What Wall Street Doesn’t Want You to Know About the Independent Financial Adviser

The word independent can be described as autonomous, unbound by another entities force, direction or will, or perhaps and most importantly freedom. But in the context of your financial advisory relationship independence means much, much more. To understand just why the independent financial advisor model is so vital to your long term financial success, you must understand the difference in advisory models from the ground level up.

According to a survey by Cerulli Associates, an industry polling and research firm, the channels of financial services models can be broken down into roughly six major categories:

National Full Service Brokerage – These are firms such as Merrill Lynch, Smith Barney, Morgan Stanley and Goldman Sachs. A financial advisor at one of these firms works for their employer directly, but can provide financial advisor services and sell you insurance and investment products (maximizing profits and enriching company value). There are approximately 70,000 “financial advisors” at national full service brokerage firms.

Regional Full Service Brokerage – These are smaller geographically specific brokerage firms such as Robert W. Baird, Edward Jones, and AG Edwards. Regional brokerage firms are nearly identical to their national counterparts in business model, however they’re smaller in size and typically geographically anchored to service a smaller segment of investors. There are approximately 15,000 “financial advisors” at these smaller regional full service brokerage firms.

Independent Broker-Dealers – These are firms such as LPL Financial (Linsco Private Ledger), Associated Securities Corp., Ameriprise and ING. A broker-dealer acts as either a sales organization selling consumers investment and/or insurance products OR as a buyer of securities. Some broker-dealers act in both capacities. There are approximately 100,000 “financial advisors” at independent broker-dealers.

Bank Brokerages – These are banking institutions who also offer financial advisor and investment management services to their banking customers. Banks such as Wells Fargo, Bank of America and Citigroup offer these services and employ roughly 15,000 “financial advisors”.

Insurance Broker-Dealers – Firms such as New York Life, ING, AXA Advisors, Equitable, and Transamerica are involved in the exchange of insurance contracts and services from company to consumer. There are roughly 35,000 “financial advisors” in such firms.

Registered Investment Advisor Firms – There are roughly 25,000 Registered Investment Advisor Firms. A Registered Investment Advisor (RIA) is a firm registered directly with the Securities and Exchange Commission (SEC) or their state securities licensing division. My firm Red Rock Wealth Management is an SEC Registered Investment Advisor Firm. Nearly half of all Registered Investment Advisor firms are also working with or through a broker-dealer (at some level) however to facilitate investment and insurance transactions.

Removing the RIA’s with broker-dealer affiliations this means roughly 5% of “financial advisors” are solely in the Registered Investment Advisor model.

The words “financial advisors” are in quotations because these firms hold their employees out to the public in a financial advisor capacity, yet they may or may not be true financial advisors depending on their employment status. In fact, they may be nothing more than facilitators of brokerage transactions for insurance and investment products.

Why is this industry knowledge important to you and your financial future? Because there are varying levels of DEPENDENCE in the first five models for financial advisors. The pure Registered Investment Advisor model with no broker-dealer affiliation is the only completely INDEPENDENT model.

To be clear, many financial advisors at independent broker-dealers like LPL consider themselves independent, and provide financial services in that manner. However there are still issues of reliance on the company that pays their commission checks. Outside of the RIA model however, the independent broker-dealer is the closest thing to a purely independent financial advisor practice.

To fully grasp why the national and regional brokerage firms, the bank brokers, the insurance brokers, and the independent brokers are not independent, simply look at who writes their paycheck. Unless you’ve never been employed, you understand clearly that your paycheck is contingent upon fulfilling your duties to your employer as your employer describes said duties, period – end of story.

If your employer is “calling the shots”, to maintain employment and get your paycheck – you fall in line, you follow orders. You do so regardless of whether those shots the employer calls are in your clients best interests or not. To earn a living – you follow orders. This concept is clear and unwavering whether you’re flipping burgers for McDonald’s and must prepare food a certain way, or if your a Fortune 500 CEO and accountable to shareholders and a Board of Directors. If you work for someone else, you’re dependent on fulfilling their idea of what your job description is.

