A survey conducted by Bankrate revealed that only 35% of Americans get financial advice from financial advisors or other professionals. Interestingly, older Americans were less likely to seek advice than younger generations. Unfortunately, when most retirees decide to get advice, they believe their prior experience and age will help them settle on the right financial advisor. That’s not often the case; many hire the wrong person.
To help you navigate this process, we have compiled common mistakes we see retirees making when hiring a financial advisor. Avoiding these mistakes can help you make better hiring decisions and ensure you get returns from your investments.
1. Hiring the First Financial Advisor They Meet
Most retirees make the mistake of hiring the first person their family or friend suggests. They may also settle for the first person who appears highly rated on Google without further interviewing them to determine if their interests match.
Taking time to interview different financial advisors is critical as you get to know them better and determine if they’re the right fit for you, depending on your financial goals, risk tolerance, and current assets.
2. Failing to Research the Advisor’s Compensation Structure
It’s tempting to hire a financial advisor based on people’s recommendations and forget to ask about their compensation structure. Some advisors charge a flat rate, while others charge an hourly rate. There are also some who charge a percentage of your assets under management and a fraction who are paid commissions through mutual funds.
Finding out how your financial advisor is to be paid during your first meeting is crucial, as it will help you decide whether you’re comfortable with the arrangement.
3. Failing To Consider an Advisor’s Credentials
While your family and friends may have a good relationship with a particular financial advisor, they may not have the credentials and experience to manage your retirement. Working with an advisor with the right credentials in retirement planning can help you meet your financial retirement goals and avoid common mistakes.
Find someone with verifiable credentials, like a personal financial specialist, certified financial planner, or chartered financial analyst. Determine if the advisor understands your retirement goals and can advise you on the best way to turn accumulated assets into retirement income.
4. Settling for an Advisor Even if It Doesn’t Feel Right
Many retirees make the mistake of settling for an advisor even if the relationship doesn’t feel right. Avoid working with anyone who thinks like a salesperson, not a financial advisor. Stay away from advisors who are not concerned about your financial goals and make you feel dumb for asking questions. If the first interview doesn’t feel right, don’t hesitate to walk away and interview the next person until you find the right person you can trust to help you manage your retirement and make better financial decisions.
5. Hiring an Advisor Based on Their Past Performance
While a financial advisor’s previous records are essential and may indicate impressive results for past clients, that alone should not be a reason to hire them. The right advisor should craft a customized retirement plan and strategy that considers your current financial standing and overall goals.
6. Failing To Consider the Advisor’s Specialization
Many retirees have this misconception that all financial advisors are the same. However, there are financial advisors with varying credentials and specializations. Some specialize in retirements, others in investments and a tax or estate planning percentage. Working with an investment advisor when you need someone experienced in retirement planning can be disappointing. It’s best to learn about their specialization during the interview to determine whether they fit.
7. Hiring an Advisor Who Doesn’t Have Fiduciary Obligation
A fiduciary is ethically required to put your interests and needs ahead of theirs. They are supposed to act in the best interest of you. Hiring a financial advisor who’s not a fiduciary may expose you to advisors who push products to make money from you, not because they think the product will benefit you. Find out if your preferred financial advisor is a fiduciary by checking out the SEC adviser database or napfa.org.
As a retiree, hiring a financial advisor can significantly impact your financial goals and retirement. You can avoid these mistakes by researching, asking the right questions, and interviewing multiple people. That will help you find a financial advisor that fits your retirement goals and overall financial strategy.
