8 Mistakes to Avoid When Choosing an Advisor

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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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What Happens to My Money if Something Happens to My Advisor?

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Financial advisors can help you invest and manage your money. An advisor helps clients reach their long-term financial goals and often play an integral part in the retirement planning process. 

But there’s one question many clients have: what happens to my money if something happens to my advisor?

Your advisor opens your accounts, sends you reports and provides a hands-off way to secure your retirement. If these individuals die or become incapacitated, your money will still be safe and will still be your money.

What Happens to My Money if My Advisor Retires, Gets Sick or Dies?

As an advisor, 90% of our clients ask us this very question. It’s an excellent question to ask, and it’s one that we want to clear up for you. No matter who you’re working with, the logic and answers will be the same across the board.

But before we get too far ahead of ourselves, it’s crucial to have a firm understanding of where your money is held.

Understanding Where Your Money is Held

When you work with us or any independent financial advisor, your money never enters our bank account. In fact, our name is never on the checks that you write. Instead, you assign us as an advisor on your account.

A third-party custodian will be where your money is held.

These custodians are massive financial institutions, such as Wells Fargo or Charles Schwab. The custodian will house your money, ensure everything is compliant and facilitate the trades.

As independent advisors, we:

  • Act on your behalf when dealing with a custodian
  • Never actually hold your money

If something happens to your advisor or us, your money will still be sitting in the custodian’s accounts that we created for you.

What Happens When Working with Big Financial Firms?

If you work with a big financial firm, you may assume that if your advisor is no longer working with the firm, you’ll be working with another internal advisor. And you will be working with another advisor, but it’s essential to understand that these firms operate in what’s called “teams.”

Teams have multiple advisors, so if something happens to the leading advisor, you’ll work with someone else in the company.

In fact, you’ll receive a call from your new advisor and will need to decide whether or not to work with the team without the advisor you had. Your money remains in place, and if you choose to leave the team, you can just transfer your money to another advisor.

So, in short: you won’t lose your money and can decide on what to do next with your portfolio.

Common Scenario Questions People Ask

Your money is important to you, and it’s essential to know the answers to common questions regarding your advisor:

What Happens if Your Main Advisor Dies?

First, you’ll get a new advisor. But the process will go something like this. You’ll receive a phone call and the new advisor:

  • Will explain that they have been assigned to your account
  • Likely have you come into the office to learn about him/her

You should ask to meet the advisor and go through the initial decision stages again, just like you did when choosing your original advisor. What this means is that you’ll want to:

  • Talk to the advisor and see whether your personalities match
  • Understand the advisor’s investment philosophy
  • Decide if the philosophy is good for you

If you’re working with teams in the same office, you can be relatively confident that their philosophies will match. You won’t even need to worry about the investment strategy if working with an advisor from the same team.

This is the best-case scenario.

When working within the same team, your biggest concern will be whether the new financial advisor is a good fit for you. If the advisor isn’t a good fit, you can switch to another member within the same team.

What Happens If Your Financial Advisor Retires?

Retirement scenarios are a little different than if someone quits, gets sick or even dies. If an advisor is retiring, they’ll let their clients know well ahead of time. There is a lot of planning that goes into the retirement process, so you have many options as a client.

Your advisor can also choose to retire and:

  • Sell their practice, in which case, you can begin working with the new team.
  • Let the current in-house team take over the account. The long-term advisor leaves, but you continue working with the team that you’ve known for years.

If you’re concerned about your advisor leaving, it’s important to ask about their continuity plan for your team. You can ask your current advisor this question and ask this question when looking for an advisor.

Most advisors will have a plan in place to help you transition if they get hit by a bus tomorrow.

And a lot of people will shop for a new advisor when they know that their name advisor is going to retire.

We’ve had potential future clients come into our office, vet us thoroughly and explain that they plan to stick with their current advisor until that individual retires. You can follow this same concept because, at the end of the day, it’s your money that a new advisor will need to handle.

You’re not restricted to working with just the team that your old advisor built either.

Final Note

You’ll work closely with an advisor, build trust and hopefully make a lot of money together. Then, if your advisor is hit by a bus or decides to quit tomorrow, there will be someone that can confidently fill their shoes.

Often, you’ll have the option of working with the advisor’s team that they were a member of to make the transition as fluid as possible. And in all cases, you’ll still have all the money you invested accessible to you.

