Adviser Selection

FNAQs to Choose the Right Financial Adviser for You

FNAQs: Adviser Selection

The financial advice industry offers you a vast choice of products and services that is often confusing, and it can all sound the same. It isn’t. A cautionary buyer beware: advice is often a misused marketing term. The sales motive can conflict with the advice you need to build an even safer and more secure future.

Research shows most people begin thinking more about financial security in their mid-40’s to early 50’s. How can you fully evaluate if you’re on track to reach your goals? What’s the safest path between saving, spending, and achieving a secure retirement? What you don’t know can expose you to unnecessary and hidden risks.

You’ve determined you need an adviser, how can you be certain to make a good selection? The right adviser can help you make even better decisions to grow and protect your wealth. The wrong adviser can destroy years of your hard-earned wealth. You owe it to yourself to do enough research to find the right fit.

Asking key questions will help you stay focused on the service and advice that matters most for you. A competent, ethical adviser will also ask you key questions to understand your goals and concerns. It’s in your best interest to find a mutual fit based on trust and transparency.

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These questions will help you focus on key criteria you need to know:

Questions 1-12: your advice needs; advice standards; compensation; and conflicts of interest
Questions 13-21: what service(s) are truly offered vs. marketed; what service level can you expect; adviser fit
Questions 22-27: ways to evaluate risk; determine an adviser’s competence; big firm or boutique

1) What criteria do you need to make a sound decision?

See through the confident sales pitch and focus on substance and better decision-making. Don’t Trust (or sign) until you can Verify these three key criteria:

Key Selection Criteria

1. What are your needs and expectations? A strategy with ongoing advice and accountability? Or a product sale or series of one-off transactions?
2. Does the firm’s investment philosophy, business model, and advice standard align with your needs?
3. Is there transparent discussion of “all-in fees”; and clear disclosures of any conflicts?

2) What advice standard will serve you best?
Tale of Two Standards: Client Loyalty vs. Divided Loyalties

Guess what. It isn’t always clear who does what. Nor who is working for you or for someone else’s interests.

Standard 1: Pure “fiduciary advisers” serve one master – the client.

Stand-alone RIAs are a minority in the industry. Pure, meaning no hidden motives: no pay incentive from product sales; no referral fees from product sellers; no insurance commissions; no loads, sub-TA’s, or 12b-1 fees from mutual fund companies; no paid vacation for achieving sales quotas, etc. Loyalty to the client’s “best interest” is a legal obligation under this fiduciary standard of care. Advisers are paid for the ongoing advice they provide, independent of the products they may use on behalf of their clients.

Standard 2: Non-fiduciary insurance agents, bank reps, or brokerage reps

This group, aka registered representatives and brokers. The business card might say adviser, but the business model they operate under is built to sell you proprietary or affiliate products. The incentive in a sales-driven environment is to sell you higher commission products, even when lower cost, superior alternatives exist. To further muddy the incentive waters, this broker model is often combined with an advice model (“fee-based” hybrid or dual-registered RIA models). It’s estimated that 80%-90% of “financial advisers” operate under these models. Serving multiple masters means loyalties are divided in both these models between you, the broker/adviser, and the corporation(s). This presents multiple conflicts of interest that can bias the recommend and disadvantage your money. Disclosures under these models are usually murky, deceptive, and often non-existent.

See the difference?

3) Why do advice standards matter?

Conflicted advice legally siphons millions of dollars away from unsuspecting consumers every year. The lack of clear disclosure along with deceptive sales and marketing gimmicks make it hard for consumers to know if the adviser’s recommendations are in your best interest. You must learn enough so you can make a well-informed decision.

Certainly, you would agree it’s important to know what motives may be driving the financial advice before you sign an agreement. While neither standard guarantees competence, the pure fiduciary standard is a smart, safer starting point because it minimizes conflicts of interest and provides more transparent disclosure. Below we’ll shed a transparent light on standard industry business models, look at challenges you face in evaluating services, and give you some questions and suggestions to help you find a competent adviser to best meet your needs.

