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8 Mistakes People Make When Hiring a Financial Advisor or Agent

mistakes hiring a financial advisor

If you are gearing up for retirement, take heed. Here are eight common mistakes that people make when engaging a financial advisor. These blunders occur more than they should, but the good news is they are easily preventable.

Up until this point, you may have worked with a financial advisor in growing the value of your nest egg. With their help, you created a personal investment strategy and built a portfolio to meet your goals.

But with people spending as long as one-third of their lives in retirement, your next phase-of-life requires careful planning as your working years did. This calls for a financial professional who can help you navigate the unique retirement challenges facing you.

Those new trials include the questions of how to convert your portfolio assets into dependable streams of monthly income that last as long as you need them – and how to manage risks that come with decades-long retirement life.

Avoid These Common Blunders When Hiring a Financial Professional

Use these tips to help you avoid costly hiring mistakes and find a financial professional who is a good match for you.

1. Hiring an advisor who doesn’t act in your best interest.

The rationale behind working with a financial professional is simple. With their guidance, you would be in a better position to achieve your financial goals and even enjoy more confidence down the road.

The recommendations for your money that your financial professional offers are a big part of that equation. That is why hiring a financial advisor or agent who guides in your best interest is so important.

What does that mean? Simply, that they put your interest first in the recommendations they give you.

Their own interest, such as fees for advice or commissions on certain products, takes a seat behind their professional responsibility to solve your financial needs. Any products and strategies which they suggest will need to have a clearly defined role in helping you achieve your goals.

When meeting with prospective advisors or agents, ask questions to determine what standard they follow in their practice.

Here are a couple of questions to frame others after: “How do you determine which strategies or products make the best sense for me?” “How will we be able to judge how well any recommendations meet our expectations and goals?”

At the end of the day, this is your money. Any decisions should be made with a clear outcome in mind: “Do the products that the advisor suggested make my financial situation better than before?”

2. Engaging an advisor with the wrong expertise.

Not all financial professionals have the same specialty – or the same level of expertise, for that matter. While some financial advisors or agents specialize in retirement planning, others are better equipped to meet the needs of small business owners.

Some advisors and agents are experts in helping early-career professionals get their financial feet off the ground and establish a firm foundation. Still, others specialize in assisting high net-worth households plan for issues like estate transfers and tax efficiency strategies.

The key is to find the right advisor with the specialty that covers your needs. Since you are preparing for retirement, finding someone who specializes in retirement income strategies and capital preservation strategies is quite important.

Complete your due diligence. Before you sign paperwork with a certain advisor, be sure you understand their field of specialty, their knowledge, and their weaknesses as well as strengths.  

3. Choosing an advisor with an incompatible philosophy or strategy.

Based on their background and experience, every financial professional has a certain philosophy on money matters. You have probably seen some of these differences in the investment strategies that advisors create.

Some favor more aggressive programs while others aim for lower-risk ones. They may also focus on different economic factors and variables in the market when they are building out a financial strategy.

It may be surprising, but there is just as much variety in professional opinions on retirement income and spending strategies.

Some financial professionals prefer a withdrawal rate strategy, in which you take a certain percentage of money out from your portfolio each year. When goods and services go up in price, you adjust your withdrawal amount for the increase.

The 4% withdrawal strategy is a well-known example for many investors.

For other advisors, the thought of clients running out of money in retirement is simply too great a risk to forecast. They prefer to have some level of income certainty for their clients as part of their retirement strategy.

Here at SafeMoney.com, financial professionals fall more into this camp. The income strategies we discuss on this site belong in what the academics call the “safety first” school of retirement planning thought.

Under this philosophy, for example, a retirement strategy would include an income “floor.” Or in other words, it would use annuities, along with other guaranteed income-paying sources like Social Security and pensions, to cover must-haves like monthly living expenses.

The bottom-line – make sure that the advisor’s philosophy or strategies are a match for what you might prefer and might need.

