fiduciary and constantly pushes investment products on you, use this no-cost tool to find an advisor who has your best interest in mind.
2. Hiring the First 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 an Advisor with the Wrong Specialty
Some financial advisors specialize in retirement planning, others are better for business owners or those with a high net worth, and some might be best for young professionals starting a family. Be sure to understand an advisor’s strengths and weaknesses – before signing on the dotted line.
4. Picking an 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. SmartAsset’s platform will list each of your matches credentials, for easy comparison.
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. Not Hiring a Vetted Advisor
Chances are, there are several highly qualified financial advisors in your town. However, it can seem daunting to choose one.
SmartAsset’s no-cost tool makes it easy to find a qualified financial advisor. Just answer a few questions about your financial situation and then you can compare up to three advisors serving your area, and decide which to work with. The entire matching process takes just a few minutes, and in many cases you can be connected instantly with an advisor for a free retirement consultation.
1. Journal of Retirement Study Winter (2020). The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of your future results. Please follow the link to see the methodologies employed in the Journal of Retirement study.
2. Vanguard (Feb. 2019), Putting a Value on Your Value. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of your future results. Please follow the link to see the methodologies employed in the Vanguard whitepaper.