Most people spend more time planning a vacation than they do their financial future – including with whom to trust for reliable, competent advice. Selecting a right thinking, competent adviser is an investment that could fund the cost of many vacations over time.

4) What are your needs or expectations for a financial adviser?

Many perceive an adviser is about timing the markets ups and downs, buying investments that beat the market, or finding the next Amazon. This thinking is limited, and a proven false premise that leaves one prey to hyped sales talk about guaranteed protection or killer performance levels. Over 100 years of market evidence makes clear that most professional investment managers can’t and don’t outperform the market they are measured against. More important, this mindset won’t arm you with planning AND investment strategies to weather market cycles, adapt to life transitions, or help you effectively manage the unique risks that may threaten your path to financial security.

The right fit depends on your needs: A (fiduciary) advice-driven adviser provides you with ongoing advice and accountability; a (non-fiduciary) sales-based broker, transaction business is more for the do-it-yourselfer, though many of these brokers call themselves advisers. Buyer be aware.

5) Why an advice-driven adviser can help you navigate your future?
A competent adviser should ask you questions until he/she understands enough about you and your goals, so they can help you design a plan that reflects your priorities. Sound strategy built around your facts and circumstances, reduces your risks and increases your odds for achieving the goals that are most important to you. In the process, the adviser will raise your awareness and understanding of various facets of your financial life beyond investments (i.e. savings, retirement planning, estate planning, asset protection, insurance, hidden risks, etc.).

The advantage is greater clarity and increased confidence that your decisions are consistent with your goals, as well as to avoid the costly, emotional mistakes that plague many people who have no plan.

6) When should you hire an adviser or get a 2nd opinion about your situation?

The answer will vary with your circumstances. In our experience, most people start thinking about getting help between their early 40’s and early 50’s. When contemplating the transition to retirement many concerns often come to light. The most common being: how long will your money last and will you need to make lifestyle changes as retirement nears?

The calculation can be very complex when thinking through legacy vs lifestyle trade-offs. Investment decisions, estate planning, income planning, tax planning, tax deferral options, account structure, security placement, distribution strategies, etc. A competent adviser will simplify this for you in plain English and give you a clear picture where you’re headed and if any adjustments are needed.

7) How can you compare financial advisers and brokers?

The key starting point is to know how the adviser gets paid, and how much. But there can be layers you need to understand to get to the real “all-in cost.” That’s the number that matters for your money. Clear, transparent, documentation is critical. The second key point is to forget about titles. They mean virtually nothing. Focus on the type or standard of advice that’s being offered (because many brokers advertise as advisers). These two keys will help you better evaluate the potential for poor or conflicted advice.

8) How do advisers and brokers get paid?

There are three compensation models for investment professionals

Comp Model 1: “Fee-only” – pure fiduciary: paid to provide ongoing advice by an asset-based fee that varies with amount of assets. Some charge hourly or fixed fees depending on services. Fiduciaries are also known as: Registered Investment Advisers (RIA firm) and IAR (adviser). Conflicts: Fact is, conflict free advice doesn’t exist. Still, the pure, independent fiduciary model is the most transparent and accountable to you because by law the fiduciary must put your interest before their own as part of an ongoing relationship. This is what is meant by the “best-interest standard.” Simple, clean, transparent.

Comp Model 2: “Commissions” – non-fiduciary: paid to sell products or services; includes: bank registered reps, mutual fund reps, insurance agents, and brokers. Conflicts: registered reps are incentivized in various ways to sell products which may be high priced or not appropriate for you. They are held to a “suitability” standard which means they can weigh the interest of the corporation (bank, broker, mutual fund, insurance company) above your interest in their recommendation That’s not your best interest. Fee disclosure is often buried in pages of cryptic fine print; sometimes not required; and the incentives may not be at all apparent.

Comp Model 3: “Hybrid/Dual-Registered/Fee-based”non-fiduciary and/or fiduciary: paid to sell products or services and/or to provide advice (called hybrid or dual-registered); may include: registered reps, insurance agents, and brokers and may also be labeled independent registered investment advisers (RIAs). NOTE: the use of “fee-based” is misleading; it’s NOT the same as “fee-only.” Confused yet?

