6 Things Not to Do When Selecting a Financial Advisor

Hiring a financial advisor is one of those pivotal life decisions - a fork in the road that can dictate the path of your financial future for decades to come.

A study from Northwestern Mutual of the attitudes and behaviors of American adults toward money found that 71% of them felt their financial planning needed improvement, while only 29% work with a financial advisor.¹

The value of working with a financial advisor varies by person and advisors are legally prohibited from promising returns, but research suggests 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.²

While hiring a financial advisor can help you maximize your retirement nest-egg, there are some potential pitfalls you should be aware of before you choose who to hire.

SmartAsset's no-cost tool can help you avoid some of the common mistakes in looking for an advisor. How does the free tool work? It's easy:

• Short questionnaire takes just a few minutes
• Match with up to three fiduciary financial advisors
• Compare your matches and choose the one you feel is best for you

The fiduciary financial advisors you match with serve your area and are legally bound to work in your best interest. You may even be able to instantly connect with an advisor for a free retirement consultation. Advisors are rigorously screened through our proprietary due diligence process.
We made our tool because finding an advisor can be tough. A good advisor could help give you great peace of mind; avoiding these seven blunders could save you years of stress.

1. Don't Hire a Non-Fiduciary Financial Advisor

A fiduciary financial advisor is held to a strict fiduciary standard. That commitment is a powerful one -- one that means that they must always act in the best interest of their clients, avoid conflicts of interest and disclose any potential conflicts of interest and to provide all relevant facts to their clients.
Hiring an advisor who is not a fiduciary means they could recommend decisions that may not be in your best interest.

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.

If you're currently heeding the advice of a non-fiduciary advisor, use our free tool to find a fiduciary who operates with your future in mind.

2. Don't Simply Hire the First Financial Advisor You Find

Resist the temptation to quickly cross “hire a financial advisor” off your to-do list. While it may be convenient to select an advisor who is close to your home or close to your family, a decision as big as your financial future requires more than cursory consideration. Find a few options here to interview before committing. Before you commit to an advisor, it is important to do your research and compare. Our free matching tool will match you with up to 3 to compare.

3. Don't Partner with an Advisor Whose Strategy Doesn't Align

Your overall risk tolerance is a personal preference, one that varies widely among financial advisors. Some have a penchant for aggressive stock investments, while others may encourage more secure bonds. Look for an advisor whose risk tolerance either matches or is willing to match yours.

4. Don't Forget to Ask About Credentials

In life, plenty of advice comes cheaply. Not financial advice. Financial advice can have life-altering consequences. As such, ask your potential future advisor about their tests passed, licenses awarded, and credentials earned. 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.

5. Don't Misunderstand Advisor Fees

Fees matter. High fees can cut into your returns and affect your overall nest egg. But the ways fees are levied vary. Some are “fee only,” charging a flat rate regardless of usage. Others take a percentage of all assets under management. Some earn commissions directly from mutual funds or other financial products, which presents a significant conflict of interest.
Ask your advisor about their licenses, tests, and credentials. Some become a Certified Financial Planner (CFP).

6. Don't Hire an Advisor Who Hasn't Been Vetted

Chances are, there are several highly qualified financial advisors in your town. However, it can seem daunting to choose one.

Our free matching tool can help you find vetted fiduciary advisors that serve your area. Just answer a few simple questions and you'll be matched in minutes with up to three financial advisors. Be mindful that not all financial advisors are created equal, after all, and given the important role they can play in helping you work toward trying to achieve your financial goals, it's a decision you want to get right. It's worth devoting time and effort to comparing and researching advisors to find the right one for you that you will want to work with for years to come.

This is not an offer to buy or sell any security or interest. All investing involves risk, including loss of principal. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns). There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest.

SmartAsset Advisors, LLC ("SmartAsset"), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. Securities and Exchange Commission as an investment adviser. SmartAsset’s services are limited to referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States that have elected to participate in our matching platform based on information gathered from users through our online questionnaire. SmartAsset receives compensation from Advisers for our services. SmartAsset does not review the ongoing performance of any Adviser, participate in the management of any user’s account by an Adviser or provide advice regarding specific investments. We do not manage client funds or hold custody of assets, we help users connect with relevant financial advisors.

SmartAsset.com is not intended to provide legal advice, tax advice, accounting advice or financial advice (Other than referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). SmartAsset is not a financial planner, broker or tax adviser. The Service is intended only to assist you in your understanding of financial organization and decision-making and is broad in scope. Your personal financial situation is unique, and any information and investing strategies obtained through SmartAsset.com may not be appropriate for your situation. Accordingly, before making any final decisions or implementing any financial strategy, you should consider obtaining additional information and advice from your accountant or other financial advisers who are fully aware of your individual circumstances.
Other than application and licensing fees, SmartAsset did not provide compensation for the aforementioned awards.

Sources:

1. “Planning and Progress”, Northwestern Mutual (2022)
2. "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.