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Options when choosing financial advisor


Did you know that almost anyone can call themselves a financial advisor?  Is that concerning for you as a consumer or a seeker of financial guidance?  In this strategy guide, I want to provide you with an overview of all of the different flavors financial advisors come in.  I’ll warn you now that I clearly have a bias, but it is an educated bias and I’ll try to be as objective as possible.  Below you’ll learn about the general types of advisors, designations, fee structure, and degree of planning that you could encounter as you search for your financial advisor.

(You can also check out 10 Questions to Ask Your Financial Planner)

General Types


Insurance Rep


Required to pass an exam to receive insurance licenses in order to sell insurance products. They provided a good general overview of product types and coverage needs.


Investment Broker


Required to pass exams to receive licenses in order to sell investment products.  The tests focused on general product knowledge and laws surrounding investment products.  The test doesn’t test on financial planning concepts.  Currently, investment reps were only required to use products that were suitable and not necessarily in the best interest for their clients.


Investment Advisor


Need to pass an exam to receive a license in order to provide investment advice.  Similar to an investment representative above, the test focused on general investment overview and laws surrounding investments.


Financial Planner/Coach


Again, anyone can call themselves a financial planner or coach.  If they don’t use a designation or fall into one of the above descriptions then you actually are not even required to take tests.  It’s also illegal for them to provide investment advice if they are not licensed to do so.


To make things more confusing, some may be technically all of the above. I was.  Before starting my own fee-only financial planning firm, I had my insurance license and was affiliated with an investment brokerage firm, Registered Investment Advisor, and provided financial planning.




Since anyone can easily become a financial advisor, it’s important to seek out one that has designations that show they’ve gone above and beyond just meeting basic requirements.  There are a few high-quality designations, but the Certified Financial Planner™  (CFP®), Certified Public Accountant (CPA), and Certified Divorce Financial Analyst (CDFA) are the most common you’ll see.




Obtaining a CFP® designation means that the holder has gone through rigorous education, bachelor degree, experience, ethics training, and finally a comprehensive exam (imagine you had a final exam that encapsulated two years of college-level courses).  The pass rate for 2017 was 64%.   The exam tests for 8 Principal Knowledge Topic Categories:




If your financial advisor is also a CPA, they should be able to add a tremendous amount of value on the tax planning side and possibly a greater range of services in-house that would be appealing to a business owner.  To become certified you must have 150 credit hours of education (varies by state greater than 30 in accounting, greater than 30 in business)  and pass the Unified CPA Exam.  The historical pass rate of the Unified CPA exam is just under 50%




A CDFA should know the ins and outs of individuals going through the divorce process.  Since divorce is one of the major wealth destroyers that a family can run into, it’s important to have a trusted advisor who knows what they’re doing to help navigate this turbulent time for their clients.  The requirements are three years of industry experience, bachelors degree, and completion of CDFA course.


Fee Structures


Commission (Many clients, lower service)


Advisors that receive a commission are paid by a 3rd party to sell a product.  This creates a conflict of interest because companies may pay a higher commission than another and insurance companies in particular offer other non-cash incentives such as lavish trips.  If you’re working with a relatively new advisor, they face greater pressure to focus on sales and not necessarily “true” financial planning.  Commissions also leave little incentive to continue providing service to existing clients unless a new sale opportunity is present.


Some commission advisors may be beneficial for lower-income households because they would typically not have access to other types of advisors.  The cost of working with a commission based advisor typically is more cost efficient for lower income/ lower asset families, but as income/ assets increase, it becomes more cost effective to work with a fee-only advisor.


Fee-Only  (Fewer clients, higher service)


A fee-only advisor means that the only form of compensation comes directly from the client so it is a much more transparent way of doing business.  Fee-only advisors also tend to be more financial planning based than investment based, but often offer both services.  Fees may be paid the following ways: hourly, project-based, monthly, or based on a percentage of assets.


Since the fee-only advisor is planning focused, there is a greater amount of time spent with each client, which should mean a stronger relationship and greater service.  Although fee types can vary, most fee-only advisors have set minimums to ensure that they are compensated evenly for the projected time it will take them to provide services.  Opposite of commission-based advisors, the cost may be prohibitive to lower-income households, but becomes more attractive from a cost and value standpoint for households with larger incomes or asset sizes.


Fee and Commission (Clients and service varies)


Also known as, fee-based advisor, means that the advisor has the flexibility to operate in either spectrum.  It’s actually more confusing to clients because an advisor saying they are fee-based makes them think that they are fee-only, but still may be sold a product.


Most advisors have this setup due to old legacy accounts when they were first starting their career, but no longer offer new commission-based products.  Some advisors also find it valuable to keep insurance based sales in-house from a revenue standpoint.  There are still many advisors that have this approach because of the larger commission incentives.

Degree of Planning


All financial advisors want you to perceive that they offer robust planning, but unfortunately, there are various levels of planning types.


Sales based


A sales-based advisor will do a broad overview and very crude calculations to get you to the point to where they can make their sale.  You typically won’t have ongoing direct communication with this advisor unless they are probing you to see if there is the potential for a new sale.


Investment Only


Investment only advisors handle the investments for you and ….. that’s it!  My biggest issue with this is that the cost is the same if not more than what a financial advisor who will build a comprehensive plan would charge.  Future conversations will revolve solely around the investments.


Investment Primarily with Light Financial Planning


Some advisors who focus on investments may offer some form of financial planning projections.  These will be on the lighter side and similar to what an online calculator ex.(investment growth and future income generated).


Financial Planning Only


Financial planning only advisors provide nearly all of their value in the financial planning process:  Organization, Goal Finding, Determine and Evaluate Potential Actions, Implementation, and Ongoing Review.  Some of the additional value a financial planner provides are the following: Accountability, Objectivity, Proactivity, Education, and Collaboration.  This type of advisor is a good complement for a DIYer who prefers to manage their own investments.


Financial Planning Mainly with Investment


If your financial planner has an emphasis on financial planning but also manages investments.  This is a good fit for those who are not comfortable managing their own investments.  Fees may come out of investment accounts and may not be a good fit for a DIYer if the financial planner requires asset management in order to assist with building a comprehensive financial plan.




Really none of the above are bad people or necessarily bad for you to work with.  What is bad is that you don’t understand if they are good for you to work with.  Do they have your best interest in mind? Do they have the knowledge to help you with your situation?  Do they listen to what’s important to you or are they just looking to make their sale?  Do you know the cost of working with them whether it’s built into the product or not? Do you trust them?  How often do you meet?


I hope this is helpful for you choosing the advisor that you’ll trust in guiding you and your family through decades of major life decisions and market volatility.  If you’re still confused and I wouldn’t blame you if you were, feel free to use me as a resource to help vet the advisor of your choice.

Ready to interview an advisor? Check out 10 Questions to Ask Your Financial Planner

Interested in collaborating on your plan? Schedule a free call today.

Transparency is important. Estimate your cost to collaborate on a plan.

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