Ep. 112 – 8 Mistakes to Avoid When Choosing an Advisor

What are some mistakes that you want to avoid when choosing an advisor? When choosing an advisor, there are some mistakes that could cause risks and you need to avoid them before they do so. 

There are different types of advisors you should avoid working with and some things you should pay close attention to before committing with an advisor.  

In this episode of the Secure Your Retirement podcast, we explain the eight mistakes you should avoid when choosing an advisor and questions to ask. We also explain why you should avoid advisors that are not fully certified to be financial advisors to avoid the risks that come with it. 

In this episode, find out:

  • Don’t work with an advisor without a written contract. 
  • Don’t work with an advisor that doesn’t have a permanent office to avoid fraud.
  • Avoid working with an insurance-only advisor since they’re not vastly knowledgeable. 
  • Avoid working with a stock market-only advisor since they won’t handle all your retirement needs. 
  • Don’t work with an advisor that tries to sell to you on the first appointment. 
  • Beware of the too good to be true story. 
  • Be aware of the commitment you’re making when you choose to do it by yourself. 
  • Avoid picking an advisor based on their fees and instead understand what they’re offering.  

Tweetable Quotes:

  • “The way the contract should be written is that at any point you want to fire/get away from the advisor, you’re not bound to have to stay in the contract.”– Radon Stancil
  • “You want to work with someone who has multiple options in all the different areas when it comes to retirement planning.”– Murs Tariq


If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the Full Transcript:

