Looking for a Financial Advisor? This Is a Huge Red Flag, According to Suze Orman

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Working with a financial advisor could be extremely beneficial. But read on to see what red flag to look out for. 

You may have different financial goals you’re looking to meet, like buying a home, putting your kids through college, and saving for retirement. And juggling and meeting those goals might seem daunting.

The good news is that you don’t have to go it alone. That’s what financial advisors are for.

The role of a financial advisor is to listen to your objections and help you manage and invest your money in a manner that lends to them. But if you’re going to hire a financial advisor, it’s important to find the right person for the job. And if your advisor isn’t earning their fee, then it’s time to move on.

Don’t pay for nothing

In a recent podcast episode, financial guru Suze Orman fielded a question from a listener whose financial advisor took their money, dumped it into long-term mutual funds, and called it a day. That, says Orman, is bad news.

It’s not that mutual funds can’t or shouldn’t be a part of your investing strategy. But mutual funds hire managers whose job is to choose investments. And as such, when you buy mutual fund shares, you’re commonly charged hefty fees for that privilege.

Meanwhile, when you hire a financial advisor, you’re also paying them a fee. But it doesn’t make sense to have all of your money in mutual funds, because that’s really the same thing as double-paying.

To put it another way, your financial advisor should be putting together a customized portfolio for you — not simply piggybacking off of the financial decisions a mutual fund manager is making. So if your financial advisor has simply put all of your cash into mutual funds, it’s a sign you may want to end that relationship and start working with someone else.

You should also know that while mutual funds can lend to a nice amount of diversification in your portfolio, there’s a much more cost-effective way to achieve that same goal — loading up on broad market ETFs, or exchange-traded funds. The major difference, though, is that with ETFs, you may be looking at paying a fraction of the fees a mutual fund will charge you.

That said, you also don’t want your financial advisor to simply load you up on ETFs. The reason? That’s something you’re more than capable of doing yourself.

All you need to do is open a brokerage account, choose some ETFs, and voila — you’re putting your money to work. And if you’re not sure which ETFs are appropriate for you, a good bet is generally S&P 500 ETFs, which aim to track and match the performance of the 500 largest publicly traded companies in the stock market.

Make sure your financial advisor is worth the fee

Financial advisors have to make money, so it’s not problematic that they charge fees. What is problematic is when your financial advisor charges you ongoing fees for basically doing nothing.

If you’ve stumbled into that type of relationship, aim to cut ties quickly. Otherwise, you might end up kicking yourself down the line.

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