Top 10 Mistakes Made When Hiring a Financial Advisor

A financial advisor can help you meet your financial goals. You need, however, to take an active part in the relationship. Below are some of the common mistakes people make when hiring such an advisor.
1. Not checking out his or her background. There are many excellent financial advisors who can help you plan your investment strategy and prepare for your retirement. It is a mistake, however, not to check out the background of someone with whom you are placing such valued trust. Unfortunately, unscrupulous advisors do exist.
2. Not checking references. Ask for references and call at least two of them to discuss their experiences with the advisor.
3. Going with the first person you meet. A financial advisor needs to understand your specific goals, needs, and level of risk. Therefore, you should meet with at least three possible advisors, if not more, before deciding with whom you will work.
4. Hiring someone who uses a blueprint plan. In your research, you should talk to some of the advisor’s other clients. If you find out that he or she is offering the same advice to everyone, then you will likely want to work with a different advisor. Remember, there is no one-size-fits-all approach to financial planning. Advisors who sell everyone the same investment vehicles are likely getting a commission from the products.
5. Not asking a lot of questions. Too many people become passive around financial advisors. It is important to ask questions and determine what his or her plan of action will be and how your money will be invested. Prepare yourself by making a list of questions before meeting a financial advisor.

1. 1. 6. Failing to establish a good rapport. It is important that neither you nor your spouse feel intimidated by a financial advisor. Make sure you feel comfortable discussing your finances in an open and honest manner. If you have doubts or feel intimidated, you should work with someone else.
      7. Not providing full disclosure. If you do not provide the advisor with your overall financial picture, then you are not taking full advantage of his or her expertise.
      8. Failing to clarify the financial arrangements ahead of time. You need to determine ahead of time whether you are paying a flat fee, a commission based on the total assets, or a commission based on each transaction. Commissions per transaction can be tricky, and you will need to watch carefully to make sure he or she is not making transactions for the sake of commissions, a process known as churning.
      9. Failing to discuss philosophies. In addition to finding out how the advisor plans to help you reach your goals, you also want to discuss how he or she handles a down market and deals with other changes in the overall economy. Get a feeling for his or her overall philosophy -- very conservative, very aggressive, somewhere in between?
      10. Blindly following. Your financial advisor is working for you. It is your money, and you cannot turn a blind eye and simply assume that everything he or she says or does is the best move. A common mistake is blindly following whatever advice you are given. Ask questions so that you understand why he or she is making specific recommendations.

For more information, check out the AllBusiness.com Personal Finance Center.