Who Would You Choose As An Advisor?

Jonathan Baird |


It’s no secret that the financial services industry doesn’t have the best reputation. Despite significant and helpful efforts from the Certified Financial Planning Board of Standards, NAPFA, FPA, and other great standards organizations, our industry still hasn’t earned the trust of the general population. How is a layman to know who to trust? What are the differences between advisors who practice at a professional and objective level and those that work as salespersons and have bias toward particular companies and products? Which advisors have enough relevant training and expertise to be able to give comprehensive financial planning advice? Our industry has a bad reputation and much of it is self-inflicted, but following the advice of this post can help you avoid mistakes in advisor selection.

Follow the Money

The first question you should ask of a potential advisor, is how they get paid. Do they make their money on commissions? Do they get 12b-1 fees? Do they ever have contests where they get a nice trip if they sell a particular product? If the answer to any of these questions is “yes” then you may be dealing with an advisor that doesn’t have a fiduciary duty to always do what is in your best interest. The compensation structure of a firm can tell you a lot about how they operate and can reveal who they really work for. If, on the other hand, the advisor gets paid by you based on how much money he or she manages for you and gets no kick-backs, commission or any other streams of revenue from any other source, you can be more convinced that they are working for you.

Credentials and Designations

In terms of credentials that are meaningful, the gold standard in our industry is the Certified Financial Planner™ or CFPⓇ marks. Professionals who bear these marks have been through a comprehensive training module of the six areas of financial planning (Investments, Retirement Planning, Tax, Estate Planning, Insurance and a capstone class), they have completed a comprehensive test covering these areas. The test has a pass rate of around 55% so it isn’t a formality. CFP Certificants must agree to the CFP Board’s Ethical Standards. Further, NAPFA (National Association of Personal Financial Advisors) has the “Fee Only” designation which designates advisors that are paid exclusively by their clients and take no money from any third party.

The Heart of a Teacher

Perhaps the most important characteristic that you should want to see in a financial planner, is that they have the heart of a teacher. If they are heavy on flashy presentations and high pressure sales, you may be in the wrong place. You want to talk to an advisor that takes the time to understand where you are coming from, and creates a custom tailored plan to meet your particular needs and that takes into account your particular risk profile.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.