A hybrid model lets brokers operate as a fiduciary, yet they also can operate as a broker and get paid commissions to sell a whole range of products and services. The sales pitch here is that by offering fee and commission-based products they can offer a full array of services to meet your needs. Hah!

Conflicts: The pitch is very misleading. Mixing the “best interest” and “suitability” standards creates a confusing situation at best. The reality is that “fee-based” blurs the lines of accountability, creating confusion and possibly multiple layers of costly conflict between you and your money. How do you know when they are operating as a fiduciary or as a broker? The lack of candid disclosure that typifies the industry makes it nearly impossible for consumers to know where they stand.

9) Can you rely on titles?

Not one bit! The myriad titles in the industry (i.e. financial adviser, wealth manager, financial planner, financial consultant to name a few) aren’t tied to any standard. None tell you anything about competence, compensation, credibility, or the conflicts that may working against your money. A registered representative (bank reps, mutual fund reps, insurance agents, etc.) can market themselves as a financial adviser, blurring the lines of what should be a very clear difference in broker vs fiduciary standards. Unsuspecting investors are frequently fooled by this chicanery.

Check out what industry regulators think. The SEC-NASAA Investor Bulletin called “Making Sense of Financial Professional Titles.”

10) C'mon what standard is it really?
To further illustrate the fallacy of titles, the table below shows that registration status seldom matches investment titles seen on business cards. The table also illustrates the divided loyalties that exist under the stand-alone broker and hybrid business models.

Ask yourself why someone who is registered and licensed as a broker advertises as a financial adviser? That’s a true lack of candor and transparency. What are they hiding?

Given the difficulties that full, fair, and clear disclosure present in real life situations, how will you know when an adviser “switches hats” from being a fiduciary to a non-fiduciary broker or agent? Centuries of trust law tells us that the best way to manage conflicts is to avoid them. Why risk it when the uncertainty can mean severe dilution to your money?

Titles Confuse and the Tale of Two Standards

*NOTE: there are multiple titles that are used in the industry; none has any standard or legal status

11) Aren’t these so-called differences in standards semantical?
No. Sometimes the differences are subtle; sometimes stark. Economic consequences can be drastic. Many firms use fiduciary language in their advertising, yet they deliver brokerage services. There is a stigma with the word “broker” that started back in the day of the “stockbroker.” You don’t hear that title anymore because as commission prices began their descent, churning stock accounts became less lucrative; the tactics evolved to selling different share classes of mutual funds, insurance products, hedging instruments, and alternative investments. And the regulators allow registered reps (aka brokers) to be called “financial advisers.”
12) Fiduciary Status: if there isn’t a difference that matters….?
• Banks, brokerages, insurance, and mutual fund companies fought the proposed DOL Fiduciary Rule for over five years. The incoming administration killed it as it was about to become law in 2017. What did they have to lose from the Rule’s increased transparency and accountability?
• Why do brokers co-opt fiduciary language even though they aren’t held to the same fiduciary standard?
• Why don’t brokers use titles that are consistent with their registration status?
• Why do some 401k brokers and recordkeepers offer “fiduciary warranties”? The artfully drafted fine print (if you can find it) ultimately reveals there is no real “protection” to Plan Sponsors. Just a gimmick.
• Why, according to Plan Sponsor Magazine, do less than 20% of financial professionals serve as full 3(38) fiduciaries to 401k Plans, and agree in writing to act as the fiduciary for the Plan’s investments? Shouldn’t the investment professional stand willing to accept responsibilities for selecting and monitoring plan investments? Yet more than 80% of Plan advisers fail to do so.

These are just a few examples. There are scores more that occur every day. If you subscribe free at scan the daily headlines that detail abuses that started with undisclosed and/or confusing conflicts of interest. If the financial consumer understood the conflicts beforehand they would surely not have signed up.

13) What services do they offer?