Radon Stancil:Welcome everyone to our Retirement in Action. And we are continuing our little series that we’ve been doing, where we talk about how to choose the right financial advisor. We know that that can be a stressful situation. And so we wanted to kind of hit some different topics. Today what we’re going to really do is we’re going to say what are some of the mistakes? In fact, we’re going to go through eight mistakes to avoid when choosing a financial advisor.  
 So instead of saying what are all the right things, we’re going to say what are some mistakes? And we put together a list of eight of those and we’re just going to take them and go down that list. And we hope this will be helpful. I do want to just remind you as we’re going through the list, we will have a blog article written on this. So don’t feel like you’ve got to stress out and take a bunch of notes. You’ll be able to go get this all written on our blog page there at pomwealth.net. So let’s start with mistake number one, Murs.  
Murs Tariq:All right, mistake number one: Working with an advisor without a written contract. We think this is pretty important. A written contract isn’t necessarily something that is going to be binding or anything like that. It pretty much just lays out what we call the scope of service, which is explaining, “Hey, what is this relationship going to be? What are the fees involved with this relationship? What are the potential conflicts of interest?” And then really it’s a way to understand expectations.  
 As an advisor, you’re going to expect the advisor to do certain things. If they’re an investment advisor, you’re going to expect them to be managing the account for you in your best interest. You’re going to expect them to be in a position to sit down with you on a quarterly or semi-annually or annually basis to go over the account with you, do account reviews and reporting so you so that you can actually know how the account is doing. And then all these other little things that come with it. But also from an advisor perspective, there’s also client expectations.  
 And so when it’s written down, it’s so much easier, so much cleaner. Everyone starts on such a good understanding as to how this relationship is going to work when you do enter into it. It’s not required as an advisor to have a written contract. If you’re working with someone that sells insurance only, they are not required to use a contract.  
 I’ll tell you, Radon and I because of our licensing, because of how we are set up, we are required to have what’s called an investment advisory agreement when any client works with us and we do utilize that. And we enjoy utilizing that. It makes the beginning of the relationship very clear and open and honest and transparent. So if you’re working with someone that doesn’t have one or you’re ask for a written contract and they say, “Well, we don’t really use one,” I would just be wary of that.  
Radon Stancil:Yeah, and I just want to add on that binding thing. It is binding from the advisor side to abide by that agreement or that contract. The way the contract should be written though is that at any point that you want to fire or get away from the advisor, you’re not bound to have to stay in the contract. So just keep that in mind.  
 Mistake number two: Working with an advisor that does not have a permanent office. Now you might think, “Well, what’s that got to do with anything?” Well, to us and in our mind and what we’ve seen is is where we hear the most about when somebody gets money embezzled or whatever it’s usually someone who’s working an area, working in a certain thing and then they don’t really have anywhere because they’re trying to be incognito you might say of getting this money embezzled.  
 And so if they’re coming to your house and they’re coming, because they don’t have an office, that’s probably not the best scenario. Again, they could come to your house, that part would be okay. But if they’re not having a place that they actually operate their business regularly, that can be an issue. The other one that I’ll bring up is they have one of those places that you can kind of rent an office space for by the hour. You know, that’s not a permanent office. They might meet with you there, but really what’s saying that they’re stable and that they are in business to stay in business.  
 So just keep that in mind that maybe it’s not a reason that you should absolutely not take the advisor, but at least that should raise some caution and you might want to do some more research.  
Murs Tariq:All right, mistake number three: Working with an insurance only advisor. And there’s a couple things to think about here. First of all, if you’re working with an insurance only advisor that means they’re licensed to do what? To sell insurance products only. And so they can’t really give you any market type of advice. They can only tell you what they are aware of, which is the insurance world. And by the nature of that, they’re only going to be able to offer you insurance products.  
 Insurance products typically are going to pay a commission and we’ve been over how advisors get paid in a previous podcast. And if you’re in a relationship with someone who only earns based on the product that they sell a commission, well, it just kind of makes you think a little bit. Is this product right for me because it makes sense for me in my whole situation or is it being perceived as right for me because the advisor is receiving a commission off of it?  
 We’ve talked heavily about the fiduciary and suitability standard. Radon and I, we are held to a fiduciary standard and that comes with licensing. We are CFPs. We’re also Series 65 through FINRA and that holds us by law to a fiduciary standard, which means we need to hold your interest ahead of ours. An insurance only advise there’s typically going to be held to a suitability standard where it basically says, “Well, as long as it’s close enough, then the product is good enough.” And that can warrant why the advisor can sell it to you.  
 And so just something to think about when they only have one thing to sell is that going to be the right thing for you? And what we believe is that you want to work with someone who has multiple options in all the different areas when it comes to retirement planning.  
Radon Stancil:All right, that brings us the mistake number four, which is working with a stock market only advisor. It goes right in hand in hand with what Murs was just saying. If the person only says the only place to invest your money is in the market, the stock market, well, that’s probably not going to handle all of your retirement needs. There is a place for insurance type products. We believe there’s a place especially when it comes to providing a guaranteed income stream.  
 Sometimes insurance gives us a really, really good option in that area. But again, we don’t want somebody who’s just one thing. So if the person’s telling you no matter what don’t ever use an insurance product because the stock market is by far the best, well, that could be too much risk for you. So out of those two mistakes, three and four, just try to go and look for an advisor that has both types of practices.  
Murs Tariq:All right, mistake number five: Working with an advisor who tries to sell you on the first appointment. I will tell you upfront Radon and I, we would never try to sell someone on the first appointment and we don’t sell, we educate. And sometimes that takes two to three to four or five meetings. Really at the end of the day, we’re willing to spend as much time with someone and I think our clients will attest to this is that we want to get to know the person. We want to get to understand their goals. We want to run through some illustrations, some examples of what retirement’s going to look like for them before we even start the idea of making a recommendation as to, “Hey, should we use an insurance product here? Should we have some money in the stock market?”  
