Seven Top Mistakes When Choosing a Financial Advisor

Building an investment portfolio, preparing for retirement or protecting your estate for future generations can be quite complex. Financial advisors can holistically examine your financial situation and craft a financial plan, to ensure that your decisions are in line with your larger goals.

Here we outline some of the pitfalls that many people make when choosing an advisor, so you can avoid their mistakes and secure the right professional for your unique situation.

1. Hiring an advisor who is not a fiduciary—A fiduciary is ethically bound to act in another person’s best interest. Fiduciary financial advisors must avoid conflicts of interest and disclose any potential conflicts of interest to clients. Hiring an advisor who is not a fiduciary means they could recommend decisions that may not be in your best interest.
2. Hiring the first advisor you meet—While it’s tempting to hire the advisor closest to home or the first advisor that pops up in an online search, this decision requires time. Interview at least a few advisors, before picking the best match for you.
3. Choosing an advisor with the wrong specialty—Some financial advisors specialize in retirement planning, while others may be most helpful for business owners or those with a high net worth. Some may specialize in helping young professionals starting a family. Be sure to understand an advisor’s strengths and weaknesses, before signing on the dotted line.
4. Picking an advisor with an incompatible strategy—Some advisors may suggest aggressive investments, while others are more conservative. Seek out an advisor who uses an analytics tool to determine your “risk score.” This allows them to provide professional recommendations tailored to you.
5. Not asking about credentials—Financial advisors are required to pass a test (including the Series 7, Series 65 or Series 66). Ask your advisor about their licenses, tests and credentials. They should be able to provide a “Form ADV” and/or documentation from the Ohio Department of Insurance.
6. Not understanding how they are paid—Some advisors are “fee only,” charging you a flat rate, regardless of outcome. Others charge a percentage of your assets under management. Ask them to produce legal documentation showing how they are compensated. Beware of “commission only” structures, which can create a serious conflict of interest.
7. Not hiring a vetted advisor—Chances are that your community has several highly qualified financial advisors. With all these considerations, it can feel daunting to choose one. Implementing some of the steps that we have shared today will assist with the vetting process and help you find a good match.

Independent registered investment advisors (RIAs) take the time to get to know you, understand your personal and financial goals and build a relationship focused on helping you meet your investment objectives. An RIA is legally bound to work in your best interest. Most RIAs work under fee-based compensation.

Connect with an RIA who specializes in meeting the complex financial needs that often come with significant wealth. Find out more at pinnacleinvestmentadvisors.com or 937-667-6500.