There are two primary service categories that an investment adviser may perform:

1) Investment Management: is generally more straightforward to understand
2) Financial Planning: is a term of art. This is where gimmicky product sales, investment lingo, and sales hype all get thrown into the mix and can get very confusing.

Many will do both (or market both) in varying degrees of depth and competency.

14) What is the difference between an Investment Manager and an Investment Adviser?

An investment manager is the person(s) directly investing in the securities that go into a fund. Whereas, investment advisers use investment managers and buy funds on behalf of their clients. Often the investment manager is owned or employed by the bank, mutual fund or insurance company, who also employs the investment broker/adviser. This is important to understand because often the corporation gives incentives to the broker to sell these proprietary products, even when they may be inferior to other products. Huge conflict of interest. It happens a lot. Buyer be aware.

15) Investment Management: What is your investment philosophy?
Start with: “What is your investment philosophy?” And see what they tell you. Here are a few follow-ons to keep things in proper focus:

• What type of investments are used – active or passive? Passive is almost always a better approach because it keeps your costs low and let’s more of your money work for you.
• How is the adviser paid – from proprietary inventory? From affiliates’? From mutual fund or insurance companies? From banks or brokers? And how much? Where is that disclosed in writing?
• How are risk, return, income, and taxes considered against your goals?
• What discipline is in place to select, allocate, and monitor your investment dollars?
• Do they outsource the investment management? Do you pay additional for this or is it deducted from the advisory fees?
• How frequently do they trade your portfolio? Active trading has explicit and implicit costs that eat into your principal, creates taxes, and works against your long-term wealth accumulation.
• What are the “all-in” costs (adviser fees, investment cost (expense ratios and management fees), trading costs (explicit and implicit), and tax exposures?

16) What is your track record?
This question is better targeted to an investment manager than an investment adviser. For the following reasons. Advisers have multiple clients with very different risk and return requirements. Comparing track records can easily be distorted with biased comparisons that misrepresent actual returns to an unsuspecting investor. For this reason, Investment advisers face very stringent regulatory requirements and compliance scrutiny if they advertise performance. Additionally, most advisers use funds and ETFs so it’s better to ask what funds they use when they structure a portfolio similar to what you will be needing. A prudent adviser should be weighing the cost and benefit of every fund that goes into your portfolio. If they are using high cost funds, they need to have some justification. Low cost funds aren’t always better, but almost 100 years of consistent market evidence says that low-cost funds build more value over time.
17) Comprehensive Financial Planning: What is it?

It’s important to think right about investing. It’s equally important to plan well around your investments. A product sale or broker mentality doesn’t perform this function well because planning strategies require ongoing commitment, communication, and adaptations. Yet planning is often mislabeled and misused to sell a vast array of products. Buyer be aware.

A Cerulli & Associates study noted that close to 60% of firms market they are financial planners; yet only 30% truly offer financial planning.

Financial planning is an overused, under-defined term in the financial industry. There is no consensus or standard definition, so be sure to ask what “planning” means. Ask to see examples of other Plans and how their planning will benefit you. A thoughtful, well-developed financial plan can be an excellent road map to guide your decision-making and keep you on track; it can also be a trap through which you can be sold various products that may not serve you well.

For example, insurance, annuities, and guaranteed income products are hot-sellers for brokers because many of them carry very high commission rates. They know how to touch the right emotional buttons to sell you all the bells, whistles, and gimmicks that are embedded in many of these products. People get lost reading contract legalese that requires financial savvy and forensic skills. Yet the costs very often exceed the benefits at great dilution of investor wealth. If you own, or someone is trying to sell you, these types of products be very sure to get a dissenting opinion, so you can compare.

Are alternative ideas presented? Is there a difference in cost between the alternatives? What are the tradeoffs in the alternatives? A good adviser is looking out for you and will do a transparent, thorough due diligence of cost vs. benefit. Below are a few key categories that should be part of understanding what financial planning services are provided:

Key Financial Planning Considerations

• Retirement Planning
• Estate Planning
• Tax Planning
• Insurance Planning & Risk Management
• Business Succession

18) Will you work with my other professionals?
If you have professionals you work with already, an adviser should be willing to work in concert with these other advisers toward achieving your goals.
19) Do you prefer to work with other advisers? Do they pay you referral fees?
If an adviser refers you to another professional, you want to be sure to understand the motive. Any referral fees should always be fully described, disclosed, and discussed in as much detail as you need to be able to make an informed decision.
20) What is your ideal client?
It’s good to ask this question so you know how familiar an adviser might be with your type of situation.

