Core Financial Resources

What to look for in a financial advisor

5 min read

Financial advisors have different approaches when it comes to how they work with clients. It’s important to understand what those differences are so you can make an informed decision when choosing who to hire. Here’s a few questions you should ask.

Are you a broker, insurance agent, or a financial advisor?

The most important difference is that some people giving financial advice and selling financial products operate as a fiduciary and others don’t. Being a fiduciary means “he or she is required to put your interests ahead of their own.”

Sounds reasonable, right?

Unfortunately, not enough of the financial gurus in the United States operate as a fiduciary. They are brokers or salespeople working for large companies who have an obligation to create profits for their shareholders. They might be well-intentioned advisors, but their legal requirements are different.

Financial planners who adhere to the Fiduciary Standard are bound to act in your best interest. On the other hand, advisors (a.k.a. brokers) who work for large brokerage firms you know by name are held to a “suitability standard.” They are not fiduciaries and are only required to take your risk tolerance and goals into consideration when making recommendations. The cost and quality of the products don’t necessarily need to be factored in.

How can you tell if a financial advisor is a fiduciary?

The easiest way is to simply ask. Learn their legal requirements as well as their intentions.

How do you get paid?

It’s critical to understand how your advisor gets paid. Too many people calling themselves financial advisors are simply salespeople at the core. Hiding behind mountains of disclosures, they are paid to sell you a product and receive a commission for doing so. In many of these cases, they are not ethically or legally restricted from recommending you a product with the highest commission rate.

Fiduciaries typically are paid a transparent advisory rate calculated as a percentage of assets managed OR charge a stated flat rate. By understanding how an advisor is paid, you’ll also understand the possible motivations behind those recommendations.

What are my all-in costs?

Hidden costs are a deplorable part of the financial industry. It goes without saying hidden fees can impact your investment returns and retirement success.

Annuities are well known for layering cost upon cost. If your needs or desires change before the commitment period is exhausted, there is usually a significant cost associated when exiting.

Standard investment accounts (as well as annuities) may contain investments with their own separate cost. This is in addition to management costs or commissions paid to advisors. For example, just about every investment fund your financial advisor recommends has an expense ratio. The expense ratio can be as little as 0% or as high as 3%.

How will our relationship work?

Consider if you are seeking one time or ongoing advice. Many times, after a financial product is purchased and commission paid, salespeople don’t have a reason to provide ongoing support unless there is an opportunity for another sale. Know if this is a one-time product purchase or the beginning of a relationship.

If ongoing advice and support is your desire, don’t assume an advisor will communicate with you in the way you want. Perhaps you remember Oscar Wilde’s thoughts on what happens when you assume. There’s no doubt you want a financial advisor who is smart and experienced, but also one who communicates in a way that suits you.

Some clients prefer phone calls on a regular basis and frequent meetings, while others are ok with email-based communication and one or two formal meetings per year. Too frequent communication may be as bad as too infrequent. You may be looking for someone you trust so you can stay focused on other things.

Are you a fiduciary 100% of the time?

Most people see a financial advisor for best in class personalized advice. Nobody asks to be sold a high-priced product paying a juicy commission.

What’s your investment philosophy? How do you select investments?

Some advisors take a highly customized approach to investing, tailoring investment needs to your unique goals.

Some advisors sell products based on market fear. A chicken little, the sky is falling, approach means you must select certain products to avoid impending market doom.

Others find a way to fit your needs into the products they sell. One-off solutions are suggested without taking the full financial picture (or associated taxes) into account. You might have heard the saying, “To someone with only a hammer, everything looks like a nail.”

It’s important to find someone who can clearly articulate their philosophy and how it can help you with your unique situation.

Will help me manage taxes? Do you consider tax implications of your recommendations?

Not all advisors ask for a copy of your tax return, yet each recommendation has an impact on how much tax you pay (now or in the future). Minimizing taxes should be a key part of any financial advice. Let’s face it, taxes are not a trivial expense.

Too many advisors proudly tell you they aren’t tax experts and point you to a licensed tax expert for tax advice. Why don’t they consider all the implications of their recommendations? Why should you take the job of coordinating advisor recommendations?

Ask yourself one question: “Are taxes a financial topic?” If taxes are indeed a financial topic, why would any competent financial advisor stop short of a full education?

We believe it’s deplorable to make decisions and recommendations impacting a client’s tax situation without fully exploring the consequences.

Final Thoughts

In order to find the best advisor for you, be ready to articulate your short and long-term goals. Are you working toward the next big purchase or planning retirement in a few years? The more specific you can be the better.

You’re making a big life decision when you hire and advisor. Take your time, do your homework, and don’t be rushed into making the decision.

Additional Resources

Notice: This generic information is not intended to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary (by industry, entity type, and locale), consult your accountant, lawyer, and/or HR expert for specific guidance.
Scott Patterson

Scott Patterson


Share this page via

It only takes 10 minutes to see if we’re a good fit.

In just ten minutes you can see if it makes sense for us to work together. No pressure, no sales tactics. Tell us about what’s working and not working for you. If we can help, we’ll schedule another time to go deeper with you.

Schedule "Good Fit" Call

Related Articles

Keep reading. Never stop learning.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Check the background of your financial professional on FINRA's BrokerCheck Avantax affiliated advisors may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state. Securities offered through Avantax Investment Services℠, Member FINRA, SIPC, Investment Advisory services offered through Avantax Advisory Services℠,Insurance services offered through an Avantax affiliated insurance agency. 3200 Olympus Blvd., Suite 100 Dallas, TX 75019 972-870-6000.

The Avantax family of companies exclusively provide financial products and services through its financial representatives. Although Avantax Wealth Management℠ does not provide or supervise tax or accounting services, Avantax Representatives may offer these services through their independent outside business. Content, links, and some material within this website may have been created by a third party for use by an Avantax affiliated representative. This content is for educational and informational purposes only and does not represent the views and opinions of Avantax Wealth Management℠ or its subsidiaries. Avantax Wealth Management℠ is not responsible for and does not control, adopt, or endorse any content contained on any third party website.

This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Investments & Insurance Products: Are not insured by the FDIC or any federal government agency- Are not deposits of or guaranteed by the bank or any bank affiliate- May lose Value

Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Indexes discussed are unmanaged and you cannot directly invest into an index. Past performance is not a guarantee of future results.

Links provided from this web-site are strictly for informational purposes and are not an endorsement or recommendation of the site, company, content, or its sponsoring organization by Avantax or its affiliates. Firm Name provides these links as a convenience to you, and has not tested any software or verified any information found at such sites. Risks are associated with the use of software and the information available on the Internet and you acknowledge and understand these risks before using any of these services.

Avantax Investment Services℠ and Avantax Advisory Services℠ are not affiliated with Wymer Brownlee Wealth Strategies.

Copyright © 2024 Core Financial Resources.