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7 Mistakes People Make When Choosing a Financial Advisor

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Finance
October 11, 2024
Here are seven common mistakes people make when choosing a financial advisor, and how you can avoid them to ensure your financial future is in good hands.

Choosing the right financial advisor is one of the most important decisions you can make for your financial future. The right advisor can help you grow your wealth, secure your retirement, and guide you through life’s financial twists and turns. But the wrong advisor? That could cost you dearly—both in money and peace of mind.

1. Not Choosing a Fiduciary

One of the biggest mistakes people make is not ensuring that their advisor is a fiduciary. A fiduciary is legally required to act in your best interest, unlike some advisors who may push products that benefit their commission more than your financial goals.

What to do: Use our recommended free, no-obligation matching tool by Datalign Advisory to find a trusted financial advisor. All of the financial advisors on Datalign Advisory’s matching platform are registered investment advisors and fiduciaries.

2. Overlooking Experience and Credentials

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Not all financial advisors have the same level of experience or credentials. Some advisors may only have a limited background in financial planning or may lack certifications that indicate advanced knowledge. Choosing an advisor without the right qualifications can lead to poor advice.

What to do: Look for advisors with certifications like CFP® (Certified Financial Planner) or CFA (Chartered Financial Analyst). These credentials ensure that the advisor has been thoroughly trained in financial planning.

3. Ignoring Fee Transparency

A Financial Advisor could boost your retirement savings by
$1,731,060

A 2019 Vanguard study found that a hypothetical advisor-directed $500K investment would grow to over $3.4 million over 25 years, while a self-managed portfolio would total $1.69 million – 50% less – over the same period. The study's advisor-managed portfolio averaged 8% annual growth over a 25-year period, compared to just 5% growth for a self-managed portfolio.

With an Advisor
Without an Advisor

(1) Hypothetical earnings assuming 5% annualized growth of $500k portfolio versus an 8% annualized growth via a financial advisor-directed portfolio over 25 years. Hypothetical assumes a 5% net self-managed return verses a 3% added net annual value following professional financial advice.

Find an Advisor Today

Get Started

Not understanding how your advisor gets paid can be a costly mistake. Some advisors charge flat fees, hourly fees, or a fee based on a percentage of assets, while others earn commissions from the products they sell. If you don’t know how they’re being compensated, you might end up paying more in fees than necessary—or worse, they may recommend products that aren’t in your best interest just to earn a commission.

What to do: Make sure your advisor clearly explains how they get paid and what their fees are. Transparent, fee-only advisors typically offer the most unbiased advice.

4. Falling for Sales Pitches

Some financial advisors are more focused on selling than advising. They may pitch certain products that benefit them financially, like insurance policies or investment funds, even if those products aren’t right for you. If your advisor feels more like a salesperson than a partner in your financial success, you’re likely in the wrong hands.

What to do: Be wary of advisors who push products without understanding your entire financial situation. Choose someone who takes the time to understand your goals before recommending any solutions.

5. Not Asking About Their Specialties

Financial advisors often have areas of expertise, and it’s important to choose one who matches your needs. For example, some advisors specialize in retirement planning, while others focus on tax strategies or investment management. If you choose an advisor who isn’t aligned with your specific financial goals, you might not get the expert guidance you need.

What to do: Ask your advisor about their specialties and ensure they have experience in the areas where you need the most help. Your advisor should be a good match for your unique financial situation.

6. Failing to Check Their Background

Many people don’t take the time to check an advisor’s background before hiring them, which can be a critical mistake. Advisors can have past complaints, disciplinary actions, or even fraudulent behavior on their record. If you don’t check, you could end up working with someone who has a history of unethical practices.

What to do: Use Datalign Advisory’s free, no-obligation matching tool to find a trusted financial advisor. Every advisor is thoroughly vetted by Datalign Advisory

7. Choosing Based on Personality Alone

While it’s important to get along with your advisor, personality shouldn’t be the deciding factor. Just because someone is friendly or likable doesn’t mean they’re the right person to manage your financial future. Your advisor should be someone you can trust for their expertise and advice, not just their charm.

Here are seven common mistakes people make when choosing a financial advisor, and how you can avoid them to ensure your financial future is in good hands.

Choosing the right financial advisor is one of the most important decisions you can make for your financial future. The right advisor can help you grow your wealth, secure your retirement, and guide you through life’s financial twists and turns. But the wrong advisor? That could cost you dearly—both in money and peace of mind.

1. Not Choosing a Fiduciary

One of the biggest mistakes people make is not ensuring that their advisor is a fiduciary. A fiduciary is legally required to act in your best interest, unlike some advisors who may push products that benefit their commission more than your financial goals.

What to do: Use our recommended free, no-obligation matching tool by Datalign Advisory to find a trusted financial advisor. All of the financial advisors on Datalign Advisory’s matching platform are registered investment advisors and fiduciaries.