If your financial advisor is beholden to their employer (and 95% of financial advisors are) they’re dependent on that entity for income, benefits, and job security. If they’re dependent on their employer, they must fall in line and follow company orders.

But that’s not so bad is it? 95% of financial advisor representatives being dependent on the company they work for to earn a living? It is if the company they represent is in turn beholden to maximizing profits and increasing shareholder satisfaction. If the financial advice given to you is somehow influenced by corporate profits, how can you be certain it’s in your best interests?

There are several reasons an INDEPENDENT financial advisor will have the upper hand when it comes to providing unbiased financial advice and guidance, but to name a few:

No Proprietary Products – Each of the first five models may create, manage, and sell their own investment and insurance products, or in many cases they have “special arrangements” with other firms to promote and sell “preferred” investment and insurance products. By “special arrangement” I mean kickbacks, a commission, compensation, additional business benefit, etc. The fact is, whether the products are truly proprietary or a special arrangement is made, if the company receives a financial benefit to sell certain investment and insurance products it’s effect is proprietary in nature, as it clearly identifies a conflict of interest.

Highly Profitable Insurance and Investment Products – Perhaps the most common form of abuse with the dependency created in the first five practice models is promoting investment products with higher fees and commissions for higher corporate profits. Certain products, such as life insurance, variable annuities and limited partnerships, pay handsome commissions and fees to the financial advisor and their firm. With such a financial incentive – many advisors and their firms will “tailor” their financial planning advice and investment guidance, leading the consumer to believe these higher cost higher profit alternatives are the best solution for their financial problems. This practice lines their pockets while oftentimes picking your pockets clean!

Investment Banking Relationships – Take for example XYZ Company wanting to go public (a Wall Street machine revenue generator). Wall Street Firm A provides a channel to sell XYZ Company stock through their “financial advisors” (and other methods) to consumers. If Wall Street Firm A has an investment banking deal with XYZ Company, chances are even if XYZ Company is horribly run, unprofitable, and inefficient – they’re going to take XYZ Company public with an incentive for their stock analysts to be kind in rating XYZ Company stock. Granted, there is supposed to be a “Chinese Wall” between the investment banking side of a firm and the retail outlets and stock analysts – however with the inherent conflict of interest it’s naive to believe this doesn’t occur at some level.

Promoting proprietary or higher cost investment and insurance options to consumers is in all likelihood nothing more than an effort to increase personal and company profits. This holds true with many investment banking deals as well. 100% of consumers can benefit from low or no-load investment and insurance alternatives. If a financial advisor’s real underlying goal it to create a positive financial impact for their clients – why aren’t these firms and their financial advisors implementing financial plans using the lowest cost most efficient and effective alternatives? Certainly high costs and fees cannot be a pre-requisite for good performance and financial goal achievement!

A Registered Investment Advisor Firm with no broker-dealer association is the only financial services industry model where the entire compensation comes from the client only – not from the “Wall Street machine”. Those first five of six financial advisor models create an inherent dependence on behalf of their financial advisor employees directly to the company they work for. It’s unfortunate that only 5% of financial advisors are practicing in the form of a Registered Investment Advisor.

Wall Street Exposed – What You Must Know About Your Financial Advisor Now!

There is a simple but undeniable truth in the financial consulting and wealth planning industry that Wall Street has kept as a “dirty little secret” for years. That dirty little, and nearly always overlooked secret is THE WAY YOUR FINANCIAL ADVISOR IS PAID DIRECTLY AFFECTS THEIR FINANCIAL ADVICE TO YOU!

You want, and deserve (and consequently SHOULD EXPECT) unbiased financial advice in your best interests. But the fact is 99% of the general investing public has no idea how their financial advisor is compensated for the advice they provide. This is a tragic oversight, yet an all too common one. There are three basic compensation models for financial advisors – commissions based, fee-based, and fee-only.

