Working with a Financial Advisor can be one of the best decisions you will ever make for your finances. In fact, a Vanguard study found that consumers that do NOT work with a Financial Advisor end up with 50% less wealth over a 30 year period. Needless to say, not all Financial Advisors are created equal. If you don’t know how to qualify one, you could end up hiring someone who does not hold your best interests at heart and end up worse off than where you started.
We are Fee Only Fiduciary Financial Advisors and Certified Financial Planners. We help people just like you organize your financial life and create a comprehensive retirement plan that ensures your money OUTLIVES you. Schedule a free consultation with us here.
The term “Financial Advisor” actually covers about 10 different professions who all work with clients in different ways, with different standards.
Insurance Broker, Annuity Salesperson, Wealth Manager, Investment Advisor, Financial Planner, Tax Planner, Investment Advisor, Financial Advisor.
These are all professions that fall under the Financial Advisor umbrella.
Most consumers are looking for some combination of:
Financial planner - someone who can help them answer questions like - do I have enough money to retire? Will my money last until the end of my life? How do I know how to evaluate the investments I am in (or the investment opportunities that lie ahead of me?)
And an Investment Advisor - someone who can help them craft an investment strategy and eventually an income from that investment strategy when they reach retirement age.
So you’ll want to ask the professional in front of you - What SPECIFICALLY do you do for your clients? And what type of Financial Advisor are you - SPECIFICALLY.
The financial services industry makes their fees intentionally opaque.
At the end of the day there is really one important distinction you should understand about how financial professionals charge:
Are they “Fee Only” or are they “Fee Based”?
Fee Only advisors ONLY EVER RECEIVE FEES DIRECTLY FROM CLIENTS. There is no intermediary.
Fee Based advisors are paid by their employer - not directly by the client.
When you work with a Fee Based advisor - you pay a company. That company then pays the advisor a salary plus some kind of incentive based pay. This means that the advisor has their EMPLOYERS best interest in mind - not yours.
Fee Based advisors’ pay are dictated by some pay scale created by their employer that tells them how to steer your decisions and what advice to give you.
Can you say “Conflict of Interest”??
When you work with a Fee Only advisor - you pay the advisor directly. The fee is required by regulation to be transparent, and a Fee Only advisor will never sell products for a commission.
Fee Only advisors fees can be a percentage of assets under management, an annual retainer, a monthly or hourly rate. Whenever you work with a Fee Only Advisor you eliminate conflicts of interest and know that you will never be pitched a financial product just for them to earn a commission.
_.png)
Financial Advisors are held to either a “Fiduciary” or “Suitability” standard.
Suitability requires that investment products such as an annuity or a mutual fund sold for a commission must be suitable for the client but need not be the best possible investment product to meet the client's needs.
Fiduciary duty require that the advisor put their clients' interests first and foremost.
Part of “putting clients’ interests first and foremost” requires eliminating bad incentives such as commissions that could sway the advisor to recommend something less than the best possible solution for the clients' investment portfolio.
Sometimes Fee Based advisors will get around this distinction by switching hats - going from “Fee Only” to “Fee Based” and back without your knowledge. If you ask them if they are a Fiduciary advisor, they will almost always say yes, but that is not really the case.
Most of the large, name brand brokerage firms operate under a “Suitability” standard. Again, this creates conflicts of interest that favor the brokerage company at the expense of you - the client.
Working with someone who is ALWAYS 100% of the time operating under a fiduciary standard is the best way to ensure your financial advisor has your best interests at heart.
Many financial advisors will squirm under this question. If they are Fee Based advisors who sometimes wear a Fee Only hat, they won’t be able to answer this question in an honest straightforward manner.
The fact of the matter is that you will need investment advice at some point. In order to obtain the best evaluation of any investment placed in front of you, you need someone who can scrutinize it without having any compensation based incentive around WHAT exactly you invest in.
Financial Advisors that only ever get paid by you - the client - directly and receive NO form of sales compensation are the only ones who can evaluate an investment conflict of interest free.
That goes for anything - Real Estate, Annuities, Mutual Funds, Insurance, Exchange Traded Funds, Stocks, Bonds, Limited Partnerships, etc.
Anytime the professional recommending the transaction makes money off the transaction - you, the consumer, lose big.
The barrier to entry to becoming a Financial Advisor is laughably low.
It sounds crazy, but not all Financial Advisors have a college degree.
All you really need to become an advisor is to pass 2 securities exams - a Series 7 and a Series 65/66. Both tests require about 40-60 hours of study time… Combined.