Find an Advisor Today

Get Started

2. Overlooking Experience and Credentials

Not all financial advisors have the same level of experience or credentials. Some advisors may only have a limited background in financial planning or may lack certifications that indicate advanced knowledge. Choosing an advisor without the right qualifications can lead to poor advice.

What to do: Look for advisors with certifications like CFP® (Certified Financial Planner) or CFA (Chartered Financial Analyst). These credentials ensure that the advisor has been thoroughly trained in financial planning.

3. Ignoring Fee Transparency

Not understanding how your advisor gets paid can be a costly mistake. Some advisors charge flat fees, hourly fees, or a fee based on a percentage of assets, while others earn commissions from the products they sell. If you don’t know how they’re being compensated, you might end up paying more in fees than necessary—or worse, they may recommend products that aren’t in your best interest just to earn a commission.

What to do: Make sure your advisor clearly explains how they get paid and what their fees are. Transparent, fee-only advisors typically offer the most unbiased advice.

4. Falling for Sales Pitches

Some financial advisors are more focused on selling than advising. They may pitch certain products that benefit them financially, like insurance policies or investment funds, even if those products aren’t right for you. If your advisor feels more like a salesperson than a partner in your financial success, you’re likely in the wrong hands.

What to do: Be wary of advisors who push products without understanding your entire financial situation. Choose someone who takes the time to understand your goals before recommending any solutions.

A Financial Advisor could boost your retirement savings by
$1,731,060

A 2019 Vanguard study found that a hypothetical advisor-directed $500K investment would grow to over $3.4 million over 25 years, while a self-managed portfolio would total $1.69 million – 50% less – over the same period. The study's advisor-managed portfolio averaged 8% annual growth over a 25-year period, compared to just 5% growth for a self-managed portfolio.

With an Advisor
Without an Advisor

(1) Hypothetical earnings assuming 5% annualized growth of $500k portfolio versus an 8% annualized growth via a financial advisor-directed portfolio over 25 years. Hypothetical assumes a 5% net self-managed return verses a 3% added net annual value following professional financial advice.

Find an Advisor Today

Get Started

5. Not Asking About Their Specialties

Financial advisors often have areas of expertise, and it’s important to choose one who matches your needs. For example, some advisors specialize in retirement planning, while others focus on tax strategies or investment management. If you choose an advisor who isn’t aligned with your specific financial goals, you might not get the expert guidance you need.

What to do: Ask your advisor about their specialties and ensure they have experience in the areas where you need the most help. Your advisor should be a good match for your unique financial situation.

6. Failing to Check Their Background

Many people don’t take the time to check an advisor’s background before hiring them, which can be a critical mistake. Advisors can have past complaints, disciplinary actions, or even fraudulent behavior on their record. If you don’t check, you could end up working with someone who has a history of unethical practices.

What to do: Use Datalign Advisory’s free, no-obligation matching tool to find a trusted financial advisor. Every advisor is thoroughly vetted by Datalign Advisory

7. Choosing Based on Personality Alone

While it’s important to get along with your advisor, personality shouldn’t be the deciding factor. Just because someone is friendly or likable doesn’t mean they’re the right person to manage your financial future. Your advisor should be someone you can trust for their expertise and advice, not just their charm.

What to do: Focus on their qualifications, experience, and how well they align with your financial needs. It’s nice to like your advisor, but it’s more important that they have the skills to help you achieve your goals.

Avoid These Mistakes and Find the Right Advisor

‍Choosing a financial advisor is a big decision, and avoiding these common mistakes can help you find someone who truly supports your financial future.

If you’re unsure where to start, Datalign Advisory has made the process easier for you.

Their free tool matches you with fully vetted, qualified and proven financial advisors in your area. These advisors are legally required to act in your best interest and have been rigorously vetted. In just a few minutes, you can connect with a trusted advisor who aligns with your financial goals.

Here are seven common mistakes people make when choosing a financial advisor, and how you can avoid them to ensure your financial future is in good hands.

Choosing the right financial advisor is one of the most important decisions you can make for your financial future. The right advisor can help you grow your wealth, secure your retirement, and guide you through life’s financial twists and turns. But the wrong advisor? That could cost you dearly—both in money and peace of mind.

1. Not Choosing a Fiduciary

1. Not Choosing a Fiduciary

One of the biggest mistakes people make is not ensuring that their advisor is a fiduciary. A fiduciary is legally required to act in your best interest, unlike some advisors who may push products that benefit their commission more than your financial goals.

What to do: Use our recommended free, no-obligation matching tool by Datalign Advisory to find a trusted financial advisor. All of the financial advisors on Datalign Advisory’s matching platform are registered investment advisors and fiduciaries.

2. Overlooking Experience and Credentials

Not all financial advisors have the same level of experience or credentials. Some advisors may only have a limited background in financial planning or may lack certifications that indicate advanced knowledge. Choosing an advisor without the right qualifications can lead to poor advice.