Commission Based Financial Advisor – These advisors sell “loaded” or commission paying products like insurance, annuities, and loaded mutual funds. The commission your financial advisor is earning on your transaction may or may not be disclosed to you. I say “transaction” because that’s what commission based financial advisors do – they facilitate TRANSACTIONS. Once the transaction is over, you may be lucky to hear from them again because they’ve already earned the bulk of whatever commission they were going to earn.

Since these advisors are paid commissions which may or may not be disclosed, and the amounts may vary based on the insurance and investment products they sell, there is an inherent conflict of interest in the financial advice given to you and the commission these financial advisors earn. If their income is dependent on transactions and selling insurance and investment products, THEY HAVE A FINANCIAL INCENTIVE TO SELL YOU WHATEVER PAYS THEM THE HIGHEST COMMISSION! That’s not to say there aren’t some honest and ethical commission based advisors, but clearly this identifies a conflict of interest.

Fee Based Financial Advisor – Here’s the real “dirty little secret” Wall Street doesn’t want you to know about. Wall Street (meaning the firms and organizations involved in buying, selling, or managing assets, insurance and investments) has sufficiently blurred the lines between the three ways your financial advisor may be compensated that 99% of the investing public believes that hiring a Fee-Based Financial Advisor is directly correlated with “honest, ethical and unbiased” financial advice.

The truth is FEE-BASED MEANS NOTHING! Think about it (you’ll understand more when you learn the third type of compensation), all fee-BASED means is that your financial advisor can take fees AND commissions from selling insurance and investment products! So a “base” of their compensation may be tied to a percentage of the assets they manage on your behalf, then the “icing on the cake” is the commission income they can potentially earn by selling you commission driven investment and insurance products.

Neat little marketing trick right? Lead off with the word “Fee” so the general public thinks the compensation model is akin to the likes of attorney’s or accountants, then add the word “based” after it to cover their tails when these advisors sell you products for commissions!

FEE ONLY Financial Advisor – By far, the most appropriate and unbiased way to get financial advice is through a FEE-ONLY financial advisor. I stress the word “ONLY”, because a truly fee ONLY financial advisor CAN NOT, and WILL NOT accept commissions in any form. A Fee-ONLY financial advisor earns FEES in the form of hourly compensation, project financial planning, or a percentage of assets managed on your behalf.

All fees are in black and white, there are no hidden forms of compensation! Fee-Only financial advisors believe in FULL DISCLOSURE of any potential conflicts of interest in their compensation and the financial advice and guidance provided to you.

Understanding the conflict of interest in the financial advice given by commission based brokers enables you to clearly identify the conflict of interest for fee-based financial advisors also – they earn fees AND commissions! Hence – FEE-BASED MEANS NOTHING! There is only one true way to get the most unbiased, honest and ethical advice possible and that is through a financial advisor who believes in, and practices, full disclosure.

Commission and Fee-Based financial advisors typically don’t believe in or practice full-disclosure, because the sheer magnitude of the the fees the average investor/consumer pays would surely make them think twice.

Consider for a moment you need to buy a truck specifically for towing and hauling heavy loads. You go to the local Ford dealership and talk to a salesperson – that salesperson asks what type of vehicle you’re interested in and shows you their line of trucks. Of course, to that salesperson who earns a commission when you buy a truck – ONLY FORD has the right truck for you. It’s the best, it’s the only way to go, and if you don’t buy that truck from that salesperson you’re crazy!

The fact is Toyota makes great trucks, GM makes great trucks, Dodge makes great trucks. The Ford may or may not be the best truck for your needs, but the salesperson ONLY shows you the Ford, because that’s ALL the salesperson can sell you and make a commission from.

