Pitfalls of Selecting the Wrong Financial Advisor

Choosing a financial advisor can be a daunting task but what happens if you choose an advisor and they end up being the wrong one?

With all the economic crises of the last seven years or so, financial professionals have become more visible and scrutinized. While there are a few high-profile crooked brokers and financial advisors looking to take advantage of consumers, there are plenty of bad advisors who mean well, but still fail their clients.

Understand that advisors are not wizards, and there is no silver bullet single shot answer when it comes to financial planning. Even with products that have guaranteed interest rates, like certain annuities, there is still a level of risk involved.

The positive?

There are still plenty of good financial advisors working in all sectors and markets. A good financial advisor is one that can establish programs that respond to your specific needs with limited risk exposure.

A good financial advisor shepherds your financial plan and makes you aware of potential issues. What can happen if you choose the wrong advisor?

You May Lose Money

In addition to paying for the bad advice, whether through commissions, fees, or a combination of both, you may lose out on money by getting involved with the wrong financial product mix for you.

The wrong advisor may steer you to a product or contract that is not ideal for your situation and one that may ultimately have a bad return or high tax burden.

Economic Changes

This will depend a lot on the product mix that you and an advisor select. In this scenario, you may not loose any money per se, but the cash value you have upon triggering benefits may not stretch far.

How could this happen?

The wrong advisor may present exactly what you want, without exploring other options to buttress your financial plan.

High Surrender Charges

An advisor may present a financial strategy that includes products that have a high surrender charge.

If ultimately you find that this product is not the best fit, you may face a significant charge for moving your funds into something more fitting.

An advisor should explain clearly all aspects of the financial instruments he or she presents to you.

What Type of Advisor Do You Choose?

There are many types of financial advisors.  There are also a number of different types of designations and licenses they might hold.  In many cases a financial advisor may hold one license or designation that allows them to sell or recommend multiple lines of products.

The first thing to ask yourself is: Why do I think I need an advisor?

While there are many reasons why you would need a financial advisor it is important to identify your specific needs as that will play a huge role in deciding direction on where to go.

Did you just have a child and think you need life insurance or want to start a college savings plan?

If so a good place to start would be an insurance agent that works with life insurance and college planning.

Are you getting ready to retire and need a strategy to maximize your retirement income?

Then maybe you need to find a financial advisor who deals with income planning.

Are you looking for a strategy to save for retirement?

In this scenario you might want to start looking at advisors that deal with retirement planning and wealth accumulation.

The most important thing to remember is that you want to work with a financial advisor that is proficient in the areas that you are most concerned about.

How Do You Know If They’re The One

Your needs and the services a financial advisor provides are two key factors in determining if the advisor is proficient in the areas you need help with.

In addition to this, trustworthiness and client reviews are the other components that can most significantly affect your decision.

When you meet with the advisor do you feel comfortable with them?

Do you feel like you can trust your nest egg with them and trust their plan?

Are you able to see what others have to say about them?

Do they work with other individuals you know or are you able to see reviews from individuals that have already worked with that advisor?

Here’s an analogy.

You are going to purchase a refrigerator and have narrowed it down to two options that are similar in price. One has a number of favorable reviews about it and the other has mixed reviews.

Which one will you go with?

Probably the one that more people seemed satisfied with.