Hiring a financial advisor can help you navigate the tumultuous world of finances and investing. Financial advisors understand the impact of changes in the economy and the markets that gives them an advantage over the average person when making financial decisions. Your financial advisor can help keep your finances on track during the changes in life – – college, marriage, starting a family, divorce, job changes, retirement, etc. Having a financial advisor helps keep you focused on the bigger picture rather than getting bogged down in small changes and events. Choosing a financial advisor is an important process that will affect how your finances are managed. Avoid these costly mistakes when searching for a financial advisor.
Not interviewing multiple candidates
You must treat hiring a financial advisor as if you were hiring a nanny to care for your baby. You would never hire the very first person you interviewed because you want to find the best candidate. Certainly ask friends, relatives and others for recommendations; however, do not hire a financial advisor based solely on these recommendations. Interview numerous candidates until you feel that you have several great candidates to begin paring down to your final choice.
Not conducting a background check or checking references
Speaking of trusting references from friends, family members or other business associates – – don’t. You need to conduct your own background check on each of your final candidates to determine if that fancy office, shiny nameplate and official looking certificates have been earned or are just props. Of course, background checks are not perfect; however, they are a good starting point. Do not trust news sources as references because they may call anyone to provide a source for a story. In addition, do not trust the financial advisor’s own press kit – – check resources yourself.
Relying solely on credentials when making your final choice
While doing a background search and checking references, you will also find out about the credentials that your potential financial advisor holds. Credentials are a good indication of the education and training a financial advisor may possess; however, they do not guarantee that a financial advisor is “good.” Make sure that when you narrow down the potential candidates you hire the person and not just the certificates on the wall. Credentials are a part of your search for a financial advisor; however, finding a person that has a good investing record, happy clients and fits with your personality are part of your decision as well.
Handing over your money and not supervising your financial advisor
Yes, you have hired a financial advisor for their expertise and you trust him with your finances. You may not understand investing as well as your financial advisor but you had better understand how to supervise him. It is your money and you are in charge – – ask questions until you understand each step and always know where you money is being invested. You and your financial advisor are working together to build your financial security but at the end of the day you are the person who has the final say about how your money is invested.
Never hire family or friends as financial advisors
It is tempting to hire your brother’s kid who just graduated college and is an “up and comer” in the financial world. However, just like it is not a good idea to be friends with the people you manage at work it is not wise to hire a family member or friend as a financial advisor. When problems or issues arise, and they will, it will be difficult for you to deal with them in a professional manner. Having a purely business relationship with your financial advisor will make the task of firing him or her easier should you ever be faced with that decision. Furthermore, hiring relatives can create family tension and division so it is better not to stray down that path.