A Financial planner has been known to help individuals manage their finance and get out of debt amongst other benefits. However, one of the challenges they have is picking the right financial planner who can match their financial situation.

Financial experts have provided a lot of suggestions and tips on how to hire the best financial planner, but their are some mistakes that you might need to avoid if you want to get the most out of your finances.

Some of this mistakes will be discussed in this article and different ways to solve them will also be provided.

• 10 Critical Mistakes to Avoid When Choosing your Financial Planner
• What makes a Good Financial Planner?
• What Clients look for in a Financial Planner?
• Why do Clients leave Financial Planner?

10 Critical Mistakes to Avoid When Choosing your Financial Planner

Below are seven mistakes we see people make when hiring a financial advisor and three that we see people commit when working with a team or individual they have selected. By avoiding these mistakes, you can reduce your stress and have the best chance of optimizing the return on your hard-earned wealth.

1. Consulting with a “captive” advisor instead of an independent advisor

Financial advisors who work for a single or branded firm—sometimes called “captive” advisors—are required to sell the products those companies offer. Certainly companies with good reputations can sell you good financial products.

Read Also: The 7 Types of Financial Planners you Need to know about

But because their advisors are compensated for leading with those products—or selling those products exclusively—you are missing out on the ability to consider myriad options.  This is like the difference between phoning a specific airline, who will offer you their flights, versus a travel agent who can find you the best flight at the best cost for you.

You will get more options if you work with an independent advisor who is free to sell products from many different companies. This can allow the advisor to find the best products for your unique situation.

2. Hiring an individual instead of a team

It is extremely important to work with an advisor you trust and feel comfortable with. After all, he or she is going to know everything about your financial situation. But if that advisor works alone, what happens when he or she retires? What happens if he or she passes away unexpectedly or leaves the business?

All that work you’ve done together to build a financial plan based on your goals and dreams will evaporate. You’ll have to find someone else you trust and like, and you will both basically have to start over.

That’s why we recommend choosing an advisor who works as part of a team. In a team environment, advisors have backup. Plus, on a team, the advisors are likely to have varied expertise, knowledge and experience, making them a stronger and more valuable resource for you overall.

3. Choosing an advisor who focuses on just one area of planning

It makes sense that investment planners will be focused on getting the highest possible return on the investments in your portfolio. The key to true wealth management, however, is holistic planning. This involves looking at everything from your tax and legal planning to your insurance (risk management) and cash management.

Planning will look at debt, long-term goals, short-term needs and a myriad of other factors. Your trusted advisor should act as a quarterback coordinating all of the professionals you work with.

Referring back to mistake #2, this is another reason it’s ideal to work with a team of advisors. Today, it’s simply not possible for one person to be an expert in insurance, college planning for your kids and grandkids, investments, annuities, retirement planning and all the other components of a sound financial plan.

4. Not understanding how an advisor is paid

Financial advisors are compensated in a number of ways. These can include commissions for selling a product, fee’s or a combination. The compensation is independent of investment expense. It’s important for you to understand both. The least expensive option is not always the best however, you should understand what your cost is and what you are getting for that.

While you are interviewing advisors, ask each one, “Do you earn a commission from the products I buy or investments I make?” If the advisor says yes, that means he or she could have a conflict of interest on what they offer.

This doesn’t mean that commission based advisors will necessarily work against your best interests. It just means they might be more inclined to recommend products and services they will get a commission on that may or may not be the best option for your financial-planning needs.

In contrast, fee-only financial advisors must follow the fiduciary standard. When an advisor follows the fiduciary standard, it means he or she is required to make recommendations that are in your best interest, and they are compensated through fees rather than commissions.

Those fees can be an hourly fee, flat retainer fees or asset under management (AUM) fees. In deciding to pay a fee rather than commissions, it is important to understand that the fee may be higher than a commission alternative during periods of lower trading. Advisory fees are in addition to the internal expenses charged by mutual funds and other investment company securities.