This is similar to a commission based financial advisor. If they sell annuities, they’ll show you annuities. If they sell mutual funds, all they’ll show you is commission paying mutual funds. If they sell life insurance, they’ll tell you life insurance is the solution to all of your financial problems. The fact is, when all you have is a hammer… everything looks like a nail!

Now consider for a moment you hired a car buying advisor and paid them a flat fee. That advisor is an expert and stays current on all of the new vehicles. That advisor’s only incentive is to find you the most appropriate truck for you, the one that hauls the most, tows the best, and is clearly the best option available. They earn a fee for their service, so they want you to be happy and refer your friends and family to them. They even have special arrangements worked out with all of the local car dealerships to get you the best price on the truck that’s right for you because they want to add value to your relationship with them.

The analogy of a “car buying advisor” is similar to a Fee-Only financial planner. Fee-Only financial advisor’s use the best available investments with the lowest possible cost. A Fee-Only financial advisor’s only incentive is to keep you happy, to earn your trust, to provide the best possible financial advice and guidance using the most appropriate investment tools and planning practices.

So on one hand you have a car salesperson who’s going to earn a commission (coincidentally the more you pay for the truck the more they earn!) to sell you one of the trucks off their lot. On the other hand, you have a trusted car buying advisor who shops all of the vehicles to find the most appropriate one for your specific needs, and then because of his relationships with all of the car dealers can also get you the best possible price on that vehicle. Which would you prefer?

Truly unbiased financial advice and guidance comes in the form of Fee-Only financial planning. You know exactly what you’re paying and what you’re getting in return for the compensation your Fee-Only financial advisor earns. Everything is in black and white, and there are no hidden agenda’s or conflicts of interest in the advice given to you by a true Fee-Only financial advisor!

The fact is unfortunately less than 1% of all financial advisor professionals are truly FEE-ONLY. The reason for this? There’s a clear and substantial disparity in a financial advisor’s income generated through commissions (or commissions and fees), and the income a financial advisor earns through the Fee-Only model:

Example #1 – You just changed employment and you’re rolling over a $250,000 401k into an IRA. The commission based advisor may sell you a variable annuity in your IRA (which is a very poor planning tactic in most cases and for many reasons) and earn a 5% (or many times more) commission ($12,500) and get an ongoing, or “trailer” commission of 1% (plus or minus) equal to $2,500 per year. The Fee-Only financial advisor may charge you a fee for retirement plan, an hourly fee, or a percentage of your portfolio to manage it. Let’s say in this case you pay a $500 retirement plan fee and 1.25% of assets managed (very common for a Fee-Only financial advisor in this situation). That advisor earns $500 plus $3,125 ($250,000 * 1.25%) or TOTAL COMPENSATION of $3,625 – FAR LESS THAN THE $15,000 THE COMMISSION (or Fee-Based) financial advisor earned! In fact it takes the Fee-Only financial advisor over four years to earn what the commission (or fee-based) advisor earned in one year!

Example #2 – You’re retired and managing a $750,000 nest egg which needs to provide you income for the rest of your life. A fee-based financial advisor may recommend putting $400,000 into an single premium immediate annuity to get you income and the other $350,000 into a fee-based managed mutual fund platform. The annuity may pay a commission of 4% or $16,000 and the fee-based managed mutual fund portfolio may cost 1.25% for total compensation of $20,375 first year (not including the “trailer” commissions). The Fee-Only advisor would possibly shop low load annuities for you, possibly put the entire portfolio into a managed account, possibly look at municipal bonds, or any other variety of options available. It’s hard to say how much the Fee-Only advisor would earn as their largest incentive is to keep you the client happy, and provide the best planning advice and guidance possible for your situation. BUT, in this case let’s just assume that a managed mutual fund portfolio was implemented with an averaged cost of 1% (very common for that level of assets), so the Fee-Only financial advisor earns roughly $7,500 per year and it takes that financial advisor THREE YEARS to earn what the fee-based financial advisor earned in ONE YEAR!

