6 Things To Do When Hiring a Financial Advisor

Encouraging people to make smart financial decisions.

Choosing a financial advisor is a significant decision that can shape your financial future for years to come. According to a study by Northwestern Mutual, the majority of American adults recognize the need for improvement in their financial planning, yet only a small percentage actually work with a financial advisor. Research indicates that working with an advisor can bring a sense of security and potentially result in a 15% increase in retirement savings.

While hiring a financial advisor can be beneficial, it is important to be aware of potential pitfalls before making a decision. Here are some key points to consider.

1. Opt for a Fiduciary Financial Advisor

A fiduciary financial advisor is bound by a strict standard that requires them to act in the best interest of their clients, disclose any conflicts of interest, and provide all relevant information. Hiring a non-fiduciary advisor may lead to potential conflicts that could hinder your financial goals.

2. Don't Rush the Selection Process

Resist the urge to hire the first financial advisor you come across. Take the time to thoroughly research and interview multiple candidates. This decision is crucial, so ensure you find an advisor who aligns with your needs and goals.

3. Find an Advisor with Compatible Strategies

Your risk tolerance is unique to you, and different financial advisors may have varying approaches. Look for an advisor whose risk tolerance matches yours or is willing to adapt to your preferences.

4. Inquire About Credentials

Financial advice carries significant consequences, so it's important to ask potential advisors about their qualifications. Find out about their tests passed, licenses awarded, and credentials earned. A Certified Financial Planner (CFP) designation adds an extra layer of expertise.

5. Understand Advisor Fees

The fees charged by advisors can impact your overall returns and savings. Different advisors have different fee structures, such as flat rates, percentages of assets under management, or commissions from financial products. Be sure to understand how fees are levied and consider the potential conflicts of interest they may present.

6. Vet Potential Advisors

While it may seem overwhelming to choose from a pool of qualified advisors, it is crucial to thoroughly vet them. Take the time to research their reputation, ask for recommendations, and check for any disciplinary actions or complaints.

By being mindful of these potential pitfalls, you can make an informed decision when hiring a financial advisor to ensure a prosperous financial future.