Choosing a wealth management service provider is one of the most important financial decisions you’ll make. The right provider can help you grow, protect, and transfer your wealth, ensuring long-term financial security. However, selecting the wrong provider can lead to poor investment returns, hidden fees, and misaligned financial goals.
With so much at stake, it’s crucial to avoid common mistakes when hiring a wealth manager. This guide highlights the 5 biggest mistakes people make and how to avoid them so you can confidently select the right wealth management provider for your financial future.
1. Not Defining Your Financial Goals Before Hiring a Wealth Manager
One of the biggest mistakes people make is not knowing what they want from a wealth manager. Without clear financial goals, it’s difficult to find a provider who can align their services with your needs.
Why It Matters
Every person’s financial situation is unique. Some people prioritize retirement planning, while others focus on estate planning, tax reduction, or charitable giving. If you don’t have clear goals, you may end up with a wealth manager who offers irrelevant services or takes a “cookie-cutter” approach.
What You Should Do Instead
- Define Your Financial Objectives: Are you saving for retirement, a child’s education, or future healthcare expenses?
- Think About Your Investment Strategy: Do you want aggressive growth or stable, low-risk returns?
- Set Milestones: Create clear, measurable financial goals like “retire by age 60 with $1 million in savings” or “pay for 100% of my child’s college tuition.”
When you understand your financial goals, you can find a wealth manager who has expertise in those areas. Look for firms that specialize in services that match your objectives, such as retirement planning, estate planning, or tax optimization.
Red Flag to Watch For
If a wealth manager doesn’t take the time to ask about your personal goals or customize a plan for you, they may be using a one-size-fits-all strategy.
2. Choosing a Wealth Manager Without Checking Their Credentials
Not all financial advisors or wealth managers have the same qualifications. Some may be general financial advisors with limited experience, while others are certified experts. Working with an unqualified provider can lead to poor financial decisions and lost wealth.
Why It Matters
Anyone can call themselves a “financial advisor” or “wealth manager” without having specific certifications or qualifications. However, there are certain designations that signal professionalism, expertise, and fiduciary responsibility.
What You Should Do Instead
- Look for Reputable Credentials: The best wealth managers have designations like Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or Certified Investment Management Analyst (CIMA).
- Check Licensing and Registration: Use FINRA’s BrokerCheck to verify if the wealth manager is registered and if they have any history of disciplinary action.
- Ask About Fiduciary Status: Fiduciaries are legally required to act in your best interest. Non-fiduciaries are held to a “suitability” standard, which means they can recommend financial products that benefit them more than you.
Red Flag to Watch For
If a wealth manager has no professional certifications or refuses to disclose whether they operate as a fiduciary, it’s best to look elsewhere.
3. Ignoring the Fee Structure and Hidden Costs
Many people focus on the “investment returns” their wealth manager promises but fail to consider the fees they’ll be charged. Over time, even small fees can add up to significant losses.
Why It Matters
Wealth managers charge fees in different ways — some charge a percentage of assets under management (AUM), while others charge hourly fees, flat fees, or commissions on the products they sell. If you’re not careful, you could be paying excessive fees that eat away at your returns.
What You Should Do Instead
- Ask About Fee Structures: Does the wealth manager charge a flat fee, a percentage of your portfolio, or hourly fees? The most common structure is an AUM fee, typically 0.25% to 1% annually.
- Request a Fee Breakdown: Get a detailed list of fees for services like investment advice, estate planning, and tax planning.
- Avoid Commission-Based Advisors: Wealth managers who earn commissions may prioritize selling products (like annuities) that benefit them more than you. Look for a fee-only fiduciary advisor instead.
Red Flag to Watch For
If a wealth manager is vague about their fees or refuses to provide a clear breakdown, they may be hiding additional charges. Avoid providers who are not transparent about their pricing.
4. Failing to Research the Wealth Manager’s Track Record
A wealth manager’s past performance isn’t a guarantee of future success, but it’s still an important factor to consider. If they’ve consistently helped clients achieve their financial goals, they’re more likely to do the same for you.
Why It Matters
A wealth manager with a poor track record may have a history of bad financial decisions or failed investments. Even worse, they may have been involved in unethical practices, leading to regulatory fines or client complaints.
What You Should Do Instead
- Check for Disciplinary Records: Use FINRA’s BrokerCheck or the SEC’s Investment Adviser Public Disclosure (IAPD) website to see if the advisor has any complaints, lawsuits, or regulatory violations.
- Request Client Testimonials or References: Ask the wealth manager for references from clients who have similar financial goals.
- Ask About Investment Performance: While past returns aren’t a guarantee, you can ask about their investment strategy and how it has performed over the past 5-10 years.
Red Flag to Watch For
If the wealth manager has complaints, regulatory actions, or lawsuits on record, it’s best to steer clear. Look for a wealth manager with a history of positive client outcomes.
5. Not Asking About Communication and Availability
Some wealth managers are highly engaged and available to their clients, while others only provide updates during annual reviews. If you need frequent updates or ongoing support, you’ll want a provider who is accessible.
Why It Matters
Your financial situation can change rapidly due to life events like marriage, divorce, or the sale of a business. A wealth manager who stays in close contact can quickly adjust your financial plan to match your new goals.
What You Should Do Instead
- Ask About Communication Frequency: Will you have quarterly, semi-annual, or annual check-ins with your wealth manager?
- Find Out How to Contact Them: Are they available by phone, email, or video chat? Can you reach them during business hours or only by appointment?
- Request a Point of Contact: Will you work with the senior wealth manager, or will your account be handed off to junior advisors?
Red Flag to Watch For
If a wealth manager offers limited communication or passes you off to a junior advisor after you sign the contract, this could signal poor client support. Look for a provider who offers consistent access to senior advisors.
Frequently Asked Questions
How much does a wealth manager charge?
Wealth managers typically charge 0.25% to 1% of assets under management (AUM) annually. Others may charge hourly fees, flat fees, or commissions based on products sold.
What is the difference between a wealth manager and a financial advisor?
A financial advisor provides guidance on specific issues like retirement planning or investment advice. A wealth manager takes a more holistic approach, offering comprehensive services like tax planning, estate planning, and wealth transfer.
What should I ask a wealth manager before hiring them?
Ask about their credentials, fee structure, fiduciary status, track record, and how often they will communicate with you.
How do I know if a wealth manager is legit?
Use FINRA’s BrokerCheck or the SEC’s Investment Adviser Public Disclosure (IAPD) to check for licensing, disciplinary actions, and customer complaints.
What is the biggest mistake people make when hiring a wealth manager?
The biggest mistake is hiring a wealth manager without checking their credentials or fiduciary status. Without proper due diligence, you may end up with an advisor who puts their interests ahead of yours.