Want to learn how you can secure your retirement? We have two great resources that we just know that you’re going to love and benefit from.Click here for our 4 Steps to Secure Your Retirement Course or listen to our Secure Your Retirement Podcast.

How to Change Financial Advisors

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If you’ve broken up with your advisor (episode 90 of our podcast), you may be wondering what steps to take to move to another advisor. A retirement financial plan changes and evolves over time, and there are times when moving to another advisor is in your best interest.

There are a lot of reasons to make a switch, and there’s always going to be a move where you transition to your new advisor.

It’s difficult to leave an advisor, but the transition process is rather straightforward.

How to Move from One Advisor to Another

A major question our clients have is what the process looks like when moving from one advisor to another. There are a few ways to make the transition, and don’t worry: your money won’t be lost in transit.

There are a few scenarios that can play out here.

Your New Advisor is at the Same Place

If your old advisor is at the same place as your new advisor, the process is simple. By “place,” we mean a major institution like Fidelity, Charles Schwab or any other major institute. In this scenario, everything stays the same.

You don’t have to worry about account numbers or information changing.

Instead, you’ll sign a few papers that authorize the new advisor to take the place of your old advisor.

This is a rare scenario, but it is the best to be in.

Your New Advisor is at a Different Place

A more common scenario that we deal with is that a client’s former advisor is at Fidelity and their new advisor is at Charles Schwab. In this case, all of your money needs to move in the process, which is still an easy process.

Not much changes, even the way that you look at your account. For example:

  • Your IRAs will still be IRAs
  • Joint accounts stay joint accounts
  • Etc.

For the most part, things will remain very similar when changing advisors.

Even if you have stocks that you want to hold onto, you can transfer them “in kind.” You don’t have to sell and then rebuy these stocks during the move.

Paperwork Process Required

The custodian (in this case, Charles Schwab) will require paperwork to understand who you are. An application is required, which includes all of your basic information, such as your name, address and so on.

  • If you’re transferring an IRA, you’ll need to list your beneficiaries.
  • Brokerage accounts will need to be set up, and we recommend adding in a TOD, or transfer on death.

Your advisor will walk you through all of these steps and explain what’s taking place. You’re there to sign off on what’s happening and to finalize the transfer.

  • Transfer document. A transfer document will need to be signed, which gives permission to move assets from one custodian to another. For example, if your assets are in Fidelity and you’re moving to an advisor that uses Charles Schwab, you’ll sign this document to allow the assets to transfer. You’ll need to attach a current statement to the document, too.
  • Advisor agreement. Your advisor will want you to sign documents that outline the services that they’ll render. 
  • Risk tolerance document. You’ll likely have to sign off on paperwork involving risk tolerance so that both you and the advisor know what level of risk you’re willing to take.

Note: In 99% of cases, your accounts will transfer over to an identical account with little more changing than the name of the custodian on your account statements.

It’s important to note that your former advisor doesn’t have to sign off on any of these documents. Since you’re changing advisors, not requiring a signature makes the entire process much easier on you.

The advisor will receive a notification of your money moving and that you’re moving to another advisor.

Process After Document Signing

After you’ve signed all of the paperwork, there’s a small waiting period where your accounts open quickly and sit at $0. The transfer process often takes 7 to 10 business days, so during this time, your assets will begin their transfer.

Once everything is transferred, your advisor will then begin looking through all of your assets and start working on making any changes you’ve discussed to reach your retirement goals.

Common Questions When Moving or Starting Work with an Advisor

What if you want to move from one account type to another?

What if you’re not moving from another advisor but you’re moving from a 401(k) to a traditional IRA? In this case, the process often involves a simple phone call and won’t have any tax ramifications involved.

In this case, the 401(k) will send you a check in the benefit of you to the custodian.

So, the check with all of the funds from the 401(k) is sent to you and written out to your custodian. You pass this check to your advisor, and it will now be rolled over to a traditional IRA account.

What if you handled all of your own investments but now want to work with an advisor?

If you have handled all of your own investments, it’s as simple as creating a new account with a custodian and following a similar path as outlined in the “Your New Advisor is at a Different Place” section above.

Moving to a new advisor may be required to secure your retirement. The process itself is easy, and most advisors will walk you through the process step-by-step to get started.

