As with any professional service, you should consider that hiring a financial advisor may create a disadvantageous situation for you. Some of the worst aspects of hiring a financial advisor are obvious from the beginning, like handing over control of your finances and trusting someone else to manage them, but there are also some that may not immediately be apparent.
Some of the worst aspects of hiring a finance professional are that you could end up with a poorly credentialed advisor. Always steer clear of:
- Sales-oriented advisors
- Being coerced or rushed
- Vague payment terms
- Compiling everything into one investment
- An advisor that doesn't ask about your needs
Less-than-scrupulous advisors will request to meet with an individual without their partner, will lack answers to important questions and also avoid sending monthly statements. While financial advisors are no longer just available to the wealthy, retaining one may complicate life more than is necessary.
The Possibility of Hiring a Bad Advisor
Unfortunately, the possibility of hiring a bad financial advisor is high. For the most part, those seeking a financial advisor are probably doing so because of their lack of time. However, it takes time to do your homework and investigate an advisor to ensure you don't wind up with someone who will take your money and run.
Unnecessary Fees
Financial advisors are compensated through a laundry list of fees and commission. An hourly rate, flat fees, annual portfolio review, planning fees, commissions on gains, and vague mark ups are typical charges.
Lack of Accountability
While advisors are held to a fiduciary standard to make reasonable investment recommendations, in the end they are not accountable for losses. Meaning you pay for following someone’s mislead advice.
Loss of Financial Control
Financial advisors give their clients investment choices and opportunities, but by the same token are in control of their clients money. One of the largest disadvantages of having a financial advisor is that you need to have a trusting relationship, but a shady financial advisor might not follow your guidelines or consider your wishes.
The Value of Advice
The thing about finance is that the value of advice is only as good as the market allows. No one really knows what will happen from day to day or how gains and losses will be a month, or year from now. Being savvy and diligent with your own funds is generally the best approach when it comes to financial advice.
If you are conscientious of the many disadvantages of having a financial advisor then it may be enough to prevent you from falling victim to bad advice. Actively paying attention to the details of the provided service is the best way to protect your money.
