If you think about it, hiring a financial adviser is an extremely important financial management responsibility. Think about all the wild news stories you hear these days about ponzi schemes and people losing money because of unethical behaviour by brokers and advisers. These were financial professionals people thought they could trust.
Of course, the news is telling you about the big issues, but what about the regular family out there that trusts all their retirement savings to someone who isn’t handling things in their best interest. A Market Watch article identifies 7 mistakes people make when hiring an adviser. Have you made any of these mistakes?
- Interviewing just one candidate
- No background or reference check
- Focusing the search on cost or payment style
- Expecting credentials and designations to make an adviser good
- Setting expectations and viewing results based entirely on returns
- Letting the adviser control everything
- Hiring friends and relatives
Here are some thoughts about each mistake:
- I think hiring an advisor can be intimidating for a lot of people. Don’t just hire the first person you interview because you assume they are an expert. I always recommend talking to at least three different people.
- I never thought about doing a background check, but if you think about it, this adviser will be managing your retirement, children’s college savings and other investment matters. You wouldn’t want to trust that responsiblity to just anyone.
- Cost shouldn’t be the lone factor when making a decision. I suppose the old saying – you pay for what you get probably holds true here. I thought the advice from the article to find a reasonable balance of costs and services was good. You shouldn’t be paying a lot of costs if you’re adviser is only helping you pick a few mutual funds. Also, be careful not to choose your adviser based on your overall desire to avoid paying commissions. Perhaps the commissions are worth it for some people who don’t have the time to invest on their own.
- A great tip is to hire a person and not the credential. Think about it related to finding the right doctor. There are a lot of qualified physicians, but they may not be right for you. Get to know the person, their story and approach for working with you.
- Once you’ve found the right adviser, stick with the person through the long-run and don’t bail when the market doesn’t perform one year.
- The worst thing you could do is let your adviser control everything. It’s your responsiblity to manage money well. Your adviser is just another trusted resource on your team.
- Doing business with a friend or family member spells trouble for one big reason: You let your guard down. That’s pretty good advice from the article. I think it’s hard to mix friendship and financial management together because there is another added layer of emotion that may not be good for the friendship or your finances. Still, some people make it work, but be cautious on this one.
So, what are your thoughts on avoiding these mistakes when hiring a financial adviser? Do you agree with the advice?
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