To the extent that clients intend to hold these securities, the internal expenses should be included when evaluating the costs of a fee-based account. Clients should periodically re-evaluate whether the use of an asset-based fee continues to be appropriate in servicing their needs.

5. Failing to get referrals

There are a lot of financial advisors out there, so getting started with your search can seem overwhelming. It pays to ask people you know who their advisors are. Ask people whose opinions matter to you who they work with, but keep the other recommendations we’ve made in mind when considering those advisors. 

For example, if your brother-in-law refers a firm that only sells annuities that may not make sense for you if you need a financial-planning team whose advisors cover every aspect of financial planning. Ultimately this is will be your advisor, so you must be comfortable with them and what they offer. 

Also, consider more seriously those referrals who work with people in situations like yours. If you are only 10 years away from retirement, but someone recommends to you an advisor team who specializes in working with people who are just getting started in their careers, that probably isn’t a good match for you.

6. Choosing the first advisor you meet

Yes, it takes time and effort to interview more than one advisor or advisor team. But it’s worth it. Your future financial security is critical, and you don’t want to entrust it to just anyone! Make appointments with at least three advisors or firms. Ask them all the same questions, and take good notes. Then go home and compare their answers. Which one seems to be the best fit for you? 

Not only is this important as an information-gathering step; it also gives you an idea of how well you and an advisor get along. How comfortable would you feel about telling each advisor your most personal financial information? This is a critical step. Don’t skip it!

7. Making a decision without your significant other

If you are married, engaged or otherwise partnered, it’s important to include your partner in your decision to hire a financial-planning team. Getting on the same page financially is a critical step toward creating harmony in your relationship. You both need to interview advisors; don’t assume you know what your partner would want to do, and don’t let your partner assume he or she knows what you would want to do.

What if an advisor seems great on paper or on a website, but when you show up for an appointment, he or she speaks only to one of you and ignores the other partner? That is not going to bode well for a lifetime’s worth of discussions about your financial situation. Find a team of advisors whom you both like and whose approach and philosophies you both agree with.

Now that we’ve covered the mistakes people commonly make when searching for financial advisors, let’s look at three mistakes that many people make once they’ve chosen and have begun working with their advisors.

8. Working with the wrong adviser 

If your current adviser isn’t working out for you, consider working with another one. A great financial planner can turbocharge your financial planning by supporting you with expert insights into things like tax laws, business and investment structures, as well as sound investment strategies.

Take the time to find a qualified, experienced adviser who communicates effectively and helps you with setting realistic goals and developing workable strategies. You should also be asking them questions to determine if they are the right adviser for you, such as what their accreditation is, their strategies, etc.

9. Not working to a plan

Surprisingly, not having a clear financial plan is more common than you might expect. A plan forces you to think about your financial goals and what you want in life. It should take into account your current and projected financial states, changing life stages, and fundamentals like income, assets, debt, and cash flow.

It should encompass supporting tools like budgets and include measurable, quantified goals so you can check your progress. With a detailed financial plan, you can ensure your financial resources are put to the most productive uses and understand the precise steps you need to take to reach your goals.

10. No plan B for contingencies

An effective financial planning process should assess potential risks, contingencies, emergencies, and other unexpected outcomes. It should incorporate a thorough risk management strategy for addressing risks.

For example, you might see your personal top risks as losing your income and not being able to provide for your dependents. In this case, setting up an emergency fund, obtaining income protection insurance, and updating your estate plan could mitigate these risks. 

What makes a Good Financial Planner?

Choosing a trusted and knowledgeable financial advisor is one of the most important investment decisions you’ll make. So what makes a great advisor? Here’s a “top 10” list of what to look for:

1. They have a good reputation

Getting a strong referral from a friend or family member can be the first step in finding the right financial advisor. Consider the background and reputation of the company the advisor works for. Are they local? Do they have a strong track record of success? Be wary of hot-shot planners who seem to be too good to be true – they usually are.

