Finding a financial advisor is a big step toward securing your financial future. You’ll want to choose someone who has knowledge and experience, and also shows they can understand your personal and financial goals. This can be a complicated process, and it’s easy to miss important details. Here are five common mistakes to make sure to avoid when you’re choosing a financial planner.
1. Not checking credentials and experience
One of the biggest mistakes you can make is not thoroughly checking a financial planner’s credentials and experience. Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) are two of the most respected certifications for financial planners. They require rigorous training and a commitment to high ethical standards. Beyond that, consider the planner’s area of expertise—some may specialize in retirement planning, while others focus on things like investment or tax strategies. Make sure their expertise matches up with your financial goals.
2. Not understanding the fee structure
Make sure you understand how any financial planner you’re considering is compensated—that can affect the advice they give you. You can pay a financial planner through fees (fee-only), commissions on the products they sell, or a combination of both. Fee-only planners don’t earn commissions from selling products, which can reduce potential conflicts of interest and make their interests more likely to align with yours. Always ask for a clear explanation of how a planner is compensated and consider how it could influence the advice they provide.
3. Not insisting on a fiduciary
Always choose a financial planner who’s a fiduciary. When you work with a fiduciary they’re legally obligated to put your interests ahead of their own. Non-fiduciary financial advisors are not held to that standard—they only need to give you suitable recommendations. (And that doesn’t necessarily mean they’re putting your best interests first.) Find a planner who is a fiduciary, as that will give you some extra peace of mind knowing that they’re required to act in your best interests.
4. Not properly vetting their rep
It’s important to do a background check on any potential financial planner. Check for any disciplinary actions or complaints filed against them. You can check FINRA’s BrokerCheck website, the CFP Board’s website, or the SEC’s Investment Adviser Public Disclosure website. All of these resources can give you information on the planner’s professional history and whether they have a clean track record.
5. Not confirming compatibility
Financial planning is not just about numbers; it’s also about personal relationships. You need to trust your financial planner and feel comfortable sharing your financial secrets with them. If you don’t feel like they understand your needs, or if you’re uncomfortable asking questions, they might not be the right fit for you. Before you make a final decision, schedule a meeting or a call to make sure you communicate well and have similar values when it comes to financial management. Remember, this is a person you might be working with for a long time.