4. Not verifying how an advisor is paid.

Financial professionals can take in revenues in a number of ways. Many firms charge a fee based on a certain percentage of assets under management, if they oversee investments for their clients.

Some advisors receive commissions on products they sell, which range anywhere from insurance products to investment funds. Others charge a flat fee no matter what, whether it’s an ongoing fee on assets they manage for you or an hourly rate for financial advice they give to you.

There is a place for all of these structures. You are paying the advisor for their expertise.

Chances are your retirement strategy will include some sort of position in mutual funds, stocks, or other market-based assets. In that case, you could expect to pay some sort of assets-under-management fee in exchange.

While annuities are commission-based products, in many cases they offer guaranteed benefits that you won't find elsewhere. For example, insurance companies take annuity premium dollars and pool the risk among hundreds of thousands of policyholders.

The insurance company must also maintain dollar-for-dollar reserves for every annuity premium dollar it brings in, which no other product in the financial marketplace has the same structure as.

Many firms charging an assets-under-management fee or a flat fee don't offer annuity products, which means you would have to go elsewhere to obtain this type of financial security.

The most important thing to keep in mind is this. Will the plan offered by your advisor meet your expectations, making it worth what and how the advisor is paid?

5. Failing to confirm an advisor’s background and credentials.

Ask your prospective financial professional about their credentials, experience, education, and licenses.

While they must hold certain licenses to sell different products, like an insurance license for annuities and a Series 7 license for mutual funds, they may have additional holdings that bolster their expertise.

For further professional education, some advisors earn professional industry designations. These can be a sign of what knowledge and solutions a prospective professional brings to the table. Some examples of designations are:

  • Certified Financial Planner, or CFP® mark
  • Retirement Income Certified Professional, or RICP® designee
  • Chartered Financial Consultant, or ChFC® mark
  • Chartered Federal Employee Benefits Consultant, or ChFEBC℠ designee
  • Chartered Life Underwriter, or CLU® designation

You can find out more information about designations and other notes of professional distinction in this article on hiring a retirement planning company.

6. Not checking up on references and other people’s experiences.

This is for your financial future. So, be sure to explore what other people have experienced with your prospective financial professional.

Chances are the advisor or agent will be happy to provide references. Contact the references and ask how their experience has been. Depending on what services and products that the advisor or agent offers, you may be able to find information online about their business records.

While regulations prevent advisors offering securities from seeking testimonials, you may find feedback from other clients online. The point is, do your due diligence into the market’s feedback on your prospective financial guide -- before signing on the dotted line.

7. Not asking enough questions to get a true sense of what they offer.

When we are keen to take action, sometimes quick decisions seem justified. But a rush to judgment can prove unfavorable later on.

Remember, you are creating an important relationship that will help determine if you enjoy your retirement to the fullest. It’s good for you to have a certain level of confidence with your prospective advisor before you commit to moving forward.

Take some time to work through your “what ifs,” and ask enough questions in order to establish a comfort zone beforehand.

8. Going with the flow.

It can a little legwork to find the right advisor or agent. But, remember, this is your money. The decisions are ultimately up to you. What if you don't fully understand a recommendation the advisor has given you? Or if you aren't fully comfortable with something?

Just like you did when interviewing advisors to find the right match, ask questions. You should understand the strategies that are being recommended to you and be confident in those suggestions. This is something that directly affects your money matters, so don't feel compelled to just go with the flow.

Find a Financial Professional to Achieve Your Goals

Hiring the right financial professional for you can be fairly involved. But the payoff on the back end can be tremendous. You can benefit from more peace of mind in your financial security, as you enjoy the comfortable, fulfilling lifestyle for which you worked so many years.

Are you looking for a financial professional to help you put your retirement and money matters in order? Financial professionals at SafeMoney.com are ready to assist you.

Use our “Find a Financial Professional” section to connect with someone directly and schedule an appointment to discuss your needs. Should you need a personal referral, call us at 877.476.9723.

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