7 Mistakes People Make When Choosing a Financial Advisor

Choosing a financial advisor is a major life decision that can determine your financial trajectory for years to come.

A 2020 Northwestern Mutual study found that 71% of U.S. adults admit their financial planning needs improvement. However, only 29% of Americans 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

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 fiduciary financial advisors that serve your area, 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 advisor for a free retirement consultation.

Advisors are rigorously screened through our proprietary due diligence process.
Being aware of these seven common blunders when choosing an advisor can help you find peace of mind, and potentially avoid years of stress.

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1. Hiring an Advisor Who Is Not a Fiduciary

A fiduciary is defined as an individual who is ethically bound to act in another person’s best interest. Fiduciary financial advisors must avoid conflicts of interest and disclose any potential conflicts of interest to clients. Our free tool will only match you with registered or chartered fiduciary advisors.

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.

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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. Our platform seamlessly matches you with up to three advisors, allowing you to compare each to help you determine which is best for you.

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3. Choosing an Advisor with the Wrong Specialty

Some financial advisors specialize in retirement planning, while others may be most helpful for business owners or those with a high net worth. Some may specialize in helping young professionals starting a family.

Be sure to understand an advisor’s strengths and weaknesses before signing the dotted line.

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4. Picking an Advisor with an Incompatible Strategy

Similarly, 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 specialized in bonds is not a great match for your style. Our quiz will ask you some questions that may help start this conversation - but it's important you bring it up with any advisor you speak to.

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5. Not Asking About Credentials

To give investment advice, financial advisors are required to pass a test. Financial advisors tests include the Series 7, and Series 66 or Series 65. Our platform will list each of your matches credentials, for easy comparison.
Ask your advisor about their licenses, tests, and credentials. Some become a Certified Financial Planner (CFP).

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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. For a refresher on fiduciary advisor obligations, see Mistake 1!

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7. Hire a Vetted Advisor

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

Our no-cost tool helps make it easy to find qualified financial advisors who serve your area. Now you can get matched with up to three fiduciary investment advisors that are vetted and subject to our due diligence criteria. The entire matching process takes just a few minutes.

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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.

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.