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7 Mistakes People Make When Choosing a Financial Advisor
This Free Quiz Finds Vetted Fiduciary Advisors Who May Be Able to Help
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Choosing a financial advisor can be a major life decision that could potentially determine your financial trajectory for years to come.
A 2023 Northwestern Mutual study found that 66% of U.S. adults admit their financial planning needs improvement. However, only 37% of Americans work with a financial advisor.1
The value of working with a financial advisor varies by person. While advisors are legally prohibited from promising returns, research suggests that people who work with a financial advisor could end up with about 15% more money to spend in retirement.2
Net worth from age 45 to 77
Final lifetime net worth with and without a financial advisor.
Disclaimer: This example demonstrates the potential final lifetime portfolio value, accounting for estimated investment returns, tax savings and inflation over different life stages for an individual starting with $500,000 at age 45, through age 77. Under a set of core assumptions, this consumer profile is projected to have a final lifetime portfolio value of approximately $3.24 million if retaining the services of a financial advisor – not accounting for additional savings or portfolio withdrawals – versus a final estimated lifetime portfolio value of $1.56 million without the services of a financial advisor. This example is based on the valuation framework presented in SmartAsset's whitepaper “The Value of a Financial Advisor: What's It Really Worth?” (Nov. 2024). The value of professional financial advice is only an illustrative estimate and varies with each unique client's individual circumstances and portfolio composition. Carefully consider your investment objectives, risk factors, and perform your own due diligence before choosing a financial advisor.
Disclaimer: This example demonstrates the potential final lifetime portfolio value, accounting for estimated investment returns, tax savings and inflation over different life stages for an individual starting with $500,000 at age 45, through age 77. Under a set of core assumptions, this consumer profile is projected to have a final lifetime portfolio value of approximately $3.24 million if retaining the services of a financial advisor – not accounting for additional savings or portfolio withdrawals – versus a final estimated lifetime portfolio value of $1.56 million without the services of a financial advisor. This example is based on the valuation framework presented in SmartAsset's whitepaper “The Value of a Financial Advisor: What's It Really Worth?” (Nov. 2024). The value of professional financial advice is only an illustrative estimate and varies with each unique client's individual circumstances and portfolio composition. Carefully consider your investment objectives, risk factors, and perform your own due diligence before choosing a financial advisor.
SmartAsset's no-cost tool can help you avoid some of the common mistakes in looking for an advisor. How does the free tool work? It's easy:
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The fiduciary financial advisors you match with serve your area and are legally bound to work in your best interest. You may even be able to instantly connect with an advisor for a free introductory call. Advisors are vetted through our proprietary due diligence process.
1. Hiring an Advisor Who Is Not a Fiduciary
A fiduciary is defined as an individual who 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. Our free tool will only match you with registered or chartered fiduciary advisors.
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 in the yellow pages, this decision could require more time. It can be a good idea to take the time to interview at least a few advisors before picking one you'd like to work with. SmartAsset's platform can help match you with up to three advisors, allowing you to compare each before making a decision.
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3. Choosing an Advisor with the Wrong Specialty
Some financial advisors may 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 the dotted line.
4. Picking an Advisor with an Incompatible Strategy
Similarly, each advisor may have a unique strategy. Some advisors may suggest aggressive investments, while others could be more conservative. If you prefer to go all in on stocks, an advisor specialized in bonds may not a match for your style. Our quiz will ask you some questions that may help start this conversation - but it could be important for you to bring it up with any advisor you speak to.
5. Not Asking About Credentials
To give investment advice, financial advisors are required to pass a test.
Ask your advisor about their licenses, tests, and credentials.
6. Not Understanding How They are Paid
Some advisors are "fee only" and charge you a flat rate no matter what. Others charge a percentage of your assets under management. Some advisors are paid commissions by mutual funds, a serious conflict of interest. If the advisor earns more by ignoring your best interests, do not hire them. For a refresher on fiduciary advisor obligations, see Mistake 1!
7. Not Hiring a Vetted Advisor
Chances are, there are several highly vetted financial advisors in your community. With all these considerations, it can feel daunting to choose one.
Hiring an advisor who is not a fiduciary means they could recommend decisions that may not be in your best interest.
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After you choose your state and answer a few questions, you can compare fiduciary financial advisors who serve your area and decide which to work with.
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