None of us can afford to make a mistake when it comes to our personal finances. And yet many people will turn over all of their money, sometimes to a complete stranger, under the guise that this person is a financial adviser.
If you were planning to hire someone at work, would you hire the first person you talk to, hire them without talking to references or looking at their resume. Many people do this when they hire a financial adviser to manage their investments! It happened to me and all the guy wanted to do was to buy and sell stocks for me. The worst part is that he could not even remember my last name! He did not last long.
Hiring Financial Advisors
What are the Mistakes that We All Make?
Here are seven common mistakes you can avoid when hiring a financial adviser.
- Interviewing just one candidate
- No background or reference check
- Focusing the search on cost or payment style
- Expecting credentials to make an adviser ‘good’
- Expectations and results based entirely on returns
- Letting the adviser control everything
- Hiring friends and relatives
Let’s face it most people do ok, because most advisers are honest and hard working. However we have all heard of the terrible things that have happened to people that have lost everything because their advisers either made huge mistakes or defrauded them out of their life savings. If you avoid these most common mistakes, at least you have a better chance of avoiding losing everything.
Common Mistakes Made by Many People – 1: Interviewing just one candidate
You have decided that you need more than just a broker to help with your finances. You have questions about your investments and whether your savings will last into retirement. It is time to hire an adviser. Do you hire the first guy to come along or do you interview a number of people?
Do you buy the first house you see, the first car on the lot and do you compare prices for items you buy? Why not compare the services from advisers? After this is your savings for you and you family for retirement. This is important right?
Yet many people will hire the first person they talk to. Sometimes it is because a friend or a relative recommended them. Do you take the advice at face value or to do you do your own investigation? Sometimes word of mouth works great, but it still is the best advice to check several advisers out before you make a decision.
Common Mistakes Made by Many People – 2: No background or reference check
Fancy offices, nice cars, rich clients, and fancy clients does not mean success. After all they could be living off your commissions or even your own money.
Check with references that you trust. Radio hosts who have advisers on their shows are looking to fill time on the radio not invest with the adviser. As long as they sound good they will have them on their show. This is not a reference check. Some of the time on the radio is even paid for by the advisers, so even though it sounds like investment advice, it is really just advertising.
Even after checking references etc, some may still get past you, however the chances are much reduced and your investments will remain safe.
Common Mistakes Made by Many People – 3: Focusing the search on cost or payment style
Everyone objects to paying fees for questionable advice. Most adviser collect fees by selling and buying investments on your behalf and therefore every recommendation must be suspect as a result.
Sometimes paying by the hour can be more beneficial and less costly, however it really depends on the trading action and investment style you have.
The real answer is how much money you will make , “NET” and which approach will be more successful.
Common Mistakes Made by Many People – 4: Expecting credentials to make an adviser ‘good’
Professional credentials are easy to get for financial advisers. My adviser has a wall full and yet I don’t think I get any better advice from him than I did before he got all these diploma’s
Hire a person that you trust, and not a credential; Even if you trust the person completely, never let go of your control of your investments. Money corrupts and and after all it is yours to lose not someone else’s.
Common Mistakes Made by Many People – 5 : Expectations and results based entirely on returns
People hire advisers because they need help, they want to make money and want to get their finances in order. They often fire advisers because they don’t earn a “big enough” return.
For every person who gets rich quick, there are a thousand that lose their money. You want an adviser who is going to counsel you to ride over the bumps of the market and position you to have a nice nest egg by the time retirement comes around.
Long-term performance is what really allows them to ride the market roller coaster and retire comfortably.
Common Mistakes Made by Many People – 6: Letting the adviser control everything
It is your money and never relinquish control of your funds to someone else, especially your adviser. You have the most at stake , the most to lose so it only makes sense that you make the decisions!
Common Mistakes Made by Many People – 7: Hiring friends and relatives
It is hard enough to fire a person who works for you, i.e. your adviser, it is many more times difficult to fire someone who is a friend or a relative. If you have to fire that friend or relative, chances are they will no longer be a friend and your relative may not speak to you for awhile.
Hire based on references, background checks, and performance.