Not All Financial
Advisors Are Alike

First, you’ll need to be familiar with the various options available to you, including the different kinds of individuals who offer financial advice. Second, it will help if you honestly answer some questions about yourself, your situation, and what you want and need.

The world of financial advice can be extremely confusing. Yet by asking several basic questions about an advisor you are thinking about working with, you can go a long way toward understanding the key differences between the firms and advisors that you may want to consider. These questions are:

  1. Who do you work for?
  2. What services do you provide for your clients?
  3. What kind of educational background and professional credentials do you have?
  4. How do you get paid?
  5. Value, Not Cost

Let’s talk about each of them in turn.


Who do you work for?

“Who do you work for?” is one of the most important questions you can ask of a potential advisor. But don’t make the mistake of thinking that the answer is obvious, because it usually is not. Most individuals who call themselves financial advisors owe their primary allegiance to the company they work for or the product vendor they represent rather than the customers they serve. Legally, these are sales professionals. Whatever their business card may say, insurance agents and stockbrokers fall into this category. The legal obligations these individuals have toward their customers are specific and limited. They are not required to disclose potential conflicts of interest or to recommend the “best” product available to a customer, only a “suitable” one.

On the other hand, representatives of a Registered Investment Advisor (RIA) firm work directly for their clients and have an open-ended, fiduciary responsibility toward them. Such Investment Advisor Representatives must disclose any potential conflicts of interest to their clients, so those clients can evaluate the context of the advice they are being given. If recommending a product, these advisors are required to recommend what they consider to be the “best” product and not merely a “suitable” or acceptable one.


What services do you
provide for your clients?

Individual advisory firms offer very different kinds and combinations of services. You’ll need to do some digging to determine whether a prospective advisor’s services are right for your needs and goals.

There is nothing inherently wrong with the idea that different kinds and combinations of financial services are available to consumers. The challenge is that it can be so hard for consumers to determine what they are going to get when they are looking for financial advice. Here are several questions you can ask in order to help determine what services an advisor you are considering actually delivers:

  • Do you provide general financial advisory (i.e., financial planning) services, or investment management services, or both?
  • If you provide both, which is your core activity? (Hint: it’s always one or the other.)
  • If you provide both, do you largely outsource one of them?
  • If you provide financial planning, how do you present your advice to clients? For example, do you deliver a single written document or rather a series of modular recommendations over time?
  • Do you provide financial planning services that address a broad range of client situations, or do you specialize in one specific area, e.g., college planning?
  • Is your assistance a one-time event or are you available to advise your clients on an ongoing basis?
  • Do you charge an extra fee for financial planning, or is it part of what your clients are already paying for?
  • Are you available to help clients implement your recommendations? If such recommendations involve products, do you also receive compensation for recommending or providing them to clients?


What kind of educational background and professional credentials do you have?

While the prospect of working with a nationally branded firm may be comforting, many national firms employ a large number of individuals who have recently graduated from college and don’t yet have a lot of experience. More experienced advisors are frequently to be found at smaller, boutique firms. Keep in mind that you’ll be working with an individual and not just a company. It therefore pays to ask about the background, experience, and training of the advisor that you’ll actually be working with.

Here are several questions you can ask of the advisor you may be working with:

  • Do you have a college degree? What did you study?
  • Do you have a graduate degree in economics, business or finance?
  • What kind of professional credentials do you have? Are you a Certified Financial Planner® (CFP®) professional?
  • How much (and what kind of) general business experience do you have?
  • How much experience do you have as a Financial Advisor?

You may want to think twice about engaging an individual who says that s/he is a “retirement specialist” if that person doesn’t have a relevant degree or any professional qualifications. Too often such people are simply sales pros masquerading as advisors.

In addition to “hard” skills and experience, however, there is also a more personal side to things. An advisor’s personal attitudes and approach can make all the difference in whether or not you will enjoy a productive relationship with the advisor you choose. Consider the following:

  • Will this person listen to me and try to understand my perspective?
  • Can this person appreciate experiences other than his/her own?
  • Has this advisor had experience working with people like me?
  • Does this person have personal life experience that will be helpful to me?
  • Do I trust this individual to be respectful, honest, and fair?


How do you get paid?

There are basically two different ways for a financial advisor to be paid. The first is to be paid for selling a product. The second is to be paid directly for providing financial advice. As we have seen, individuals who make money primarily by selling products may also provide advice and refer to themselves primarily as financial advisors. Yet because is it the product sales rather than the advice that they are being paid for, there is always the possibility that they will and focus on that aspect of what they do rather than focusing on what is best for the client.


Value, Not Cost

Remember, you should always look primarily at value and not merely cost. A good advisor can help you be more efficient with your funds, reduce your financial risk, lower your tax bill, and generally save and make money in many ways other than ‘beating the market.’ Ask yourself the following:

  • What could it cost me if I get the big decisions I need to make wrong? (Think of Social Security planning, college planning, retirement planning, and portfolio management, to name a few.)
  • What are the opportunities that I may not be currently taking advantage of because I don’t have access to professional advice? Do I even know what they are?
  • What is the value of my time and effort currently spent trying to do all of this myself? Would relying on professional financial help free up my time to become a better professional/businessperson/parent in the long run?
  • How confident am I that I have the vision and perseverance to do everything I need to do by myself? Or do I need a financial coach to provide me with guidance and support along the way?

Though it is difficult to measure, a good financial advisor should be able to create more value for you than s/he earns in fees. The rest is up to you.