If you are struggling to effectively manage your personal finances, you should know that you are not alone. In fact, 71% of adults in the U.S. feel their financial planning needs to be improved, according to a 2020 study. This same study found that only 29% of adults in the U.S. have a financial advisor helping them.
Why hire a financial advisor?
A knowledgeable financial advisor can help you increase your wealth while also giving you peace of mind knowing that your personal finances are being professionally handled. Studies have shown that those who have a financial advisor will end up with an average of 15% more money during their retirement years.
Choosing the right financial advisor
Finding a financial advisor that is right for your needs and preferences is an important decision that you should not take lightly. Choosing the wrong financial advisor can result in serious consequences. The following are some mistakes that you should avoid when choosing a financial advisor.
Hiring a non-fiduciary
You should only consider hiring a financial advisor that is a fiduciary which means the individual is legally required to act in your best interest as a client. Fiduciaries are also required to avoid and disclose any potential conflicts of interest.
Failing to consider many options
It is a good idea to shop around as much as possible when looking for a financial advisor that is right for you. Make sure to interview numerous advisors before making your final decision. Do not just hire the first financial advisor you meet out of lacking patience.
Selecting an advisor with wrong specialty
Some financial advisors have certain specialties. For example, some have special knowledge and experience in dealing with retirement planning. Others may specialize in high-net-worth-individuals or business owners. Make sure to inquire about the specialty of a potential financial advisor you are considering for hire.
Hiring an advisor with wrong strategy
It is important that your financial advisor has a strategy that is right for your financial circumstances and tolerance for risk. Some advisors have a more aggressive investment strategy while others may be more risk averse. Therefore, be sure to discuss this aspect when interviewing financial advisors that you may potentially hire.
Failing to inquire about credentials
Make sure that your financial advisor has all of the proper licensing and has passed all of the necessary tests. Failing to do so can have disastrous consequences since it could mean an individual lacking the necessary knowledge will be managing your investments and finances. In the worst-case scenario, you may become a victim of fraud by failing to ask about credentials.
Not comprehending the fee structure
Financial advisor fee structures can vary. Some are paid a flat fee while others may charge based upon a percentage of the amount of assets you are having them manage. However, there are some financial advisors that make a commission from mutual funds which can be a significant conflict of interest.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Independent Financial Services and not necessarily those of Raymond James.