Navigating the world of financial advisors can be intimidating at first glance. There’s dozens of search platforms to choose from, and each one tends to turn up different results. Unless you’ve got a close friend or family member with experience, you’re basically on your own, with way too many options to pick between.

Whether or not you choose to have Rowe Wealth Management investing your portfolio or another investment advisor, I want you to feel as secure with your financial decisions as we do with ours. That’s why we thought we’d highlight some of the biggest mistakes we see clients make when they choose a financial advisor.

Paying attention to the information below can help ensure you’re not paying extra for services you don’t use. After all, you don’t want to pay “fine dining” prices while being served “fast food”, which is often the case in advisor/client relationships. It should also help you avoid commision-based advisors who don’t really have your best interests in mind.

MISTAKE #1 – Choosing the cheapest level of assistance

If you’re just getting your feet wet with financial management, you’ll quickly discover that there’s two general categories of financial advisor, robo-advisors and human advisors.

A human advisor is what most people think of when they hear the term “financial advisor”. It’s a real person who will help you design a portfolio that matches your individual needs. They understand the more “human” elements of personal finance like stress management and can help cater your portfolio to match your desired level of risk/reward.

A robo-advisor, on the other hand, is simply an automated service that allows you to invest money in a portfolio designed and managed by computers.

Now, new investors sometimes gravitate towards robo-advisors over human ones, simply because the fees are less or they have lower minimum account balances.

This may not be a bad option if you’re willing to put a significant amount of time into researching rule-based approaches to investing and you have the mental fortitude to stick to them.

Unfortunately, a lot of DIY investors have trouble handling the “market stress” that can come along with long term investment. As soon as something starts to look bad…they bail, which can be harmful to the long-term growth potential of your portfolio.

Unlike a human advisor, a robo-advisor won’t be able to help you navigate these times of increased stress. An automated service won’t have any trouble sticking to its own rules…but ultimately you have control, and it won’t be able to offer you the same level of personalized advice if you start to make mistakes.

On the other hand, a good human advisor will have your best interest at heart, and the experience level to know how to handle various market conditions. Even if they’re charging higher fees than the “robo-advisors” the amount of money you can save over time is likely to be worth it.

MISTAKE #2 – Choosing a Fee-based Advisor

There’s two more categories that human advisors can be broken down into. Fee-based, and fee-only.

Fee-only advisors are generally the only advisors anyone with any know-how will ever recommend for asset management. They only make money through flat fees, hourly rates, or a percentage of assets managed. Again, it’s in their best interest to act in your best interest, which is exactly what you want from someone handling your accounts.

Fee-based advisors, on the other hand, also make money from commissions. They will try to sell you insurance and investments that they’re personally receiving a kickback from recommending. If these commissions are big enough, they may actually talk you into making decisions that are not in your best interest.

Ever buy a car and have the salesperson try to talk you into fifteen different, equally unnecessary, expensive options on the way to the front desk? It’s kind of like that, except this is someone who will have their hands all over your personal finances…

You’ll want to be especially careful here because these two types of advisor sound very similar. In fact, “fee-based advisor” is a relatively new term adopted by what used to be called “commision-based” brokers or agents. They’ve made the playing field deliberately muddy, and profit off consumers who go in looking for “fee-only” advisors and get confused when they hear the term “fee-based.”

Remember, fee-only is what you want, because they only charge management fees. Fee-based means they charge the same kind of fees…plus they’ll be earning commissions on extra “junk” they talk you into along the way.

MISTAKE #3 – Ignoring the Fiduciary Standard

The third thing you’ll want to double check is weather or not your chosen advisor adheres to the fiduciary standard.

A fiduciary acts first and foremost in the client’s best interest, and has to adhere to strict rules in order to maintain this qualification. Often, financial advisors from big-name brokerages are not held to the fiduciary standard, and may receive commissions for recommending certain investments over others.

Fee-only advisors almost always follow fiduciary standards, but it’s always a good idea to plainly ask any financial advisor you consider if they adhere to fiduciary rules.

And…that about wraps up the three biggest mistakes new investors make when choosing the right advisor. To sum things up quickly:

When choosing a financial advisor, your best bet is to opt for a fee-only, human advisor who adheres to fiduciary rules.

If you’re currently looking for a financial advisor, or if what you read here worries you and you think you might need to make a switch, consider clicking here to schedule a consultation with our team.

Rowe Wealth Management has fee-only advisors ready to take your call and, as a Registered Investment Advisor, we’ve always been held to the strict rules set forth by the Institute for the Fiduciary Standard.

If you have any questions about what you’ve read here, or are looking for further information on finding the best advisor for your needs, feel free to call in and ask us. A scheduled consultation carries no commitment, and we’re more than happy to answer any questions you may have.

Click here to see available appointment times.