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Financial advisors help people with their financial planning, by working with you to set financial goals, and they guide you in deciding, when to save, how much to save, how to handle debt, and when/how to invest to reach your financial goals.
Read this post about how to hire a financial advisor. If you are on the lookout to hire one, you need to make sure that the financial advisor will watch out for you and guide you to make decisions that will be in your best interest, financially.
Here are some mistakes you must avoid when selecting your financial advisor.
1. Hiring the first advisor that you found. Why would you do that? This is exactly like going to a car dealership and paying for the very first car that you sight. You know you won’t do that, right? You want to know the cost, see the interior, gas/mile information, you test drive, the horsepower (if you are car craze/enthusiast). In the same way, You need to interview multiple advisors to know what they offer and also for you to be able to decide and choose who you are most comfortable to work with. It’s a vital decision, so I want you to shop around and take your time to interview a few advisors before you pick the best match for you.
2. Not researching who you’re hiring. You should perform thorough research before you hire anyone to be your financial advisor. Check out their background, education, credentials, track record, bankruptcy history. If they are affiliated to any firm, what is the reputation of the firm?
“You wouldn’t hire a doctor that didn’t go to medical school. Would you? So why then would you hire a financial advisor who didn’t get educated in financial planning?” CFP again is the gold standard of the industry. So you should verify their background.
3. Choosing an advisor that does not suit your goal. There are several services that financial advisors provide. What service do you require? You need to clearly establish your goals and know what you want before you approach a financial advisor. Some financial advisors tend to specialize and focus on specific aspects so that they can better serve their clients. Some advisors help with – retirement planning, wealth management, tax planning, etc. You must ensure that the advisor that you are hiring has experience and qualification to help you with your specific needs. For example, if you are in debt, it will not be of use to hire a financial advisor that specializes in estate planning and expect him to do a good job with your debt situation.
4. Hiring out of sentiment. I’m not the type that will tell you not to do business with your family but hiring your brother-in-law as your financial advisor out of sentiment is something you should avoid. If your brother in law is a financial advisor, please ensure that he went through screening and questioning, verification just like other people that you want to consider. This is about your money. Don’t use sentiment when making this decision.
5. Not firing an advisor quickly enough. Your relationship with your financial advisor should be a long term one. However, if you start noticing that he has been giving you a series of bad recommendations, do not be afraid to fire him. Holding on to an advisor with a poor sense of judgment will rub off on you and rob you of the benefits you should derive from a good advisor. Don’t let emotion dictate your actions. If the relationship is not working, don’t wait for too long before you end it.
6. Not hiring an advisor who is a fiduciary: In Last week episode, we discussed the duties of a fiduciary, and we explained the need to ensure that you select an advisor who is a fiduciary. This is because a fiduciary need to put the interest of their clients ahead of any potential profits.
It is very crucial to make sure that your financial advisor is a fiduciary because these are the only advisors who are by law required to put your interests ahead of their own.
You don’t want to hire an advisor unless they act as your fiduciary 100% of the time.
You can get crystal clear on whether or not an advisor will work with you as a fiduciary at all times by requesting they sign a fiduciary oath on your behalf. If they refuse to sign, keep looking for someone else to provide financial advice.
Now you know it — mistakes to avoid when hiring a financial advisor. Information is powerful, but having a piece of information without acting on it is useless, it is like having a car without having the key to turn on the ignition. The information provided on today’s show should be verified, and you should find ways that you can make the best use of it.