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Seven Mistakes People Make When Hiring an Advisor

By Eve Kaplan, CFP®

Health and money are the two big areas in life that need professional input and monitoring. Most folks are good about the former – we all know we need to see doctors if we don’t feel well, and go to hospital if we’re seriously unwell.

What about getting professional input for your money? Here’s where things become very unclear – even to well-educated individuals. It doesn’t help the public that “advisors” “brokers” and “financial planners” often are used interchangeably, and that folks don’t know what “fiduciary” means or the difference between “fee-based” and “fee only” financial planners.
Here are seven mistakes people make when hiring an advisor:

1. Confusing Brokers with Financial Planners:
Brokers don’t do the same thing as financial planners. A broker will manage your money (well or less well – it depends) while a financial planner is charged with seeing the whole picture, including investment analysis. Most financial planners also manage money. If you’re trying to build a puzzle, which is better: 3 pieces or all 50? Can you see the puzzle if you only have 3 pieces?

2. Working With A Friend’s Advisor:
Have you ever been told a restaurant is “fantastic” and a movie is “wonderful,” only to realize the food is substandard and you were lukewarm about the movie? As an advisor, I can say it’s not always fun to be on the receiving end of a “beauty content” but it makes good sense to screen potential advisors and not just go with someone “someone else recommended.”

3. Failing to Do a Background or Reference Check:
You have a lot at stake when you work with a professional. A Certified Financial Planner® Practitioner, for example, holds him/herself out to a higher standard. Accordingly, it’s easy to go to the CFP Website ( and make sure there are no black marks (infractions, suspensions of license).

4. Going with the “Cheapest” Alternative:
A financial plan is like a car – you can spend more for a new, solid car or get something cheap (a very used 2nd hand car) that breaks down after 1-2 years. Which is better? Some advisors draw up “free financial plans” (or charge a nominal amount) but you get what you pay for. A free or low-cost plan may come with costs you didn’t investigate – such as annuity sales, insurance sales or other product sales that aren’t in your interest…and those product sales may make up the “meat” of how the advisor really makes his/her money. Be clear about how an advisor is paid.

5. Ignoring the “F” (Fiduciary) Word:
If an advisor is a Fiduciary, he or she upholds a standard of service that requires that the client’s interests always go before the interests of the advisor. A broker is not a Fiduciary and is not held to that standard. An advisor may or may not be a Fiduciary – the title “advisor” is so hopelessly broad and vague that it’s meaningless. If you kick the tires and look under the hood, a Fee-Only financial planner is held to the highest Fiduciary standard and will have the least amount of conflict of interest when providing advice and services.

6. Assuming Personality Trumps Experience and Qualifications:
When people tell me about their broker, they invariably say “how nice he is” or “how friendly she is.” I’d rather have a proficient, competent person who delivers on promises – he or she can be polite and pleasant but experience and breadth of service surely trumps personality.

7. Having Unrealistic Expectations that Rest Upon Investment Returns:
Occasionally I meet people who tell me they’d like to work with me “if I can get them at least a 10% return.” When that happens, the conversation is over. The only way you can get a guaranteed return is to hold cash and earn almost nothing on it (you only lose purchasing power over time). If you’re working with a financial planner, it’s not just about the returns – it’s also “having the right portfolio to meet your goals,” “having an acceptable (but not excessive) level of risk in your portfolio,” etc.

Copyright © 2009 by Eve Kaplan

Eve Kaplan is a Fee-Only (no products sold) Certified Financial Planner® in Berkeley Heights. Kaplan Financial Advisors is a Registered Investment Advisor in NJ and NY. Eve’s firm works with high net-worth individuals and 401(k)/403(b) plan design. Eve can be reached at 908-898-0549 or