The prior examples are very common in today’s financial advisory industry. It’s unfortunate that such a disparity in income exists between the compensation models, or there would likely be many more truly independent and unbiased Fee-Only financial advisors today!

Now consider for a moment which financial advisor will work harder for you AFTER the initial consultations an planning? Which financial advisor must consistently earn your trust and add value to your financial and investment planning? It’s obvious the financial advisor with the most to lose is the Fee-Only advisor. A Fee-Only financial advisor has a direct loss of income on a regular basis from losing a client.

The commission or fee-based financial advisor however has little to lose. You can fire them after they’ve put you in their high commission products, and as you can see from the examples they’ve already made the majority of the commissions they’re going to make on you as a client. They have little to gain by continuing to add value to your financial and investment planning, and little to lose by losing you as a client.

Wouldn’t you prefer a financial advisory model where your financial advisor must continually earn your trust and add consistent value to your planning?

It’s clearly more difficult to earn a living and run a profitable financial advisory firm through the Fee-Only financial planning and guidance model. For this reason, most financial advisors take the easy way and sell products for commissions and charge fees on assets managed – that way they can make a nice living on your investment portfolio and still have an ongoing stream of revenue every year. For this reason also, less than 1% of financial advisors are truly Fee-Only, yet it’s that 1% that is truly objective and unbiased, and that 1% whose only incentive is to manage your financial plan, investments, and overall wealth to accomplish the goals you wish to achieve!

The real “dirty little secret” Wall St. has is the undeniable truth that the commission and fee-based financial advisory model has inherent conflicts of interest, and your advisor may be “selling you investment products” rather than “solving your financial problems”!

Wealth Building and DIY Financial Planning: Being Your Own Financial Advisor, A Good Idea?

For too long, too many people have handed over responsibility for their investment decisions almost entirely to their financial advisors. This is a bad idea. No one is going to manage your own money as well as potentially you could. The way I see it, anything you can do to create a better life for yourself and your dependents is fair game. So, becoming financially literate and reducing any over-dependency on financial advisors is part of this over-arching objective.

Becoming financially literate not only empowers you and your finances but sets a really good, much-needed example for those around you. In my view, “Becoming 100% financially literate” is something that warrants being on everybody’s list of top lifetime goals.

No Such Thing as a Free Lunch

Have you ever wondered how your financial advisor was getting paid? You probably had a suspicion some financial institution was greasing his palm. Well, as the saying goes, there really is no such thing as a free lunch. Beneath the pin-striped suit lies the thinly-disguised commissions and fees structure that has rotten the financial services industry to the core.

Even now, with financial institutions heavily regulated and the onus on your financial advisor to disclose to you the commissions and fees they get paid for a transaction, this can still result in you feeling uncomfortable and wary, and leave you with a distinct bad taste in your mouth.

After the recent global financial meltdown there is a huge question mark about the validity, integrity and systemic over-reliance on the financial services industry. Instead of being obligated to put your financial interests ahead of their own and create the best financial plan for you, financial advisors are only required by law not to sell you something that’s utterly unsuitable. This combined with the need to make a buck can sometimes mean your best interests aren’t always at heart. As this article will show, there has never been a more apt time to become financially literate and undertake the process of becoming your own financial advisor.

Many financial service providers are either focused on a) commissions or b) service fees. In turn they impart some so-so financial advice and deliver middling returns on investment. Commission-based “financial advisors” are working for commissions paid to them by a brokerage firm, mutual fund company, insurance company etc. Fee-based financial advisors are selling their skills and time for hourly or à la carte rate.

Of the two distinct approaches, fee-based financial advice is the lesser of two evils so to speak. However, commissioned-based services may very well be the most suitable for a small investor. This is particularly true in the case of a smaller investment portfolio where less active management is required. In this instance, paying the occasional commission is probably not going to be the ruin of the portfolio’s returns over the long-term.

