5 Mistakes to Avoid When Hiring a Financial Advisor
Choosing a financial advisor is one of the more consequential decisions you'll make for your long-term financial health — yet most people spend more time researching a new car than they do vetting the person who will help manage their life savings. If you’re over 40, have accumulated significant investable wealth ($500,000 or more) and not sure how to find the right advisor, keep reading - this post is for you.
Not all advisors operate the same way, and the differences aren't always obvious from the outside. Below are five of the most common — and most costly — mistakes people make when hiring a financial advisor, along with what to look for instead.
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Mistake #1: Hiring an Advisor Who Isn't a Fiduciary All the Time
One of the most important questions you can ask any financial professional is simply: "Are you a fiduciary?"
A fiduciary is legally required to act in your best interest — not merely to recommend products that are “suitable” for you. Registered Investment Advisers are held to this standard under the Investment Advisers Act of 1940.
Here's where it gets tricky: some financial professionals may act as a fiduciary in certain capacities and under a different standard in others. Depending on how an advisor is registered, they may be held to a fiduciary standard at some points and to a “suitability” standard at others.
Under suitability, an advisor only has to show that a recommendation is suitable for you. They aren't required to weigh fees, quality, or expected return against other available options. Advisors working under this standard may also earn a commission for selling a particular product. That should be disclosed, but the compensation structure can still create real conflicts of interest.
Ask a prospective advisor to confirm, in writing, the standard of care they apply and under what circumstances. If they can't clearly explain when and whether a fiduciary duty applies to your relationship, keep looking.
👉 Not sure whether your current advisor is acting as a fiduciary in every part of your relationship? During a complimentary consultation, Crown Advisors can help you review your advisor's disclosures and understand exactly how they're compensated.
Mistake #2: Choosing a Financial Firm Based on Name Recognition
More often than not, the size of a financial firm tracks pretty closely with its fees. Larger firms — the ones with the big advertising budgets — tend to charge more. Big firms have shareholders to answer to, and that cost structure is often passed along to clients.
Unfortunately, higher fees don't guarantee a better outcome for the investor. Usually the opposite is true: the more you pay in fees, the less money you have working for you in the market.
It's also worth remembering that most major brokerage firms don't operate as a fiduciary 100% of the time — they apply that standard only when it suits them. That means you could end up paying more for advice that isn't even consistently held to the highest standard of care. Working with an independent firm that's upfront and transparent about exactly how it's compensated means the advice you receive is more likely to come from someone focused on your goals, not a sales target.
Before committing to any advisor relationship, ask for a complete, written breakdown of all compensation — how the advisor is paid, by whom, and whether any third parties compensate them in connection with recommendations made to you. Independent firms that don't sell proprietary products and aren't tied to a parent company's mutual funds are generally in a better position to give conflict-aware advice, but no relationship is entirely free of potential conflicts — what matters is that they're clearly disclosed and managed in your interest.
👉 Want help decoding a Form ADV or comparing fee structures? Schedule a complimentary consultation with Crown Advisors and we'll walk through the numbers with you.
Mistake #3: Choosing an Advisor Who Leads with Investments Instead of Planning
A good financial advisor works the way a good doctor does: diagnose before you prescribe. That means asking detailed questions about your goals, income, and overall situation before recommending anything.
If an advisor starts pitching investment products in your first conversation — before understanding your full financial picture — treat that as a warning sign. The same goes for an advisor who proposes a handful of investments without ever building an underlying financial plan.
Advisors who operate under a fiduciary standard typically don't lead with investments. They lead with a plan — a living document that evolves as your goals, circumstances, and life change. Build the plan first, and the investment portfolio exists to serve it, not the other way around.
👉 Want a financial plan built around your goals instead of a product pitch? Schedule a complimentary consultation with Crown Advisorsand we'll start with a conversation, not a sales pitch.
Mistake #4: Believing an Advisor Who Promises to "Beat the Market"
Be skeptical of any advisor who claims they can consistently beat the market. Very few investors — professional or otherwise — do this reliably over time. According to independent research such as the SPIVA U.S. Scorecard published by S&P Dow Jones Indices, the majority of actively managed mutual funds have historically underperformed their benchmark over long periods once fees are factored in. Past performance is not indicative of future results.
Backtested or hypothetical performance is easy to produce and easy to cherry-pick: an advisor can construct a model portfolio, run it against historical data, and show you an impressive result. What that exercise cannot do is prove the same picks would have been made — or would work — in real time. Always ask whether performance figures shown are hypothetical or actual, net of fees, and over what time period.
Instead of chasing a promise to outperform the market, look for an advisor who helps you focus on what you can actually control: fees, asset allocation and location, tax efficiency, and your own risk tolerance and capacity.
Mistake #5: Not Investigating the Underlying Costs of Your Investments
The cost of an investment is one of the best predictors of future returns — research from Vanguard has found that, on average, lower-cost investments have outperformed higher-cost investments over long periods of time.
If an advisor gives you an investment proposal, ask what the underlying cost of each investment is. If they can give you the ticker symbols for the funds they’re recommending, look them up on Morningstar and check the “expense ratio” near the top of the quote. That figure is the percentage you pay each year just to own the investment.
Here's why it matters: put $100,000 into a mutual fund with a 0.70% expense ratio, and you're paying $700 a year to the fund company — on top of whatever your advisor charges. Plenty of investors pay fees like this for years without realizing it, simply because they never asked.
As a general guide, an expense ratio around 0.03% is excellent, 0.70% or higher deserves real scrutiny, and anything in between is worth questioning. Some mutual funds charge upwards of 3% a year — nearly 100 times more than comparable low-cost alternatives. Keeping investment costs low is one of the most reliable ways to improve your odds of reaching your financial goals over time.
The Bottom Line
Not all financial advisors are created equal, and the one you choose has a real, lasting impact on whether you reach your goals. Knowing these red flags — and asking the right questions up front — puts you in a much stronger position to find an advisor who is genuinely working in your best interest.
If you'd like help evaluating your current advisor relationship, or want a second set of eyes on your financial plan, schedule a complimentary introductory consultation with Crown Advisors. There's no obligation — just a conversation about where you stand today and what your options look like.