Hiring anybody to do anything is always tricky because you find yourself having to predict the future and how that person will perform in it. In addition. theres always a judgment call that has to be made while evaluating the integrity and honesty of the person you hire. But selecting a financial advisor is even trickier because the stakes are much higher. For example, if you hire a plumber and he doesnt work out, you pay him the agreed amount and move on with your life. But if you hire a financial advisor and he doesnt work out, then not only do you have to pay the agreed fee but you also have to deal with the fact that your life savings or retirement fund may have been jeopardized. Therefore, selecting the best possible financial advisor is much more critical because you are giving that person access to your finances .

Common Mistakes

However, many people further reduce their odds of finding a competent financial advisor by not gathering enough information and by making the following common mistakes .

Cutting corners and not putting enough effort into the process

People tend to take the process too lightly. There are a number of steps in this process (e.g. identifying your needs, researching different advisors, checking references etc.) and each one of them is time consuming. But in the long run, its time well spent not only because finding the right person can help you achieve your goals but also because finding the wrong person can cost you a lot of money .

Relying solely on recommendations from friends and family to make a decision

Everybodys financial situation is unique, so an advisor who worked well for somebody might not work well for you.

Not understanding what kind of advisor you are looking for

There are numerous types of financial advisors out there (e.g. brokers. fee-only planners, fee-based planners, comprehensive planners, tax advisors, estate planners etc.) and people tend to assume they are all basically the same. That is not the case. If you just want tax advice. dont go to a broker just because he calls himself a financial advisor.

Confusing salesmen with financial advisors

Salesmen are typically individuals who work for brokerage houses. Often their primary job is to sell stock. They tend to call themselves financial advisors but they are not usually registered as investment advisors, which means they do not have a fiduciary duty (that is, a legal obligation ) to do whats absolutely best for you.

Not understanding what fee structure you will be paying

For example, paying a financial advisor a commission every time you purchase or sell a stock is not the same as paying an advisor a fee based on assets under management. In the former, the advisor makes money no matter whether your investment goes up or down but in the latter, the advisor makes a lot more money when your investment goes up. Therefore, the advisors interests are more aligned with yours.