2. They take a proactive approach

Good advisors keep the lines of communication open, updating you on current financial issues and opportunities. They help make complex financial concepts easy to understand. A financial advisor that withholds information or doesn’t take the time to clearly explain his or her recommendations is not worth your time (or money).

3. They don’t panic

Finding an advisor who is patient and doesn’t panic is critical to success. You want a planner who is always evaluating what options are best for you but does not divert from a well-thought-out strategic plan. Avoid advisors who are constantly pumping the latest hot stock pick with a sense of urgency; they may not have your best interest at heart. There should be no sense of urgency when it comes to sound investing that leads to long-term growth.

4. They invoke confidence and trust

You need a financial advisor you can trust to have confidence in their recommendations. If you feel nervous, fearful, or stressed out after discussions with your advisor, trust your instincts, and end the relationship.

5. They are an experienced financial professional

All legitimate financial advisors should have significant experience in the financial services industry or some sort of industry-recognized certification. One highly regarded designation is that of Certified Financial Planner (CFP), awarded in Canada by the Financial Planners Standards Council.

CFP professionals must meet standards for experience and ethics, as well as complete 30 hours of continuing education every year to maintain this accreditation. Other respected forms of certification include the Canadian Investment Manager (CIM), Financial Management Advisor (FMA), and Personal Financial Planner (PFP) designations.

Whatever the case, be sure to verify your advisor’s experience and credentials. Do your due diligence; it’s your best protection to ensure you’re dealing with a reputable advisor.

6. They take a holistic view of your finances

Sound financial advice is based on more than just your income level or the types of asset classes you invest in. A good financial advisor will take the time to learn about your full financial situation, investigating your banking, investment, insurance and credit needs. Only by understanding your spending habits, debt obligations, life goals and more can a financial advisor begin to develop a meaningful and accurate strategy.

7. They have a support team

A good advisor should have access to a broad range of experts to meet your specific needs. A team approach will ensure that you get the professional advice you require to meet any specialized investment, wealth management, insurance or debt management objectives.

8. They have a clear strategy

Just as you wouldn’t take a trip across the country without a map, you shouldn’t try to steer your financial future without a clear direction. And if life circumstances change, as they often do, your advisor should take them under consideration and help you revise your financial plan.

9. They work with you

A good financial advisor will meet with you – and your significant others – regularly throughout the year. And that level of attention should continue every year of your relationship. Too many times, people meet with an advisor, develop a plan, and then simply get statements in the mail.

10. They put your interests first

Professional advisors tailor your plan to meet your goals. They don’t push products on you simply to meet quota or to get the biggest commission. Check whether your advisor represents a wide range of products and service options or if they’re restricted to only proprietary solutions their company sells.

What Clients look for in a Financial Planner?

If you’re a financial planner, this will be one of the most important section for you to read. You will get a hint into what your clients are actually interested in. It will help you gain the trust of your clients and serve them well.

1. They Want Someone Who Will Understand Their Situation

How well do you understand your prospects? Can you empathize with them and relate to their struggles?

This is why we don’t understand why so many older financial advisors are trying so hard to understand and market to millennials. Why? Just work with older people. It sounds harsh to put it that way, but it’s just easier for someone to feel you understand him or her when you’re both similar.

Another powerful way to let people know that you understand their situation is through social proof. You can do this by choosing a niche and focusing on that niche. When you do that, you can let prospects know that you specialize in working with a certain type of person. If your prospects fit that avatar, they will instantly feel as if you understand their situation.

2. They Want Someone Who Will Educate Them

Dave Ramsey calls this having the “heart of a teacher”, and it’s pretty darn important. But this is something that a lot of financial advisors get wrong. They hear this advice and try their best to educate their clients. Then they take it way too far.

The key here is to remember to keep it simple, Very simple.

