Every year a certain percentage of the population comes to the conclusion that they could benefit from the one-time or ongoing advice of a financial advisor, and so they embark on the quest of finding that trustworthy professional to help them make smart choices with their money. The Red Flags Unfortunately, it is a great challenge to find a financial adviser with the right mix of experience, competence, and chemistry. If you are currently on your quest or are thinking of hiring an adviser, there are several red flags to watch out for. 1. Red Flag: Your initial consultation is “all about them” Good financial advice stems from knowing the unique dreams, goals, and current financial situation of the client. The initial consultation with your advisor should be “all about you”. The adviser should spend most of your time asking you questions to get to know you, where you are, and where you would like to end up. If the adviser spends a majority of your time talking or, worse, talking about themself, it may be time to move on. 2. Red Flag: The adviser’s compensation system is not transparent. Every adviser must earn a living. This is to be understood and expected. What also must be understood is exactly how each adviser earns their living. Make sure that you clearly understand how each adviser is paid. Each adviser you interview should be able to clearly and without hesitation explain how they are compensated and how they financially benefit from any of their recommendations. You need the confidence that your adviser’s recommendations stem from what is best for you and what will best help you accomplish what matters most. Some compensation systems can have inherent conflicts of interest. For example, a compensation system in which as adviser is paid by the product company that he or she recommends could have a conflict of interest between the adviser and the client. Make sure that how they are paid is clearly explained, that you are comfortable with it, and that the adviser is out to serve your best interests. 3. Red Flag: The advisor has too many client relationships and/or no system for ongoing progress meetings. Make sure to ask each potential adviser how many client relationships that they manage and how often they meet with each client for ongoing progress meetings. You want to work with someone who has a small client community and who has the time to meet with you consistently and follow up with the questions and changing circumstances you have throughout the year. You should be able to meet no less than annually with them and they should be accessible to return your inquiries and calls withing 24 – 48 hours. One of the biggest reasons that clients leave an adviser is poor client service and infrequent communication. 4. Red Flag: A product is recommended before your entire financial situation is known. Good financial advisers are comprehensive in nature and are process focused, not product focused. Before any product recommendations are ever made, your adviser should thoroughly know everything about your financial goals and your financial situation. This includes the financial aspects of your assets, liabilities, income, outflow, tax, estate, insurance , investment , and risk tolerance (not a comprehensive list). Financial planning is interdependent and each aspect affects the others. Make sure that your adviser has asked about your complete picture before they make specific recommendations. In addition to the “hard data” that is needed for plan recommendations, your adviser should take time to get to know you personally and your unique value system so that each recommendation is in harmony with what matters most to you. 5. Red Flag: Investment recommendations are made before quantifying how much is “enough” to save. For some reason, many investment advisers and financial planners are content to help clients to manage their investments without every quantifying how much is “enough” for them to accumulate for each goal. If an adviser never takes the time to quantify your target accumulation balance for retirement, college education, or any other accumulation goal, it is a red flag. How can they or you define success without knowing when you’ve reached your target? A good planner knows how to quantify this and to measure your progress over time. If your potential adviser is content to only help you determine your asset allocation strategy and make ongoing investment recommendations, you should seek out a more comprehensive planner. Key Takeaways 1. Maintain awareness of how much time you talk versus a potential advisor in your introductory meeting. When s/he speaks are they statements or questions? 2. Can your potential advisor clearly articulate how they are paid? Could this system impact their financial recommendations? 3. Do you always have to reach out to your adviser, or do they have a regular progress meeting process in place? 4. Does your potential adviser know everything about your current financial situation and goals before their recommendations? Do they “prescribe before the diagnose”? 5. Are you and your adviser clear on how much is “enough” to accumulate for each of your goals? Do you have this in writing? What are some of your takeaways? Meet us in the comments! This article was promoted in the forums by Derrik Hubbard, CFP, President of The Stewardship Solution. Check out his website at Your Financial Purpose . Photo by pescatello Related Articles: Stick With What You Know and Become a Better Money Manager How To Select A Financial Advisor 10 Tips To Manage Your Personal 401k How To Be Financially Happy How to create wealth: 10 tips to get you started! 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How to Find a Good Financial Advisor: 5 Red Flags To Watch For