Many financial advisors are now what they call “fee based” (i.e. they earn their crust from both fees paid by you and commissions). True fee-only financial planners are still a rare breed. Regrettably a very high percentage of financial planners are not working for you but are essentially sales people for financial institutions flogging financial products for commission. They consciously or unconsciously will tend to sell you a product that pays them the highest commission. So, oftentimes their agenda and yours are completely different.

One Trick Product Ponies

Oftentimes, the only product(s) a financial advisor understands is the one he/she is selling. An insurance agent will promote insurance products enthusiastically whilst your stockbroker will push individual stocks or a basket of shares. In both instances, neither may be aware of your complete financial situation and hence are incapable of giving you advice. The best use of your money at that moment could be to reduce your debts or build up an emergency fund.

Good financial planning is not so much about trying to beat the market or multiplying your wealth. It’s really about making sure your portfolio is well-diversified and that other aspects of your finances – budgets, credit ratings, insurance cover, tax planning, estate planning and retirement accounts – are in the best possible shape. So proper financial planning encompasses more than investments. It should also allow you to protect your assets, minimize your taxes, and take care of your dependents etc., all the while growing your wealth over time.

Your average commission-based financial advisor isn’t likely to think about the big financial picture. On the other hand, fee-only financial advisors are likely to be more objective at analysing entire portfolios.

When to Get Professional Advice

If are you are going to do some DIY financial planning than you will need time, education, experience, objectivity and the inclination to achieve the same level of competence offered by many professionals. To be frank, very few average-joe investors have it in them to become their own financial advisors. They simply aren’t that way inclined and are too busy getting on with their day-to-day lives. So, you need to be brutally honest with yourself about the level of financial literacy you have as you create and implement your financial plans. You can’t afford to punch above your weight, make costly mistakes and possibly suffer a financial knock-out!

So, whilst I think it’s a great idea to strive to become your own financial advisor I do think it’s important to point out that I also believe it’s crucial to have a team of Grade A financial professionals (financial/tax/legal experts) in place whom you can turn to for critical advice.

There are times that you will need a second, more experienced opinion than your DIY Financial Advisory skills may be capable of. Here are a just a few examples of when it’s useful to get professional advice:

When you’re transitioning from one stage of life into another (getting married, having kids, retiring, getting divorced, etc)
Any major financial transaction such as the purchase of a property, buying or selling a business, receiving an inheritance, etc.
When you are at a financial impasse or suffering from inertia and unclear about what to do next.
When you’re looking for the best way to protect your family in the event of an accident, illness or death;
In times of huge economic and market change.


To become financially literate will require you to become knowledgeable on the financial requirements/constraints you have and the strategies, tools and techniques you will need to achieve your goals. As you delve into the complexity of DIY financial planning and building wealth, you will quickly realize why it is a full-time occupation for even an average financial planner. The question is whether you want to become an expert or whether you prefer to hand-off this financial responsibility to someone else…someone else that may or may not have your best interest entirely in mind. Either which way, this is a decision not to be taken lightly.

CFP(R), ChFC, PFS – Financial Industry Designations You Should Expect!

You would likely expect a CPA for complicated tax work, a J.D. for your legal needs, or an MD for healthcare. Why not expect a CFP (R) for your financial planning & investment needs? The fact is most consumers of financial planning services don’t know much about the credentials scarcely found throughout the financial services industry. Unfortunately, what you don’t know… CAN HURT YOU!

While there are literally dozens of credentials created by educational institutions and other organizations focused on various niches of financial services, there are really three primary designations relevant to comprehensive financial planning at the highest level of skill. Comprehensive financial planning is what you as a consumer of financial services should be most concerned with. Nearly anyone can sell insurance or annuities, stocks, bonds and mutual funds – but a truly comprehensive financial planner can add far more value to your financial security in many ways!