Your clients aren’t naïve or stupid, but you probably know way more about finances than they ever will. Usually, the more you know about a particular topic, the more complex your explanations become (simply because you understand it more), which causes the “education” to go right over your prospects’ heads.

When this happens, the financial advisor will think the appointment went well while the prospect leaves confused, too embarrassed to speak up. And remember, the only opinion that matters is the prospect’s opinion!

Don’t use jargon and complex language to make yourself look smart. We know you think it elevates you in the eyes of your prospects, but it doesn’t. It usually intimidates them and people don’t want to entrust their financial fate to someone who intimidates them.

Oh yeah, and don’t assume that prospects understand more than they actually do. They will often act like they understand when they actually don’t.

3. They Want Someone Who Will Respect Their Assets, No Matter How Small

One of the biggest reasons why people don’t seek out a financial advisor is because they feel as if they don’t have enough money to invest. 

There’s a perception that you have to be a millionaire or multi-millionaire before you even consider a financial advisor.

According to a survey by Harris Interactive:
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• 27% of people said they would feel comfortable meeting with a financial professional once they had $100,000.
• 13% of people had between $50,000 and $99,999 as their threshold.
• 12% of people had between $10,000 and $49,999 as their threshold.
• 7% of people would feel comfortable meeting with a financial professional with less than $10,000.
• 4% of people say that no specific amount of saving or investments is necessary to meet with a financial advisor.

Of course, if you have strict account minimums (which you should have if you have a solid book of business), then this doesn’t really apply to you. But if you need to grow your book of business fast, let prospects know that they don’t need $500K or more just to speak with you.

This is probably THE BIGGEST unspoken objection for financial advisors. Make sure you handle it.

4. They Want Someone Who Will Solve Their Problems, Not Pitch Products

This goes hand-in-hand with #1. If you understand your prospect’s situation, you will stand a better chance of solving his or her problems. You don’t need to sell products themselves, but you do need to “sell” the idea of financial planning, saving for retirement, insurance, etc.

5. They Want Someone Who Will Keep In Touch

How often do you keep in touch with your prospects?

If you can’t keep in touch when you’re trying to earn their business, you give prospects the message that you won’t keep in touch if they become clients.

Face it – most people think of financial advisors as commodities. And until you develop a niche and/or a particular area of expertise, you ARE a commodity… unless you focus on the relational aspect of the business.

This part isn’t cut-and-dry as the rest. How exactly you keep in touch largely depends on your personality and your prospect/client base.
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Some people want to meet with financial advisors every quarter, while others think that’s overkill. Some financial advisors like sending quarterly reports instead, summarizing current events and market news.

Our recommendation is to look for “excuses” to contact not only your clients but people in your pipeline. If one just had a baby, congratulate him or her and send a gift if you want. If you find out someone is going to start a business, reach out and ask if he or she has thought about private disability insurance. The key here is to have a pertinent reason for staying top of mind.

Here’s a rule of thumb you can use about communication: good communication alone will never sustain a relationship, but poor communication will almost always break it.

This whole piece assumes that you have both integrity and competency. An advisor should never lie, even by omission. A fiduciary standard is important. You also need to have the ability to help another person manage his or her finances. Without a baseline level of competency, you’re dead in the water. Assuming you operate competently and with integrity, you will be miles ahead of your competition if you remember the above five things.

Why do Clients leave Financial Planner?

Financial planners get fired all the time. It can sting, but getting past that and understanding why you got canned will help you succeed in the future where you failed. Learning from you mistakes is crucial, but remember that advisors are not just fired because their clients lost money in the market.

Several important social and relational factors like clearly understanding client goals and communicating effectively are key.

Communication Breakdown

Failure to communicate with clients is usually at the heart of the underlying problem that causes investors to fire their financial advisors, according to experts in the field. “Clients don’t necessarily fire advisors only because of poor performance, but rather because the advisor never communicates with them,” said Bill Hammer, Jr., a principal founder of the Hammer Wealth Group, a Melville, N.Y. wealth management firm.