Advisers may be generalists, or many serve a focused niche (i.e. specific industries, functions, or disciplines). This could include planning and/or investments. Some serve businesses, corporate executives, or individuals. Some have established minimum dollar amounts for investment. Regardless, an experienced, transparent practitioner will help you understand their services, fees, and strategies. If they avoid direct answers to your questions or can’t explain these to you in plain English (and in a written agreement) it’s a good sign to keep looking.

Be sure you are comfortable with the overall fit.

21) What kind of client service can you expect?
Will you be dealing directly with one person? A team? A 1-800 number? You’ll want to know what to expect or let them know what you expect. What access to your information will you have? How will ongoing results be communicated with you and with what frequency?
22) What regulatory safeguards are in place for your money?
Are assets custodied with a third-party, high-quality custodian? What level of discretion will the adviser have with your money? Are there any regulatory infractions (unlawful or unethical breaches) by the firm or the adviser? Do they carry E&O insurance? Are they bonded? Whether you are interviewing a large firm or a sole practitioner, be sure to ask these questions.

Here are some other resources you can use in your due diligence:

23) What experience or credentials can help you evaluate their services?

Like titles, industry credentials often confuse more than inform. It’s easy to get lost in the jargon and the alphabet soup. For example, a broker can be titled as an adviser or wealth manager, asset manager, financial consultant, etc. Similarly, a Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), or an Accredited Investment Fiduciary (AIF), can operate as a broker or a fiduciary. While these are worthwhile credentials, alone they don’t truly tell about anything experience, operating philosophy, business model, or transparency. All which are vital factors in understanding how your wealth will be managed.

Designations: Not all designations are equal. This A-Z guide will give you a synopsis of the issuing organization, prerequisites, education requirements, and accreditation if applicable.

24) How much should you pay?

Cost must be addressed because it’s a key input in the investment equation. The answer will vary with your circumstances and the model you choose. As part of your duty to your financial future, you’ll need to know the “all-in costs.” The “sticker” price might hide costly details. Here is a summary of various costs you need to assess. A reasonable range for all-in cost depends on asset level and services provided. With assets between $1-$10 million, all-in costs should rarely exceed 1.50%. Tiered-pricing trends lower with larger asset bases.

All-in Costs = Adviser Fees + Broker/Sales Fees & Commissions + Fund Cost + Trading Costs

This list below isn’t comprehensive, but it provides a clear framework to evaluate costs.

Universal Costs
Whether you work with an adviser or broker or hybrid, these costs below need to be factored into the “all-in cost” calculation.
Fund expenses (expense ratios): passive/index ETFs or mutual funds offer low cost access to different markets (range: about 0.03%-0.40%). Active funds invest in these same markets while attempting to beat the index averages. They seldom do, mainly due to their higher costs (range: about 0.30%-1.50%).
Trading costs: commission and bid/ask spreads can add up. Commissions and spreads have declined over that past few years, but higher trading activity creates higher costs and can be a weight on your investment returns. And they can also create a heavier tax burden.

Adviser Model Costs
Asset-based investment advisory fees: 1.0% is a good starting point. With a larger asset base pricing should tier-down. Wrap fee accounts often contain various extra fees.
Flat or hourly fees: financial plans are often included in the asset-based fee or is otherwise disclosed. Stand-alone costs typically range from $2,000-$10,000 but could be higher depending on asset size and scope of planning. Some advisers may charge monthly or annual retainers.