And at the end of that, someone has determined that these “Financial Advisors” are somehow qualified to give you financial and investment advice?
Phooey.
One way to help clear through the clutter is to search for Financial Advisors that have the CERTIFIED FINANCIAL PLANNER TM (CFP®) designation.
Less than 25% of active Financial Advisors are certified financial planners. Obtaining a CFP® designation requires a college degree as well as 6 financial planning related courses, a capstone, and accumulating 4000-6000 hours of professional experience - a process that can take 18 months to 3 years to complete.
Certified Financial Planner professionals learn a “planning” first approach that enables them to evaluate investments, insurance, retirement planning, tax planning, charitable giving, and more.
Certified Financial Planners will help you with your entire financial life, where traditional Financial Advisors may only help you with insurance or investments.
A Financial Advisor with an insurance license is an early red flag.
Simply having an active insurance license disqualifies the advisor from being a Fee Only advisor or requiring that they operate within a fiduciary duty.
It doesn’t mean they are evil or bad - it simply means their incentive structure is not designed to align with the clients' best interests.
Insurance commissions can be huge. It’s hard for an insurance licensed advisor to resist the sway of large upfront commissions.
You don’t need an advisor with insurance licenses to get quality advice about insurance.
Fee only fiduciary financial advisors (especially CFP® Professionals) are trained and qualified to help evaluate your insurance needs. Not only that, but the Fee Only, Fiduciary CFP® Professional can help you find the best insurance at the best price since their compensation is not tied in any way to the sale of that insurance solution.
Big name recognition doesn’t necessarily mean better outcomes for investors. In general, the big name brand firms operate under a Suitability standard with Fee Based advisors, almost all of which revolve around selling insurance or annuities.
While those products aren’t bad, they are not appropriate for everyone.
As the old saying goes - everything looks like a nail to a hammer. Well so goes it for Fee Based advisors at large brokerage companies revolving around insurance or product driven sales.
Working with an independent Fee Only financial planning firm reduces conflicts of interest and means you work with professionals adhering to a Fiduciary standard.
Independent firms don’t have a parent company requiring quotas for product sales or proprietary mutual funds or other financial products.
Fee Only, Fiduciary CFP® Professionals at independent financial planning firms (usually registered investment advisors) give the best possible advice FREE of conflicts of interest.
When you go to the Doctor for the first time, they take your blood pressure, your heart rate, weigh you, measure your height, and perform other diagnostic tests before they diagnose or prescribe you solutions.
Financial advice SHOULD operate the same - but in most cases it doesn’t.
If an advisor wants you to start by rolling over money or prescribing investment solutions without going through a rigorous financial planning process, that’s an immediate sign to head for the hills.
Fee Only, Fiduciary CFP® Professionals will lead with a financial planning process that includes interviews, document gathering, model building, and getting to know you as a PERSON.
Only once they understand how you think about money, how you feel about money, how you’ve made money decisions in the past, and what you’d like your money to do for you in the future, will the Fee Only, Fiduciary CFP® Professional recommend investment options that are consistent with that.
Financial plans are living breathing documents. There is no such thing as a static point in time plan that will work for the rest of your life.
Things in your life change - your employment, your income, your health, your family, your preferences.
Your financial plan adjusts and adapts with that, which in turn helps you make smarter investment decisions that are consistent with your financial plans.
All the bad outcomes caused by bad expectations or bad incentive structures are easily avoidable, especially if you choose a Financial Advisor who has your best interests at heart.
We’d love for you to consider our Fee Only Fiduciary CFP® Professional team for the following reasons:
Schedule a free consultation with us to learn how we can help you build a comprehensive financial plan that works.
The first and best step is always to ask your advisor directly and see how they respond. From there, you can use resources provided by the Financial Industry Regulatory Authority (FINRA) to help you confirm whether the person you are speaking to is a fiduciary financial advisor. FINRA BrokerCheck is a public searchable database where you can find the information you would need to qualify that your advisor is a fiduciary.
A Registered Investment Advisor is the "independent" form of a financial advisor business. An individual or small group of independent advisors can go through the regulatory process (overseen by their state OR the Securities and Exchange Commission, or both) to obtain approval to open their own independent practice. Registered Investment Advisors are like the mom and pop version of financial planning or financial advice businesses and are not under the umbrella of any large corporate bureaucracy.
Not all financial advisors are fiduciary advisors. Financial advisors fulfilling their fiduciary duties will always operate in YOUR (client) best interest rather than the best interest of their corporate employer. We recommend working with a fiduciary financial professional for your financial plan or investment management needs.
.webp)
.webp)
.webp)
.webp)