 So that in itself is several different conversations before we even get to the part where the client’s actually going to sign up with us. And so if you have an advisor that’s trying to immediately sell you on the first visit, typically a first visit is about 45 minutes for any advisor, could be a little bit shorter, could be a little bit longer. In our opinion, that just not enough time to get to know someone, to get to know their situation, to get to know their goals and objectives. And then also to make a recommendation and make sure that the client actually understands what that recommendation is. You just can’t do it in one appointment.  
 So if you have someone that’s getting eager about convincing you or selling you on something, a product or a concept in the first visit and asking you to sign that day, be very, very careful about that.  
Radon Stancil:All right. Number six, mistake number six: Believing the too good to be true story. You know, we see this in a couple different ways. Let’s go to the stock market only advisor. Sometimes they might say, “Hey, look, I always make money. I’ve never lost money.” Well, that starts to be the too good to be true story because there’s just market fluctuations and you have to make sure you’re like, “Well, wait a minute. There’s no investment that’s in the stock market that from time to time couldn’t be down.”  
 Well, go to the insurance side. Insurance especially over in the fixed arena, if it’s a fixed insurance product it uses what are called illustrations. In those illustrations, they can go and say, “Hey, here’s kind of like the most best 10-year period.” And if an advisor focuses there or doesn’t show you the guaranteed side and and you’re looking at this illustration and they say, “Yeah, look, this product’s going to earn eight, nine, 10% average for the next 10 years.”  
 Well, that gets us in for right now. That’s the too good to be true story. We need to understand, “Well, what’s more reasonable in this?” Is it possible that it could make that 8, 9, 10? Yeah, it’s possible. But an illustration is just simply that, it’s an illustration. So don’t just take those stories and just because you want it to be true and that advisor’s not showing you both sides of the situation or the what ifs. What if it doesn’t do these things? You just be leery on that. Don’t don’t accept that too good to be true story.  
Murs Tariq:All right, mistake number seven: Doing it all yourself. Now this statement is it can go either way. And it’s not necessarily saying that it’s wrong to do it all yourself. You just got to be aware of what to type of commitment you’re making if you’re doing it all yourself. Because usually you are working, you’re earning, you’re doing whatever you are to be able to create this wealth that you’re accumulating. And so if you decide that you also want to manage all of this yourself, that’s completely fine. Just understand it’s quite a big undertaking. It’s a little bit more than just picking a couple stocks or picking a few mutual funds in your 401(k).  
 Radon and I, we do this every single day and I’ve been with Radon for a little bit over 10 years now. Radon’s been doing this for over 20 years now and I’ll tell you even with us considered as experts in the business, we’re still learning pieces of information every single day. It’s an environment that is constantly evolving. If you think about it, I mean, the tax code is always up for grabs. Different products are always around. Different investment options are always being created.  
 So if you’re going to say, “I’m going to do this myself and do it properly,” you really, really have to devote time to it. And that’s why a lot of people say, “Well, I don’t think I can do this. I can’t do this properly and also manage my job and also manage my family all at the same time.” And that’s where we believe that a financial advisor fits into place.  
 Just like when you hire your CPA to do your taxes or even you hire the plumber to come in and fix whatever is going on at your house, you could do it yourself. But if it’s not something that you have a passion for, if it’s not something that you have the time for more importantly, then hire it out. And at the end of the day, it’ll take a ton of stress off of your plate and let you focus on what really matters, which is your career and your family.  
Radon Stancil:All right, our final one, mistake number eight: Picking your advisor based on their fee. This one is like you get what you pay for kind of statement. So you have an advisor or you’re interviewing a couple of different advisors and you’re trying to pick which one you’re going to go with, and one has a really low fee and the other one has a higher fee. And you’re thinking, “Ooh, I want to go with the guy with the lower fee, the firm with the lower fee.” Well, you need to look at what you’re getting and if what you’re getting fits your need, then that’s okay. But that lower fee might just be only just to manage some funds for you. Or maybe they’re putting you in the other things that have higher fees in those things like mutual funds. And so your overall fee is high, but they’re just helping you with that little part.  
 Well, do they help you with all the other things or do they charge you more fees if you need help with those things, and maybe it’s by the hour or flat rate? Or what if the higher fee advisor is providing things like tax planning, tax strategy, estate strategy, estate planning strategies, income planning? Are they helping you throughout the year to make sure that you’re pulling your money from the right accounts? Do they help you with things like Social Security, Medicare? Do they help you with things like long-term care? Are they helping you plan all those different aspects?  
 Because now all of a sudden you go, “Wait a minute, maybe the fee’s a little bit higher over here, but I’m getting a tremendous amount of support. In fact, I’m taking all of my worries off of my plate.” The other scenario is what if the low fee advisor, how do they manage money? What if the one person who’s charging you a very low fee though shows you that, hey, maybe in 2008, they lost 30% of their portfolio value.” And the advisor who’s a little bit higher fee lost very little in 2008. I use that because that’s such a down year.  
 But now you might say, “Wait a minute, I’d rather pay the higher fee to get protection. Maybe they’re more active in the way they manage the portfolio and so therefore they protect.” So when you’re looking at fees, ask yourself if a person has a really low fee, why is it low? And if the person has a higher fee ask why is it higher than this person? And then weigh that out and say, “Well, which one of these is going to give me the overall best, most value between the two?”  
 So we hope that this has been helpful. Eight mistakes to avoid when choosing a financial advisor or a financial planner. And again, make sure you go to the website, pomwealth.net. You can go to the blog page, you’ll have an article right on this. It has all eight of them listed there for you so that way you can just make sure you take it with you. You can even print it out and take it with you if you’re ever interviewing or talking with a financial advisor or been trying to figure out which one you’re going to hire. But we hope you have a great week. We’ll talk to you again soon.