Looking for the Right Financial Advisor? Avoid These Common Pitfalls


Whether you are just starting your retirement planning or have begun but are not sure which direction to go, having the right financial advisor can be a significant help. However, choosing the right financial advisor isn’t an easy task. There are common pitfalls that people fall into that can make finding the right financial advisor even more difficult.

You Didn’t Ask About Compensation

The average income earned by a financial advisor is over $89,000. However, the income earned by an individual advisor can vary largely. Looking at a standard salary structure, it’s easy to assume that all financial advisors are paid the same, but that’s just not the case. There are various compensation models, such as hourly fees, fixed pricing, and commissions on retail products, like mutual funds and exchange-traded funds (ETFs).
The most important thing to consider in advance is whether or not you’re comfortable with how your financial advisor is compensated—you don’t want to get into it only to find out that you have different beliefs about what constitutes “ethical” business practices.

You Didn’t Look for the Certificate

While most advisors are trustworthy, studies show that around 7% are involved in fraudulent activities. Moreover, another study from the Association of Certified Fraud Examiners (ACFE) states that financial advisors who join or are merged with a company with a history of fraud are 38% more likely to commit fraud themselves. Hence, it’s essential to know that the person you hire to help you with your finances is qualified and trustworthy. That’s why it’s crucial to check a financial advisor’s license and certificate before you hire them.

You should look at two things: what kind of license they have and where they got their certification. If they don’t have a license or certificate, that doesn’t mean they aren’t good at what they do—but it does mean that there isn’t any verification that they have the expertise necessary to help you.

An advisor’s license will tell you what they’re allowed to do with money. For example, someone with a securities license can legally invest their money in stocks and bonds. If someone has a securities salesperson license, they can sell stocks and bonds on behalf of clients (but not recommend specific ones). And suppose someone has an insurance agent or broker’s license or certification. In that case, they can sell insurance policies for health care coverage or life insurance policies for individuals or businesses.

You should always select a certified financial advisor to make financial decisions on behalf of the clients. Advisors with these certifications ensure that they have the right knowledge and expertise to help you manage your finances better.

You Didn’t Shop Around

According to Harvard Business Review, you should look at all your options together to make better choices, and the same is true for selecting the right financial advisor.

While you can easily find many financial advisors by just doing a simple Google search, not all of them can help you in the best possible way. This is why you should always consider all your options and shop around before selecting a financial advisor to work with.

Here are some other reasons why:
You’ll better understand what questions you should ask when you talk to different advisors. You’ll be able to compare each advisor’s style and approach to your needs, which can be very helpful in making your final decision. You’ll understand that not all financial advisors are created equal, so it’s important to find someone who matches your goals and personality. You may discover that there is no perfect match for you! The more people you talk with, the more likely someone will come with whom you click.

You Didn’t Connect With Other Clients of the Advisor

Testimonials are a great way to get a feel for the financial advisor you’re considering hiring. You can learn about their experience, approach, and interaction with clients. You can see what other clients say about the advisor and whether they’re happy with their services.
If you’re looking for a new financial advisor, it’s essential to do your research before making any commitments. One of the best ways to do this is by looking at testimonials and connecting with other clients of the advisor you’re considering hiring. This will give you an idea of whether or not you’d be a good fit for each other and whether or not their services would suit your needs.

Going through the testimonials will also increase your trust in the advisor. According to BigCommerce, 72% of customers say that positive testimonials can help them trust a brand more. On the other hand, a list of negative reviews will give you a clear idea that you should not go ahead with hiring him or her.

You Didn’t Communicate Your Goals and Expectations Clearly

It’s important to clearly communicate your goals and expectations to the financial advisor before hiring him or her because it helps you avoid misunderstandings and wasted time. If you and your financial advisor don’t have clear communication, it could cause unnecessary tension and frustration, leading to a poor working relationship.

If you’re unsure how to communicate your goals and expectations to your financial advisor, here are some tips!

  • First, make sure you know exactly what your goals are. You should define what success looks like for you to meet those goals, including what steps will help you achieve them. You should also consider how much time or money is involved in achieving the goal. For example: if you want $50K for starting up a business after graduation, that might mean saving up over 1 year or more; if you want to buy a house within 2 years, then saving up might be faster than investing in stocks/bonds/mutual funds/index funds/etc.).
  • Second, think of the factors that must be considered when setting up your financial plan. This includes taxes (income tax vs. capital gains) and inflation (a measure of how much the buying power of a dollar decreases over time).
  • Third, think about what factors could affect your financial goals. This includes inflation rates, interest rates on loans/investments, and market volatility (the number of ups and downs in the market over time).

Final Thoughts

If you follow the steps above, you should better understand what to look for in a financial advisor. That way, when the time comes that you need financial help, you can make an informed decision and hire an advisor who will make your goals a reality.

I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank.