8 Mistakes to Avoid When Choosing an Advisor

Choosing an advisor is a major decision, and you can make many mistakes along the way when making your choice. Unfortunately, unless you’re involved in the financial world every day, you won’t have the experience to know how to choose the right financial advisor.

We’ve already covered a lot of great advice, from how to change financial advisors to what to do when you break up with your advisor, but today we’re going to cover mistakes you need to avoid when choosing an advisor.

And there are a lot of them.

8 Mistakes to Avoid When Choosing an Advisor

1. Working with an Advisor Without a Written Contract

You should have a written contract with a scope of service that outlines everything you can expect from the service. Your contract doesn’t need to be a legally binding, yearly service contract.

Traditionally, the advisor is bound to the contract, but the client can leave the service at any time.

The contract should include:

• Scope of service
• Fees involved
• Potential conflicts of interest

When you have a written contract, it outlines exactly what you can expect from the service. Both parties can use contracts to understand what to expect from the business relationship.

2. Working with an Advisor That Doesn’t Have a Permanent Office

Working with a financial advisor who doesn’t have a permanent office is a quick way to be a victim of embezzlement. Most embezzlement reports are from advisors who will only go to your house to give advice but don’t have a physical office to go to if you need assistance.

A permanent office is an indication that the advisor is stable and trying to stay in business.

If an advisor uses a co-working space or won’t meet at a permanent location, they may be a fly-by-night scam artist.

3. Working with an Insurance-Only Advisor

An insurance-only advisor is licensed to sell you insurance products. Insurance products only pay a commission, so you must question whether the product is right for you or only recommended because of the advisor’s commission.

Plus, an insurance-only advisor won’t be able to help you with stocks or other investment products.

4. Working with a Stock Market-Only Advisor

Just like we don’t recommend that you work with someone that can only offer insurance products, we also don’t recommend someone that can only help with stocks. A stock market advisor can’t help you create a well-rounded retirement plan.

You may need stocks, insurance and a variety of other retirement options.

Ideally, you’ll work with an advisor that can offer both insurance and stock market advice. Both products work together to provide you with a higher level of retirement security.

5. Working with an Advisor That Tries to Sell You on the First Appointment

Advisors are offering a service, and they need to make a living, but they shouldn’t try and sell you on the first appointment. Instead, an advisor should:

• Educate
• Get to know your goals
• Run simulations for retirement

Once an advisor knows you, then they can begin to make accurate recommendations to you. It takes us multiple appointments to truly learn enough about a client before we recommend anything to them.

6. Believing the “Too Good to Be True” Stories

If an advisor’s story is too good to be true, it probably is. An excellent example of this would be the stock market advisor saying, “I’ve never lost money.” Market fluctuations occur all the time, and it would be impossible for someone never to have a down day if they’ve been in the market long enough.

Insurance advisors who create illustrations that show 8% – 10% improvements each year, are a red flag. You need to question if the product is too good to be true or if you’re only being shown part of the illustration.

You can certainly make 8% – 10% returns per year, but you also need to know the downside. Often, earning this high of a rate of return simply isn’t feasible.

7. Doing It All Yourself

You can do it all yourself, but you need to know the commitment that you need to accumulate your wealth. When you do everything on your own, you’re going to learn information every day. You’ll need to dedicate an immense amount of time to your investments, while also managing your job and family.

When you hire a professional that works on retirement planning daily, it will help alleviate this burden.

8. Choosing an Advisor Based on Only Their Fee

You’ve heard the statement “you get what you pay for,” right? Unfortunately, the same is true when choosing an advisor. Sure, you can select a ROBO advisor with low fees, but you’re missing out on the personalization and management that can really help you build wealth.

If the market starts to tumble, the ROBO advisor will not engage in active management the same way we would.

Fees will always be a concern when choosing an advisor, but you need to consider what you’re getting for these fees. Sit down and ask each advisor what you’re getting for your money.

Low fees may mean:

• Higher fees for additional help
• Higher fees or commissions on certain products
• No assistance when planning for life insurance, social security and so on

A low fee advisor may not provide active management, which likely led to massive losses in 2008 for their clients. However, the advisor with the higher fee may have actively managed their clients’ portfolios so that they didn’t lose money in 2008.

If you want to secure your retirement, you need to work with an advisor that you can trust. The mistakes above are common mistakes anyone can make, but you should avoid them as best you can.

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