There is a multitude of things for investors to be aware of when choosing a financial advisor. Many factors can significantly impact the value of the advice you’re receiving such as designations advisors use, the standard they’re held to (fiduciary standard or suitability standard), and how they are paid.


The rise in designations over the last several years within the financial industry has clouded consumers’ judgment when trying to benefit from financial advice. Many of the newer designations require less academic work and hold little meaning. Many designations are marketing tools and new credentials are born every day. Sadly, investors aren’t aware of the basic differences between brokers, financial planners, and fee-only or fee-based financial advisors. As you’re considering a potential financial advisor or questioning the advice you receive now, ask yourself if your advisor is an expert in your needs. Your advisor should be designated through a program that holds its members to strict ethical standards. Credentials alone don’t guarantee quality advice given to you in your best interest.


Begin by asking your advisor if they’re a fiduciary. Working with a fiduciary is a crucial first step to ensure you’re receiving sound advice. A fiduciary is required to act in the best interest of their client. Many fee-only advisors take their fiduciary responsibility seriously and do right by their clients by offering sound financial advice within their client’s best interest. It’s a financial advisor’s fiduciary duty to always put the client’s interests before his or her own.


How your financial advisor is compensated can be very transparent or extremely convoluted depending on their business model. Independent and employed brokers receive commissions on the products they sell. They’re held to a suitability standard, wherein they only have to provide proof that the purchase was suitable for the investor at the time of the purchase and the investor is responsible after. This creates potential conflicts of interest for you and your financial well being. Ask your financial advisor if they receive more or less compensation based on the type of investments they recommend. You might be receiving conflicting advice if your advisor is receiving commissions on the products they’re selling you.

If your financial advisor charges fees request details and fee structures. Ask your financial advisor what their fee structure and looks like. Also, be sure to ask if the fees are ongoing, reoccurring, or a percentage of assets under management.

As an investor, the most important thing you can do for yourself and financial health is to educate yourself on the different types of services offered to you. The industry has a reputation for clouding the differences between advisors. Although there are many types of advisor (brokers, fee-only, and fee-based) the industry refers to them all as “financial advisor.” The many designations often times doesn’t help distinguish the differences.

If you found this information helpful, be sure to read “5 Reason Why a Fee-only Advisor May Be Right for You on our blog!

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