Picking a Financial Advisor

Choosing a Financial Advisor

Selecting an individual or even a firm to manage your life savings should not be taken lightly. They are someone will make the difference between financial success and trouble. In this article, we will go over how to choose a financial advisor.

Financial Advisor vs. Financial Planner

The first and important thing to understand is that not all financial advisors or financial planners are equal. This is a fact that you should take into consideration when making your choice. Most individuals make their choice based on a combination of factors:

  1. Experience
  2. Education
  3. Personality
  4. Convenience

Sadly, too often people make this important decision based solely on the last factor of convenience. Avoid this pitfall, do not choose to use an advisor, because he or she is family, a friend, close to your house, or the first person to pitch you their services.

Types of Financial Advisors

Next, understand the different types of advisors

  1. Insurance Agent
  2. Broker
  3. Investment Advisor

Insurance Agents

Insurance agents are individuals that sell insurance products, such as Life insurance, Annuities, Disability, Long Term Care, and Health insurance; such as Individual Health, Group Health, and Medicare; including Medicare Advantage, Medicare Supplements, and Medicare Prescription Drug.

Pros of using an Insurance Agents

Since all they can sell are insurance products, an experienced Insurance Agent should be very knowledgeable and helpful when it comes to selecting insurance products and solutions.

Be sure that if you are in the market for insurance products that you select an insurance agent that specializes in the insurance type you are in need of.

Cons of using an Insurance Agent

Although they may understand insurance products, an insurance agent generally fails to be a good advisor as they are limited to only insurance products. It should not surprise you when working with such an individual to find that all their solutions will be insurance products. They will generally advise you to transfer all or a large portion of your retirement assets and other savings into an annuity and/or life insurance.

Summary of using an Insurance Agent

Insurance agents certainly serve a purpose, and that is to fulfill the specific need of insurance. We would advise against using an insurance agent for the use of any type of planning, or financial analysis, as they are neither equipped with solutions nor experienced in such complex matters.

Stock Broker

A Stock Broker is an individual that advises and sells securities for a commission. In short, they are “order takers”, in that they cannot have discretionary control, in other words, they must have the consent of the client for each transaction, and the client is charged for that transaction. Often Brokers are insurance agents as well, allowing them to sell Annuities or life insurance with underlying securities driving the value such as variable annuities and variable life insurance.

Pros of using a Stock Broker

Brokers have been very common for decades. They broker or sell for a commission. Brokers are great if you are simply needing to purchase a security, need information regarding risk, fees, etc. They generally are a less expensive alternative if the investor has less than $50,000 to invest.

Cons of using a Stock Broker

Because brokers earn a commission for each transaction, they are not financially vested in their clients’ accounts and since they are not fiduciaries nor are they legally obligated to put their client’s interest ahead of their own.

In fact, Warren Buffett had this to say about Stock Brokers:

“The broker is not your friend. He’s more like a doctor who charges patients on how often they change medicines. And he gets paid far more for the stuff the house is promoting than the stuff that will make you better.”

You may not spot a broker as easily as you may think, they work for big companies like MetLife, Ameriprise, USAA, UBS, Fidelity, Charles Schwab, Merrill Lynch, Edward Jones, to name a few. You will also see Brokers in your banks like at Chase, Wells Fargo, Bank of America, as well as smaller banks and even at Credit Unions.

Summary of using a Stock Broker

A stockbroker may make sense for you if you have less than $50,000 to invest, or possibly if you are looking to purchase a security and holding it for an extended period of time, keep in mind that every time a broker changes your positions, sells or buys, a commission is charged to your account.

Investment Advisor

A Registered Investment Advisor, often referred to as an Investment Advisor Representative. An Investment Advisor is an individual that manages money for a fee, generally a percentage of the assets they manage, but it may also be a flat fee. This individual act as a Fiduciary; meaning they must put the interests of their clients ahead of their own. For Accredited Investors; they may also manage money using a Performance-Based Fee structure.

Pros of using an Investment Advisor

As mentioned before an Investment Advisor acts as a fiduciary, it’s important to know that your financial advisor is watching out for you more than she or she is watching out for themselves. An Investment Advisor cannot accept commissions for transactions, they are generally paid a percentage of your assets they are managing, which means they have a vested interest in the performance of your account, as your account balance grows, so will the fee they collect and vice versa. Arthur Levitt, the former SEC Chairman said this about Investment Advisors and Brokers:

    “If you have more than $50,000 to invest, you should fire your broker and find an investment advisor. Brokerage firms would like you to think they perform the same functions as investment advisors.”

Cons of using an Investment Advisor

If you have less than $50,000 to invest you may find it hard to engage with an investment advisor that will work with you. An investment advisor will generally charge a higher fee. If you are not looking for advice or financial planning and want to decide what specifically you invest in; a broker or an online broker, such as scottrade.com or tdameritrade.com may be a less expensive solution.

Summary of using an Investment Advisor

If you have over $50,000 to invest, you are looking for guidance and or advice, and want your advisor to be legally and ethically obligated to place your interests ahead of their own, an independent investment advisor may be for you.


Once you have determined the best type of advisor for your needs, it is important you do your due diligence to investigate the best advisor for you. Learn about their background, their education, and any discipline they may have had. Go online and read reviews, review their website, check the better business bureau. You will also want to learn about any professional designations, these are additional specialty training and generally require continuing education. Be cautious there are many misleading designations for the appearance of education. We recommend you find an advisor with a CFP® – Certified Financial Planner or a ChFC – Chartered Financial Consultant.


Broker Check (http://brokercheck.finra.org/) – allows you to review the background of any Stock Broker or Investment Advisor.

Better Business Bureau (http://www.bbb.org/) – Review if they are accredited, and what their BBB rating is.

Certified Financial Planning Board (http://www.cfp.net/) – Ensure your advisor is a Certified Financial Planner, review any discipline.