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.
Hiring an advisor could increase your returns by 2x
Assuming 5% annualized growth of $500k portfolio vs 8% annualized growth of advisor managed portfolio over 25 years. The hypothetical study discussed above assumes a 5% net return and a 3% net annual value add for professional financial advice to performance based on the Vanguard Whitepaper “Putting a Value on your Value, Quantifying Vanguard Advisor's Alpha”. Please carefully review the methodologies employed in the Vanguard Whitepaper. To receive a copy of the whitepaper, please contact support@financeadvisors.com. The value of professional investment advice is only an illustrative estimate and varies with each unique client's individual circumstances and portfolio composition. Carefully consider your investment objectives, risk factors, and perform your own due diligence before choosing an investment adviser.
Finance Advisors 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:
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 can give you great peace of mind; avoiding these seven blunders could save you years of stress. Scroll down for the list.
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 dislcose 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.
