Be Prudent And Avoid These Mistakes When Picking A Financial Advisor

avoid mistakes picking financial advisors cfp cfa professional

Good doctors, attorneys, and financial advisors can uplift or destroy your life. So, you should be extremely careful at the time of consulting a doctor, lawyer, and financial advisor. 

Readers, as you all know, LeanStartupLife.com has always focused on money maximization, marketing momentum, finance, entrepreneurship, sales, etc. It wants its readers to save money, live leaner and sell more. So today, let’s discuss the 5 mistakes you should avoid when hiring a financial advisor in this article. A financial advisor can help you meet your financial goals. Again, he/she can give you a huge financial heartache. So it’s better to be careful and avoid making costly mistakes. 

5 Mistakes to avoid when hiring a financial advisor 

Let’s look at a few mistakes that you must avoid when picking a financial advisor. 

1. Not Clarifying The Fee Structure 

Financial advisors work for money. So you need to ask how you’re going to pay him? Does he charge a flat fee? Does he charge a commission based on the total assets you have? If the financial advisor charges a commission based on the number of transactions, then it’s better to avoid working with him. Commissions per transaction can be messy. You have to monitor each and every financial transaction. You need to be sure that your advisor is not making transactions just for the sake of earning a commission. This is called churning. 

2. Not Asking Enough Questions 

It is a big mistake to trust a financial advisor just because he has been referred by a friend. Of course, your friend will have the best interest in his mind. But you should also evaluate the financial advisor on your own. Ask him several questions like: 

(i) How many years has he worked in the industry? 
(ii) What is his expertise? 
(iii) What is his qualification? 
(iv) How often will he evaluate your portfolio? 
(v) How does he analyze a financial product? 
(vi) Is there any particular technology used to collect information? 
(vii) Does he work alone or with a professional team?
(viii) Is he affiliated with any organization? 

Finally, ask him to give references for a minimum of 3 people with whom he has worked with. 

3. Not Selecting A CFP® Professional 

Don’t forget one point. Anybody can call himself a financial advisor. What’s the big deal about it? Well, there’s a big deal about it. Like I said before, a financial advisor controls your financial life. So, you should work only with a qualified financial advisor. Look for a financial advisor who can show a certified financial planner certification. Only one-fourth of financial advisors possess a CFP® certification, and there’s a valid reason for that. The eligibility criteria for a CFP® certification is quite tough. Only efficient people can qualify for the certification. 

CFP® Professionals receive extensive training to help people plan all aspects of their life. They adopt a holistic and comprehensive approach to financial planning. Other financial advisors are not as competent as CFP® professionals. 

4. Selecting A Friend As Your Advisor 

Selecting your friend as your financial advisors is just a BIG mistake. Period. It’s easy to believe that your friend would be the best financial advisor for you. You know your friend for such a long time. So he knows you very well and understands your requirement perfectly. I ain’t denying that. But there are a few big problems of recruiting a friend as your financial advisor, and they are: 

(i) You can’t ask his business history or credentials or work experience. He might get offended. It isn’t just that. You can’t ask a lot of questions that would have helped you determine if he is the right one for you. 

(ii) When you work with a friend or a family, you tend to make decisions based on emotions instead of industry trends. You act on blind trust and stop doing market research. That’s so wrong for your financial life. 

(iii) If your friend fails to deliver your expected results, you can’t say much for the sake of your friendship. But gradually, bitterness creeps into your friendship, and you end up losing your friend. 

5. Not Doing Any Background Check 

Good financial advisors can chalk out good investment strategies for you. They can help you to diversify your investment portfolio in a safe and secure way. They can give you clear debt solutions when you’re in debt, and prepare for your retirement. Do you understand the significance of these things? Financial advisors decide the fate of your life, and if you don’t do a background check on them, then you’re doing the biggest mistake of your life. 

Unscrupulous financial advisors are there in the industry. So you got to be careful. Otherwise, you may end up losing all your savings. 

Conclusion 

A bad financial advisor can sink your financial ship within a few days and leave you high and dry. So be wise and avoid the aforementioned mistakes when picking a good financial advisor.


I hope you enjoyed this article about why you should be cautious when hiring a financial advisor and make sure they are CFP Pros.

Interested in reading more articles about lean startup finances? 

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