Five Totally Avoidable Mistakes People Make When Choosing an Investment Advisor

June 19, 2020 - 7 minutes read

Five Totally Avoidable Mistakes When Choosing an Investment Advisor

5 Mistakes People Make When Choosing an Investment Advisor

These common mistakes are avoidable.

Choosing an Investment Advisor is an important decision. Knowing when and how to begin finding someone skilled and trustworthy to assist you in managing and growing your wealth is a serious one. As such, there are five totally avoidable mistakes people make when choosing an Investment Advisor.

Mistake #1 When Choosing an Investment Advisor

The first mistake when choosing an Investment Advisor is not understanding what a Registered Investment Advisor is.

A Registered Investment Advisor (RIA) is an investment professional who works closely with you to plan, make and manage your investments. This involves an assessment and understanding of your financial situation, needs, investment goals and risk tolerance in customizing your investment plan. RIAs are bound by fiduciary responsibility. This means they carry an ethical and legal obligation to put your best interests first. They do not sell financial products. Instead, they make their livings by providing investment and planning advice.

Fiduciary duty of Registered Investment Advisors

RIAs have a legal and ethical obligation to put your interests first.

Financial Planners are held to a much lower standard and can earn money selling financial products to you. This can lead to them recommending financial products that benefit themselves.

Stock Brokers typically earn a commission on each trade they make for a client. While they technically are allowed to provide advice to clients, their primary role is completing trades and/or selling products to the clients.

If you want unbiased,  you-first, investment advice – you want to work with a Registered Investment Advisor.

Mistake #2

The second mistake when choosing an Investment Advisor is hiring someone who is not a fiduciary.

A fiduciary is someone who is ethically bound to act in your best interest. Certainly, we take strict care to ensure that no conflicts of interest ever exist.Consequently, we earn our living by managing your assets, not by selling things to you. We take our role very seriously.

Stock brokers are not fiduciaries. Financial planners or advisors do not meet the fiduciary standard. If you are not working with a fiduciary, how will you ever be sure that his or her recommendations to you are not also enriching him or her?

A Registered Investment Advisor is a fiduciary.

Mistake #3

The third mistake is choosing an Investment Advisor based on the brand they are connected with, or how friendly they seem.

Young business man

Look beyond the brand name or the smile and look for successful experience, when choosing an Investment Advisor.

Its easy to assume that an advisor working with a well-known brand has all the experience and resources needed to successfully advise you. It is also easy to assume that because someone “seems really nice” or “seems very trustworthy’ that they can do this important job for you. Regardless of brand name or personality, a Registered Investment Advisor with experience and breadth of service, acting as your fiduciary, is far more important to your investing success than a well-known brand name, a pretty face, or a winning personality.

Mistake #4

The fourth mistake when choosing an Investment Advisor is not understanding how they are paid.

Some advisors claim to be “fee only”, meaning that they charge you a flat rate no matter your results. Some are also paid commissions by funds or products they recommend, which is an obvious conflict of interest.

At KKRA, our clients pay us a percentage of Assets under Management (AUM) (the actual percentages can vary depending on the assets we are managing). Our incentive is to protect and grow the assets with which you have entrusted us.

Mistake #5

The fifth mistake when choosing an Investment Advisor is to have unrealistic expectations.

If as a prospective client, you demand a particular rate-of-return from your Investment Advisor, you might never find one willing to work with you. No investment professional should ever promise or guarantee a particular rate-of-return.

Mistakes when choosing an Investment Advisor

Make sure your wants, needs and goals are realistic, when choosing an Investment Advisor.

The same is true for those seeking to “beat the market.” There are some firms who have beaten the market. However, attempting to tie one’s reputation to how big or how often they have beaten the market is misguided. Our most important consideration is achieving our individual clients’ investment goals.

If You’re Choosing an Investment Advisor, Let’s Talk

If you are actively investing, or thinking about starting, visit with a Registered Investment Advisor. We can help you avoid these five common mistakes when choosing an investment advisor.

To learn more about what an Investment Advisor should do for you, click here to download our free eBook 3 Things an Investment Advisor Should Do for You”.

3 Things an Investment Advisor Should Do for You

 

 

 

 

 

 

 

Anatoliy Cherevach is a Chartered Financial Analyst and a Portfolio Manager with Kunath Karren Rinne & Atkin, LLC, with over 19 years of portfolio management and security analysis experience. Prior to joining KKRA, he was a Portfolio Manager and Research Analyst with Cohen & Steers. Anatoliy holds an MBA in finance from Pacific Lutheran University. He is an active member of the CFA Institute and CFA Society Seattle. 

Anatoliy Cherevach