Broker/Sales Model Costs
Front-loads and commissions: front-loaded products like mutual fund A shares, variable annuities, index-universal life, and other forms of life insurance can front-load commissions that range from 3%-10%. This comes directly off the principal before your money can be put to work. New contributions may also be subject to this onerous hit to your principal.
Rider options: insurance and annuities can also sell multiple rider options that add to your annual costs, and can range widely from 0.10%-1.0%, or more).
12b-1 fees: usually about 0.25% annual (can be higher or lower)

Hybrid/Dual-Registration Model Costs
As the name implies, costs from both the Adviser and/or Broker/Sales model can and often do apply and can be very hard to know exactly what you’re paying or the motive for the advice being offered. You can see this model can be very daunting to understand. A lot of investor dollars can be lost over time due to this lack of understanding.

25) Cost vs. Value: How can you measure an adviser’s value to you?

Quantifying an adviser’s value is part art and part science. The Dalbar studies show how individual investor behavior (trying to time markets) can reduce returns by over 4% per year. The Vanguard, Envestnet, and Morningstar studies show that advisers can add up to 1.5% to over 3% per year in value by controlling cost, behavioral coaching, re-balancing, asset location, spending strategies, and using total return vs. income only investing. Then there are intangibles like motivating you to take action where there may be gaps or contingent risks you need to have covered. 

Here again, it’s important for you to understand the services that are provided, the adviser’s experience, and competence level as well as how their services will benefit you. If the adviser can’t explain their services in terms of how they benefit you, it probably isn’t a good fit.

26) Is a large brand name firm going to offer you the best suite of services?

An A-Z suite of products & services at your fingertips. Awesome! Safe, easy, and convenient, right? Not exactly. Big is not the same as safe and, in truth, could put your money at more risk. Convenient doesn’t mean they are designed to work in your best interest. In fact, these are business models with layers of conflicts, and generally offer sales-driven, boilerplate solutions. Sounds good on paper and in the marketing materials. It’s a huge misconception that a bigger firm or brand name is safer and has more resources that can help you. Remember, the selling person is representing a large institution with shareholders and a corner office with sales quotas whose interests stand between you and your goals.

27) Is a sole practitioner a good idea?

It’s important to understand the adviser’s experience level, operational safeguards, and regulatory history (refer to question #22). A high quality 3rd party custodian is a must. Many sole practitioners come from larger firms and grew tired of working under the confines of a corporate bureaucracy when they believe they could better service clients with more personalized attention. In contrast to large, integrated (and dual-registered) firms with proprietary products or affiliates, a true independent fiduciary is free to select the best product, help you coordinate information with your other advisers, or help you find the best service provider to meet your needs.

Strong Suggestions

When interviewing investment advisers, it’s a very good idea to take these questions and speak with two or three so you can compare and contrast advice offerings.

Beware if you aren’t sure what products or strategies will be used. If you don’t understand, make the adviser explain it to you in easy to understand terms. There’s no shame in asking before an agreement is signed! A right-thinking adviser will be happy to help you understand what they’re doing for you, and contrast it with other options.

Beware the financial supermarket (i.e. one-stop shops such as banks, mutual fund companies, and insurance companies) who offer a nice sounding “convenience” factor. Take note: they’re driven by scale economics, sales quotas, and shareholder interests. Translation: boilerplate solutions, layers of bureaucracy, and conflicted advice that stand between you and your money. Not the best place to grow and protect your wealth.

Beware the sales person who tells you there is no cost to you. There is surely a cost and you are surely the one who will pay – even if you aren’t writing a check. This lack of transparency suggests they are hiding something or they don’t understand the product. Not sure which is worse. Neither is good.

Beware the dabblers. For example, a CPA who doubles as an investment adviser isn’t likely to be a skilled investment adviser or planner. Do you prefer a jack of all trades or an expert to grow and protect your money? Let them give you tax advice. See an investment professional for your investment advice.


Do some reflection to understand your needs and expectations. And evaluate the evidence on operating philosophy, service offerings, and service standards.

The best advisers are very transparent – and will walk that talk until they earn your trust. A mutual fit is in the interest of both parties. The pure fiduciary model is an excellent starting point to evaluate who you want to work with to secure your future.

Everything clear? More questions? Discover how our difference can matter to your financial security.


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