What to do: Look for advisors with certifications like CFP® (Certified Financial Planner) or CFA (Chartered Financial Analyst). These credentials ensure that the advisor has been thoroughly trained in financial planning.

3. Ignoring Fee Transparency

A Financial Advisor could boost your retirement savings by
$1,731,060

A 2019 Vanguard study found that a hypothetical advisor-directed $500K investment would grow to over $3.4 million over 25 years, while a self-managed portfolio would total $1.69 million – 50% less – over the same period. The study's advisor-managed portfolio averaged 8% annual growth over a 25-year period, compared to just 5% growth for a self-managed portfolio.

With an Advisor
Without an Advisor

(1) Hypothetical earnings assuming 5% annualized growth of $500k portfolio versus an 8% annualized growth via a financial advisor-directed portfolio over 25 years. Hypothetical assumes a 5% net self-managed return verses a 3% added net annual value following professional financial advice.

Not understanding how your advisor gets paid can be a costly mistake. Some advisors charge flat fees, hourly fees, or a fee based on a percentage of assets, while others earn commissions from the products they sell. If you don’t know how they’re being compensated, you might end up paying more in fees than necessary—or worse, they may recommend products that aren’t in your best interest just to earn a commission.

What to do: Make sure your advisor clearly explains how they get paid and what their fees are. Transparent, fee-only advisors typically offer the most unbiased advice.

4. Falling for Sales Pitches

Some financial advisors are more focused on selling than advising. They may pitch certain products that benefit them financially, like insurance policies or investment funds, even if those products aren’t right for you. If your advisor feels more like a salesperson than a partner in your financial success, you’re likely in the wrong hands.

A Financial Advisor could boost your retirement savings by
$1,731,060

A 2019 Vanguard study found that a hypothetical advisor-directed $500K investment would grow to over $3.4 million over 25 years, while a self-managed portfolio would total $1.69 million – 50% less – over the same period. The study's advisor-managed portfolio averaged 8% annual growth over a 25-year period, compared to just 5% growth for a self-managed portfolio.

With an Advisor
Without an Advisor

(1) Hypothetical earnings assuming 5% annualized growth of $500k portfolio versus an 8% annualized growth via a financial advisor-directed portfolio over 25 years. Hypothetical assumes a 5% net self-managed return verses a 3% added net annual value following professional financial advice.

What to do: Be wary of advisors who push products without understanding your entire financial situation. Choose someone who takes the time to understand your goals before recommending any solutions.

5. Not Asking About Their Specialties

Financial advisors often have areas of expertise, and it’s important to choose one who matches your needs. For example, some advisors specialize in retirement planning, while others focus on tax strategies or investment management. If you choose an advisor who isn’t aligned with your specific financial goals, you might not get the expert guidance you need.

What to do: Ask your advisor about their specialties and ensure they have experience in the areas where you need the most help. Your advisor should be a good match for your unique financial situation.

6. Failing to Check Their Background

Many people don’t take the time to check an advisor’s background before hiring them, which can be a critical mistake. Advisors can have past complaints, disciplinary actions, or even fraudulent behavior on their record. If you don’t check, you could end up working with someone who has a history of unethical practices.

What to do: Use Datalign Advisory’s free, no-obligation matching tool to find a trusted financial advisor. Every advisor is thoroughly vetted by Datalign Advisory

7. Choosing Based on Personality Alone

While it’s important to get along with your advisor, personality shouldn’t be the deciding factor. Just because someone is friendly or likable doesn’t mean they’re the right person to manage your financial future. Your advisor should be someone you can trust for their expertise and advice, not just their charm.

What to do: Focus on their qualifications, experience, and how well they align with your financial needs. It’s nice to like your advisor, but it’s more important that they have the skills to help you achieve your goals.

Avoid These Mistakes and Find the Right Advisor
‍Choosing a financial advisor is a big decision, and avoiding these common mistakes can help you find someone who truly supports your financial future.

If you’re unsure where to start, Datalign Advisory has made the process easier for you.

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Answer a few questions. It only takes a few minutes.

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Sources:


¹Vanguard (February 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 see the methodologies employed in the Vanguard whitepaper. To receive a copy of the whitepaper, please contact: compliance@bankr.com

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.

³https://www.bls.gov/ooh/business-and-financial/personal-financial-advisors.htm

⁴These stats are updated annually and are accurate as of May 25th 2023. This list may include firms that have a business relationship with our recommended matching tool Datalign Advisory, in which Datalign Advisory is compensated for lead referrals. Such relationships have no impact on our rankings, and firms are included and ranked based strictly on the above criteria. Datalign Advisory is not a client of the aforementioned firms. Datalign Advisory did not receive compensation for including any of the firms on the aforementioned list.