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3 Big Mistakes People Make Choosing a Financial Advisor



Shopping for a sharp and reliable financial advisor is no easy decision. There are so many options out there, and credentials vary widely! While people choose to hire someone for this service to minimize stress in their lives, there are a few mistakes that could lead to more – not less!


Let’s take a look at some common errors that could compromise your valued nest egg. Be honest, have you done some of these things already?

1. Choosing an Advisor with an Irrelevant Specialty

These days, anyone can say they are a financial advisor! But what do they normally work on? If you need retirement planning and your advisor actually has a broad background in stocks and mortgage refinancing, you may need to look a little further for an expert who really understands your goals.


One former industry professional confessed in a Forbes article that their real training before working at their firm was selling knives! So how likely is it that prospective clients arriving in the office with varied needs really got the expertise they paid for? Additionally, a firm that secretly makes money off a specific financial product may begin pushing it during advisory meetings. You may be hearing a conflict of interest more than the wisdom of decades in a specific area. Yikes! Always research the specialties of the firm in question as well as the person assigned to your case.

2. Not Understanding the Compensation Structure

Everyone knows about the crimes of Bernie Madoff, and that case is definitely pretty extreme! Clearly clients were ignorant of what the Madoff accounting sheets looked like in the back room, and no one can blame them. Unfortunately, your everyday financial advisor might be hiding a lot from you in the area of legal business. For example, some advisors are paid through commissions from mutual funds. Other models may involve taking a percentage of your assets that they were hired to manage. Some firms may benefit much more if you choose one of their products over another, and all of this is very important to know before you start taking their earnest advice!


It is critical to investigate the incentives your advisor may have – as much as possible – before you hand over your savings. Though a company motto may try to warm you up to the idea that you’re both in it together, no one cares about your interests more than you. If you actually find a firm that has structured things as a win-win, that’s a great sign going forward.

3. Not Calling References

Bernie had a scam system of references that kept his game going on and on in a circle of trust, and that’s something to be aware of during this part of your evaluation process. The fact is, this will require some detective work on your end. Advisors are generally happy to offer references, and it’s a great idea to go right ahead and make some calls. But going beyond that, you should operate with the cold war slogan of “trust, but verify” in the back of your mind!


After the calls, make sure to search through a few databases to see if everything is aligned. The Financial Industry Regulatory Authority (Finra) is one place you check out an adviser’s history and background. Another option is the Certified Financial Planner Board of Standards, and perhaps you should do both!