Critical Questions for the Conscientious Consumer

Recently the Certified Financial Planner Board of Standards came under scrutiny when The Wall Street Journal’s Jason Zweig revealed that The Board’s website “doesn’t inform users about customer complaints, regulatory skirmishes and other problems.” (Find the article here.)

For the consumer interested in unbiased financial advice and investment management, this is deeply concerning. In the world of financial planning, it can seem daunting to find a professional who will put your interests first. 

To make matters worse, the label “Financial Advisor” has virtually no regulation. Meaning that the bearer of the title “Financial Advisor,” may not necessarily have the education, experience, and ethical standards necessary to serve you well. A financial salesperson masquerading as a financial advisor can just as easily use the title “Financial Advisor” as the professional who is bound by a fiduciary duty to put your interests first.

Given this sea of confusion, how is the consumer to find a good advisor? And if they are working with one, how are they to know that the advisor has their best interest at heart?

I propose three questions to ask yourself about your current (or prospective) advisor in order to determine if they are right for you: (1) Is your advisor educated? (2) Is your advisor in the sales business? (3) Is your advisor “fee-only”?

Is your advisor educated?

Many—and I repeat, many— advisors do not have baseline financial planning credentials. The CFP® (Certified Financial Planner) and/or ChFC® (Chartered Financial Consultant) designations should be considered minimal education and experience requirements for financial professionals, with preference given to the CFP® designation due to its slightly higher requirements for qualification. 

Consider other professionals that you work with: Would you want to have surgery done by a physician with no education and residency experience? Would you want to be represented before a judge and jury by an individual who didn’t attend law school or pass the bar exam? 

Sadly, in the financial services world, many “advisors” (or “Financial Representatives”) are able to begin practicing after a brief tour (possibly as little as a few weeks) through their company’s sales training program. 

If your advisor doesn’t have the CFP® or ChFC® designation, you’re likely working with an individual who lacks minimum education and experience. Bachelor, Master, and Doctorate degrees in Financial Planning, or other relevant fields, demonstrate that your advisor is committed to their practice and dedicated to growing and deepening their knowledge.

Why should the CFP® or ChFC® designations be considered minimum requirements for financial advisor education? The fact of the matter is that it’s simply not that hard to become a ChFC® or CFP® professional. Though there are proficiency and experience requirements, these designations in no way demand the same level of sacrifice and dedication as the professional standards represented by titles such as M.D., D.O., J.D., and C.P.A. 

It’s a shame that the financial planning profession doesn’t require the same level of educational and experiential competency as other professions.

Richard Wagner’s, J.D., CFP®, seminal article “To Think . . . Like a CFP” first appeared in the January 1990 issue of the Journal of Financial Planning. In it he wrote:

“Although I have the highest respect for the College For Financial Planning, we cannot continue pretending that a mail-order education is the equivalent of a rigorous three-year residential academic program for developing a professional image or competency. Part of how a profession… thinks…is forged in the crucible of the schooling process. Having personally endured the first years of law and architectural school, I testify to their “boot camp” powers of forging raw humans into baby professionals “Thinking…Like a…” Believe me, financial planning has no equivalent.” (7)

Is your advisor in the sales business?

Interestingly, this question is answered by answering another question: Does your advisor receive compensation from offering you advice, or from the sale of a product? If your advisor receives compensation partially or completely from the sale of a product, they are partially or completely in the sales business. Though I respect the role of sales professionals in our society, I do not believe that clients are well-served when their advisor receives compensation from product sales. 

How your advisor gets paid matters a great deal. In order for an advisor paid on commissions to feed their family and get ahead in life, their advice must necessarily lead to the sale of a product, whether or not you need a product solution in the first place.

Again from Richard Waginer’s article, “To Think . . . Like a CFP,”

“With all due respect to functions served and benefits provided, life insurance sales is not a profession. Securities sales is not a profession. Tax planning is not a profession. Banking is not a profession. These endeavors are sales and functions. Each focuses on selling products that do, indeed, satisfy legitimate needs. But by inherently being outside the context of a profession, they do not have the capacity to address core issues in their entirety. Neither do they operate altruistically or free from the bias inherent in sales, nor require a common body of knowledge or possess even a minimal academic curriculum. On their down side, they tend to turn related problems into problems their products magically solve, whether or not the products offered are the best objective solutions.“ (5)

He later continues:

“The essence of financial planning is not finding a product to best fit the client’s needs. The essence is to provide answers and services within the context of the client’s own special situation. It is to “be there” for the client when financial issues arise, to answer the questions that cannot be answered anywhere else.” (7)

Is your advisor “Fee-Only?”

In order for your advisor to be able to provide you with an objective opinion, they should not receive any payment outside of the fee that you issue them for advice. 

Ideally your fee-only financial advisor’s compensation doesn't come from asset under management fees either. For example, the advisor who is paid based on 1% of assets under management is incentivized to provide you advice that increases the investments that you hold at their firm—that’s how they get paid more. This can translate into inappropriate 401(k) rollovers, or advice that encourages you to keep investments at the firm, even though what you really want to do is pay off your mortgage or purchase investment real estate. Additionally, I’ve observed that advisors paid on assets under management rarely have fee ceilings. In other words, as your assets grow at their firm, so do their fees—even if the service they provide hasn’t changed. 

I believe that a flat annual retainer works best for those looking for ongoing financial planning and investment management, and that hourly rates work well for Do It Yourself-ers who would like a professional opinion or one-time engagements. 

Some final thoughts.

Many people want to hire a professional to help them with their financial planning and investment management so that they can focus on the things that are most important to them. 

Sadly, it can be very difficult to find a good advisor.

Whether you’ve been working with an advisor for years, or are looking for one, ask yourself these three questions:

  1. Is my advisor adequately educated?

  2. Is my advisor in the sales business?

  3. Is my advisor “fee-only”?

Take action based on the results of this exercise. You may find that your current advisor is the right fit. 

If they aren’t, I encourage you to make a decision with your best interest in mind.


The content you just read is for informational purposes only. Yes, I’m a financial advisor, but this article really isn’t intended as advice for you specifically. Your unique situation needs to be taken into account, and the ideas presented here may not apply. 

So, please make sure you do your due diligence BEFORE implementing anything. Due diligence includes hiring a qualified professional who understands your situation completely and can offer you personalized advice.

Donovan Sanchez