Want to secure your retirement?

Click here to access our 4 Steps to Secure Your Retirement video course.

How to Choose a Financial Advisor After a “Breakup

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You put a lot of time and effort into choosing a financial advisor. An advisor learns all about your financial situation and your future goals. And when it’s time to move on to a new advisor, it can be really difficult.

We’ve had a lot of clients come to us over the years that want to move on to use our services.

But they have an emotional attachment with their current advisor.

It’s difficult to move on to a new advisor when you know the person’s family members or have relied on them for years, but you also know that it’s the right time to move on. For a lot of people, choosing a new financial advisor is almost like breaking up with someone because of that deep, emotional bond that has formed.

Why Break Up with a Current Financial Advisor?

Retirement planning is a very important part of your life. Once you’ve reached retirement age, you’ve either planned properly or you didn’t. You can’t go back and correct past mistakes when you’ve reached 65, 67, 70 – whenever you choose to retire.

For a lot of people, they often feel that leaving a current advisor requires a deep reasoning.

It doesn’t. 

Your advisor is helping you manage your money. If you’re not satisfied with the person’s services or just want to try another avenue, you have every right to do so. You’re always in control of your financial advisor choice.

The most common reasons why people breakup with their financial advisors are:

  • Communication has broken down, or you really never hear from your advisor.
  • You’re simply not happy with the performance or experience you’re having with your advisor.
  • Life changes that occur, and your objectives and goals change.
  • You need an advisor that offers more services or is setup to handle more of your concerns.
  • Advisors change their overall philosophy, and the change isn’t the right choice for you.
  • Your advisor is retiring soon, so you begin looking for a new financial advisor.
  • Your advisor’s team is changing and you’re no longer working with the advisor that you want.

The truth is that you are investing your money into retirement. Your life goals and objectives are either being met or not met with your advisor, and it’s your right to leave an advisor if you want to.

How to Choose a Financial Advisor

When working with clients who want to secure their retirement, we’ve found that communication is the main factor in them no longer working with an advisor. Because communication is key, it’s often best to start here when choosing a financial advisor.

Ask the advisor about:

  • Types of communication
  • Frequency of communication
  • Types of reports or statements provided to you
  • Etc.

If the advisor shrugs off these questions or seems annoyed by them, you know that they don’t take communication as seriously as you need them to.

But there is a lot more to look for in an advisor than just communication.

You also want to consider the following:

  • Are you nearing retirement? If so, working with a specialist who focuses on near-retirement planning is often in your best interest. These advisors will be able to fill in gaps that past advisors may have missed, and they’ll be able to provide guidance that can solidify your retirement.
  • Do they match your personality? Your personality should mesh with the advisor’s personality. When both personalities mesh well, you’ll have a much better experience working with them. An advisor shouldn’t force you or try pushing you into using their services or to convince you that they’re right.
  • Will your advisor help you with goal alignment? You have goals, and the advisor should help you with goal alignment. If you want to keep your risk low and the advisor is trying to push you into a potentially high-risk investment, such as cryptocurrency, you may want to look elsewhere. The advisor should discuss your options and maybe recommend other strategies, but they shouldn’t try pushing you in one direction or another if you’re uncomfortable with their recommendations.
  • Does the advisor take a holistic approach to retirement planning? A holistic approach, for us, means that we look at the entire plan. There’s more to retirement than investing. Holistic approaches consider taxes, Medicare, long-term care, Social Security, estate planning and your goals. 

How to Break Up with Your Advisor

Breaking up with an advisor can be done in a lot of different ways. A lot of people make this a pressure-filled time with anxiety and stress, but breaking up with an advisor doesn’t need to be this complicated.

Instead, you can send an email, call the person or go see them in person.

We recommend that you keep it simple no matter which method of communication you use to break up with your advisor. If you make it complicated or explain why you’re leaving, it can lead to justification and make the entire process more difficult than it needs to be.

Simply say that you’ve chosen to go in a different direction, thank them for their services and explain that your decision is the best choice for your family.

Technically, you don’t even have to do that. You can also opt to move to another advisor with no explanation needed. Your new advisor should be able to access all of your accounts and help you with the entire moving process.

Click here to access our 3 Keys to Secure Your Retirement Master Class for FREE.