Poor communication from the advisor can lead to poor investor behavior, such as buying or selling at the wrong time, and can make them feel like the advisor is “asleep at the wheel.” Hammer adds that during inevitable disappointing periods of performance, it is crucial for advisors to communicate with their clients, even though many pass on that advice and risk losing their clients in the process.

Rita Gunther McGrath, an Associate Professor at the Columbia University Business School, knows a thing or two about numbers and performance. When she didn’t like the numbers and performance she was seeing from her financial advisor, she fired her advisor.

“It was really all about poor performance,” McGrath said. “I was with them for seven years and ended up with less money than I had sent to them. Honestly, I’d have been better off leaving it sitting in a bank account.”

Mis-Reading Client Needs

McGrath said her advisor had a poor understanding of her needs. “I’d go to these meetings with them and it was all pie charts and mumbo-jumbo about portfolio diversification, investment horizons and technical stuff.”

She added that ultimately, what caused the dissatisfaction was her advisor’s lack of communication. “After years of losses, do you think they would call me and have a conversation?” she asked. “No, it was radio silence for years. I decided enough already.

And when I finally pulled my account and cited the poor performance, the response was ‘but your husband’s account did well …’ instead of acknowledging the under-performance in my account and being forthright about it.”

Other Deal Breakers for Investors

Kalen Holliday, communications director at Covestor, a marketplace for investors to find the right financial advisor, said she hears from dissatisfied financial advisory clients all the time – mostly after they just fired their advisor. “We hear it all,” she said. “People complain about opening an account and then never hearing from the advisor, or feeling like they were overlooked for ‘only’ having $500,000 in investment funds.”

Covestor.com offers a list of primary “deal breakers” that cause investors to pull the plug on their advisors:

1. Performance: Clients are sick and tired of paying high fees for lousy performance, and they aren’t going to take it anymore.
2. Lack of Attention: Advisors don’t call, they don’t write – they pretty much evaporate when the Dow is down.
3. Fees: When clients are getting high returns, high fees won’t make them wince. In a different economic environment, people are looking to cut costs, so firing an advisor who isn’t providing what they promised is an obvious choice.

Jason Laux, vice president of Synergy Financial Group, a Pittsburgh-based investment advisory firm, agrees that lack of human interaction is another big reason why clients take a walk. “Clients can tolerate the ups and downs of the market, changing economic whirlwinds and an erratic interest rate environment if, and only if, they feel that their advisor is monitoring the situation and keeping them informed,” explained Laux. 

Read Also: 20 Questions you Need to ask your Financial Planner

He added that nobody wants to be in the dark when it comes to their money, especially in troubling times. “Just knowing a plan is in place and that they are being cared for will provide the reassurance needed to maintain and build a strong working financial relationship,” he said.

The Importance of Realistic Expectations

Gregory Gallo, the co-founder of The Opus Group, a Red Bank, N.J., advisory company, says another big reason why clients fire their advisors is “overselling” their abilities. “Over-promise and under-deliver—that’s a big one,” he offered.

“In my 16 years in the business, I have heard many advisors in an effort to ‘win’ business and make statements to prospective clients that ultimately prove too good to be true.” The obvious example is performance – telling prospects that they will outperform the ‘market’ is just setting the client up for disappointment. “When a client feels like they have paid good money for that underperformance, they simply leave,” he says.

Other investment experts agree with that sentiment, adding that setting unrealistic expectations is linked to poor communication skills among advisors. “Promising investors returns that are way above market, and then not delivering on them, is a surefire way to lose clients,” said Hammer.

Finally

There are a lot of financial planners out there — and when they’re not all created equal, who you choose to work with really impacts your ability to reach your goals and achieve financial success.

Knowing the warning signs and red flags can help you navigate through a sea of choices and focus on the advisors who truly offer comprehensive planning with advice that’s in your best interest.