A D V E R T O R I A L

7 Mistakes People Make When Choosing a Financial Advisor

Helping people make smart financial decisions

I N  T H E  P R E S S :

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

Consider this example: A recent Vanguard study found that, on average, a hypothetical $500K investment would grow to over $3.4 million under the care of an advisor over 25 years, whereas the expected value from self-management would be $1.69 million, or 50% less. In other words, an advisor-managed portfolio would average 8% annualized growth over a 25-year period, compared to 5% from a self-managed portfolio.3

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
  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.

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.

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1.

Hiring an Advisor Who Is Not a Fiduciary

By definition, a fiduciary is 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.. 

All of the financial advisors on SmartAsset’s matching platform are registered fiduciaries. 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.


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. 

3.

Choosing an Advisor with the Wrong Specialty

Some financial advisors specialize in retirement planning, while others are best for business owners or those with a high net worth. Some might be best for young professionals starting a family. Be sure to understand an advisor’s strengths and weaknesses - before signing the dotted line. 

4.

Picking an Advisor with an Incompatible Strategy

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 that prefers bonds and index funds is not a great match for your style.

Empowering people to make smart financial decisions.

5.

Not Asking about Credentials

To give investment advice, financial advisors are required to pass a test. Ask your advisor about their licenses, tests, and credentials. 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.  

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.

7.

Not Hiring 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 makes it easy to find a qualified financial advisor. The entire matching process takes just a few minutes.

Click Your State to Get Matched With Financial Advisors Who Serve Your Area

After you choose your state and answer a few questions, you can compare up to three advisors that serve your area and decide which to work with.

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 registered investment advisers and/or investment adviser representatives (“RIA/IARs”) that have elected to participate in our matching platform based on information gathered from users through our online questionnaire. SmartAsset does not review the ongoing performance of any RIA/IAR, participate in the management of any user’s account by an RIA/IAR 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.

Other than application and licensing fees, SmartAsset did not provide compensation for the aforementioned awards.

Sources:
1. “Planning and Progress”, Northwestern Mutual (April 2020) 

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.
3. Vanguard (Feb. 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 follow the link to see the methodologies employed in the 
Vanguard whitepaper
.

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Being aware of these seven common blunders when choosing an advisor can help you find peace of mind, and potentially avoid years of stress.