Comprehensive financial planning includes aspects of your financial life such as:

Insurance and Risk Management
General Financial and Retirement Planning
Estate Planning and Management
Investment Planning
Accounting & Tax Planning
Employee Benefits & Retirement Plans

An Accredited Asset Management Specialist (AAMS) may have specialized knowledge in investment planning and portfolio management, but may be inept at holistic financial planning. Without a holistic approach to comprehensive financial planning, they may be lacking the knowledge to properly diagnose and manage other aspects of your financial situation. This lack of proficiency may in turn negatively impact your investment planning.

For example, most financial advisor’s sell and/or manage investment products. They can allocate and manage your investment portfolio (with varying levels of competency!), however if they don’t have tax and retirement plan knowledge they may not stop to ask about your contribution level to your 401k plan at work. This simple oversight may lead to a negative financial impact, as you likely would have been much better off with the tax benefits and possible employer contribution by maxing out your retirement plan at work! The unskilled financial planner may overlook many areas of your financial situation which must be addressed to achieve the best financial results for you.

It’s similar to a mechanic knowing how to change the oil in your car. They may be efficient at getting you in and out of the shop with fresh oil and a new oil filter, but not realize the color or texture of the old oil meant there is a larger problem with your engine, a problem that could leave you stranded on the side of the road!

Here are the three most commonly found, recognizable and reputable designations in the financial services field:

CERTIFIED FINANCIAL PLANNER (TM) – The CFP (R) designation are financial planning credentials awarded by the Certified Financial Planner Board of Standards Inc. (the CFP Board). This is perhaps the most difficult designation to attain for a financial advisor as it requires:

Education – Including approximately two years of coursework in investments, insurance, employee benefits and retirement plans, financial planning, and income tax. A bachelor’s degree is also required to hold the CFP (R) designation.
Examination – The CFP (R) designation requires successfully passing an extensive two day examination in the educations topics listed above.
Experience – The CFP (R) designation requires three years of relevant experience in the financial planning process.
Ethics – After all three requirements above are met, CFP (R) certificants must sign the CFP (R) Certification Application, requiring business background disclosure and adherence to the CFP Board’s Code of Ethics.
Continuing Education – The CFP Board requires certificants to complete 30 hours of continuing education every two years including 2 hours of ethics education.

Chartered Financial Consultant – The ChFC (R) credential is a financial planning designation awarded by the American College. It also is a widely known and respected designation in the financial services industry. The ChFC (R) requirements are:

Experience – Three years of full-time business experience (vs. the CFP (R) requirement of three years of relevant financial planning experience). Code of Ethics – Adherence to a Professional Pledge which is a code of ethics for those holding the designation. Continuing Education – Requires certificants to complete 30 hours of continuing education every two years. Education – The ChFC (R) designation requires completion of 6 college level courses and 2 elective courses, however there is no comprehensive test.

Personal Financial Specialist – The PFS credential is awarded by the American Institute of Certified Public Accountants (AICPA). This designation requires a Certified Public Accountant (CPA) credential in addition to:

Education – 80 hours of educational coursework.
Experience – 2 years of full-time experience.
Examination – Completion of the CERTIFIED FINANCIAL PLANNER (TM) comprehensive examination.

Each designation mentioned above illustrates dedication and determination to excellence in financial planning as well as motivation to provide the best financial advice and guidance to clients. If you recognize the need for qualified financial advice and guidance, you need a professional who’s taken the time to achieve one of the three most important and recognized designations in the financial services industry.

Financial Advisor Experience – 7 Questions You Must Ask!

A critical key to successfully selecting your financial advisor is know what questions to ask. The painful truth is most consumers of financial and investment planning services don’t ask some of the most basic questions when finding, interviewing, and choosing the right financial advisor for their specific needs and financial goals. Rather they tend to be wooed by flashy signs on imposing buildings, fancy decor, ultra-slick TV ads and impressive titles. Choosing the wrong financial advisor however can lead to financially disastrous consequences for you and your financial security – and those flashy signs, smooth marketing campaigns, and embellished sounding titles are the least of what you as a consumer should be concerned with.

The problem stems from the Wall Street machine and their monstrous marketing budgets. Wall Street firms label their salespeople “Financial Consultant” or “Vice President of Investments” (I know, I had both titles at points in my career) – remarkable job titles to say the least, and most certainly comforting in nature to the consumer. They piece together emotionally provocative marketing campaigns with catchy slogans and striking logos. They advertise their spectacular investment products and financial planning services on TV, on the radio, and in the most popular trade magazines.

The sordid truth is the Wall Street machine engages in this “financial pornography” to wow and woo you, to impress you, and to give you comfort in the quality of their advice and value of their investment products before you even walk in the door. In reality, the flashy signs and chic titles mean nothing.

Checking your financial advisors background, credentials, philosophy, compensation and experience in the financial services industry can quickly weed out the “less professional” financial advisors – and effectively simplify your decision making process in finding the right financial advisor.

One of the most important “qualifiers” of a professional financial advisor is their level of experience in serving client’s financial needs and helping them accomplishing their goals. Notice I didn’t say “length of experience in the business”. Length of financial services industry experience may mean little if anything, because a financial advisor may have 20 years of experience which may include years of nothing remotely related to serving clients financial needs.

There are plenty of financial industry jobs which may give the impression of real-life “in the trenches” client services experience, but in reality these jobs aren’t much more than administrative, managerial, or sales in nature. To choose the right financial advisor, focus on asking the right questions, and expect thorough answers:
How long have you been working directly with clients as their primary financial advisor?

How long have you been recommending investment and insurance products?

How long have you been actively and consistently creating financial plans for clients to help them achieve their financial goals?

What is your training background, and where did you learn how to diagnose, manage, and solve your clients financial problems?

How many years did you spend training for your position as a financial advisor?

What firms have you worked for in the capacity of a financial advisor?

How many written financial plans have you created for clients?

Those seven questions will garner the majority of information you’ll need to make an informed decision on your financial advisor’s experience level. But just what should their answers entail? In terms of acceptable financial advisor experience, I would argue the following:

A minimum 3 years of experience. Anything less is a threat to your financial future you can’t afford to take. Financial advisor’s can intern (or act as a para-planner) with more experienced financial professionals working with clients directly, and should do so for at least three years before taking on the primary role as your financial advisor. Given the volatility and uncertainty of current times, it’s easy to make a case for 10 years or more of practical, real-world experience. You wouldn’t lay on the operating table for open heart surgery knowing your doctor graduated from medical school yesterday would you?

A college degree. This is a new requirement for NAPFA (the National Association of Personal Financial Advisors, NAPFA.org) registered financial advisors. While a college degree isn’t the “be-all end-all”, it shows dedication to training and increasing your knowledge early in life – a trait which commonly caries over throughout your career.

A CERTIFIED FINANCIAL PLANNER™ (CFP®) or Chartered Financial Consultant® (ChFC®) designation. Both credentials show substantial dedication to being among the best in the financial services field. Both credentials are difficult to achieve and require ongoing continuing education to maintain. Both credentials illustrate the experience and training so vital to your financial success.

20 written financial plans. Many “financial advisors” don’t do written financial plans (but many “financial advisors” are that only in title, and are actually salespeople in practice). Regardless of whether you need a written financial plan or not (not every client needs a written financial plan), your financial advisor should understand how to create one and have reasonable experience in doing so. You may not need that open heart surgery, but don’t you want your cardiologist to have the experience requisite to making a wise decision when you have chest pain?

Experience is but one primary component of excellence in financial advice and superior client service. There are many other facets of a financial advisory practice that are important. In the end however, don’t you feel more confident you’ll be able to reach your financial goals knowing that this isn’t your financial advisor’s “first rodeo”?

Take the time, ask questions when you interview a financial advisor. Require and expect thorough and reasonable answers. Doing so will help you achieve confidence that you’ve found an experienced financial advisor able to deliver excellence in financial advice!