Date: July 21, 2020

A Quick Start Guide to Finding an Appropriate Financial Advisor

When you think about choosing a financial services professional, what are your first steps? Perhaps asking for a referral from a trusted friend is where you start. Or you met someone at a networking event. Whatever the case, picking a financial services professional for your family is one of the most important decisions you’ll make. The right person can help make you financially secure, lower money-related stress in your marriage, educate your kids, and protect your family while the wrong person can … well … just Google “Madoff.”

Even though your financial services advisor is someone we trust with our future, it is not unusual to make the choice without some important information. For example, when you select an advisor, do you:

  • Consider a background check?
  • Speak with existing clients?
  • Ask about the product structure, fees and advisor payments?
  • Get a good feel for the advisor’s experience and track record?

It is typical to not perform even the most basic research when selecting a financial services advisor. That is why we chose to put together some information to help you make a more educated decision when selecting your next financial advisor.

Take just a few minutes to read through the tips included in this paper to help thoroughly research financial services advisors. You’ll have more sense of security and a stronger relationship with the advisor you feel is best for you and your family. After all, it is your future!

Due to a plethora of factors some of which are listed below, one could argue it has never been more critical to find yourself a quality advisor. These include:

  • Estate taxes are complicated
  • The number and complexity of insurance and investment products have increased substantially
  • The availability of corporate pensions has been reduced
  • The long-term benefits of Social Security are in doubt

When it comes to choosing a financial services advisor, performing some basic due diligence will go a long way to helping you select the appropriate advisor for you and your family. Below are some tips to start with.

Do a Background Check

A minimum amount of checking can yield some eye opening results. You might check these websites: or Both will allow you to run a background check on an advisor. Google the advisor’s name you are considering, and see if any complaints or negative issues come up. Most ethical advisors in the industry have either a completely clean record or one or two mishaps. If you discover that advisor you are considering has a higher number of complaints, that is a big red flag.

Ask to Speak to a Few Clients

An advisor is going to select among his best clients to talk to you, so almost all these calls should result in glowing recommendations. If advisors can’t supply two or three clients who are willing to talk to you, that is an indication that none of their clients are very happy with their work.

If an advisor is making some bold claims, then ask his current clients if they have seen the benefits of those claims. With investments, a classic move is to put in front of prospects what would have done well up to that point (technology in 1999, real estate in 2007). This “hindsight is 20/20” approach is not helpful to you going forward and is a sign of a less ethical advisor.

Ask How the Advisor Gets Paid

Charlie Munger (Warren Buffett’s partner) once said, “I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it.” The truth is, unless you know how your advisor gets paid, you can’t evaluate the biases of your potential advisor.

Many advisors sell commission products where they earn a 5-8% commission upfront. That means unless there is other business potential, the advisor has no incentive to follow up with a family and make sure their goals are being reached.

My preferred compensation structure for investments is to charge a percent of the assets under management. If the advisor is not holding up their end of the bargain, you can fire them at any time without having paid a large upfront commission.

Fee arrangements also have two more advantages:

  1. Your advisor is incentivized to nurture the relationship so he doesn’t get fired
  2. If your portfolio grows, the advisor’s compensation goes up with the account.

While no compensation arrangement is perfect, this goes a long way to putting your advisor on the same side of the table as you.

Warning: I’ve heard that some advisors disclose their fee only on a fee-based account. Realize the products they put you in (mutual funds, index funds, etc.) also have their own fees. When evaluating an advisor and how they would implement a portfolio, ask for an “all-in fee” in writing. If you don’t easily get straight answers, walk away.

Some advisors roll up their financial planning fee (their cost to develop a financial plan) into their portfolio management fee. In my opinion, this makes it more difficult to know what you’re paying for. Personally, my preferred structure is to charge a client a distinct fee for their financial plan, and then their portfolio management fee is just that—a portfolio management fee. An advisor who doesn’t charge a financial planning fee presumably puts a lot of time upfront (depending on the quality of their work) and then has to sell you something to recoup their costs. This doesn’t create the most objective environment.

Understand the Structure of the Products the Advisor is Selling

In the products you are buying, try to avoid long lock-up periods and complicated products.

The reason you don’t want long lock-up period is obvious: if you change your mind, you want to be able to get out. If a product is complicated and has so many bells and whistles that it is hard to understand, then pass. I’ve often seen a product’s complexity hide expenses. You’ll have higher conviction—and thus be better about sticking with your plan—if you understand what is going on. Here’s another pearl of wisdom from Charlie Munger: “Any time anybody offers you anything with a big commission and a 200-page prospectus, don’t buy it. Occasionally, you’ll be wrong if you adopt ‘Munger’s Rule.’ However, over a lifetime, you’ll be a long way ahead—and you will miss a lot of unhappy experiences.”

While there are no absolutes, you should be extra wary of the combination of elevated upfront commissions, long lock-up periods, and a complicated product.

Understand the Structure of the Firm that Employs Your Advisor

The structure of a firm for an advisor is important in several ways. First, it will determine what products they can access. On one end of the spectrum, you have firms that can only sell their own products. On the other end, you have what the industry calls an “open architecture,” where an advisor has access to not only their own firm’s products but also many other firms’ products. You need to understand which constraints the person you’re talking to is under. Related to the previous topic, you also want to ask if the advisor gets paid a higher amount for selling their own firm’s product. I’ll let you in on a little secret. . .most firms do this!

I don’t care how good a firm is—no single firm is “the best” at everything. It’s important to understand your advisor’s availability and incentive structure to use an “all-star” lineup.

Understand if the Advisor is a Fiduciary or a Broker

A good analogy for the difference between a fiduciary and a broker is a personal trainer and a fitness store salesman. The store salesman will likely be knowledgeable about equipment. He’ll ask you what you’re looking for and after a short conversation, try to sell you a piece of equipment. On the other hand, a good personal trainer will get to know you first – your goals, your lifestyle, your current health issues – and formulate an appropriate plan. Then they will stand side-by-side with you as you execute that plan. To a trainer, the value is not only in the equipment; that’s a means to an end. The value is in executing a custom plan. It’s easy to understand why the difference between the two can be dramatic, and why you should take the time to know if the advisor is a fiduciary or a broker.

Track Record/Performance

You want to find an advisor who’s going to give it to you straight, one who will under-promise and over-deliver.

For an advisor’s performance to be statistically meaningful, you need an extremely long track record (20+ years, depending on multiple vairables1). Good performance may just mean more risk. If an advisor had stellar performance in the late 90s with tech funds, that’s the last person you want managing your family’s money.

I’d be very leery of advisors who are championing investment performance as the primary reason for you to hire them. Investment performance is lumpy (everybody goes through cold periods), and luck plays a big role in the short-term. By definition, a diversified portfolio isn’t going to be able to shoot the lights out. As Nick Murray says, “Disciplined diversification is a deal with heaven. You’ll never make a killing, but you’ll never get killed, either.” If an advisor is touting fantastic performance and diversification at the same time, that’s oxymoronic.

It’s reasonable to expect your advisor to have a robust process to tilt performance odds in your favor and to control risk to a level that is emotionally bearable for you. The biggest determinants to reaching your goals will be your behavior around your portfolio (Do you panic in a bear? Do you chase the hot investment du jour?) and how good of a saver you are. A great advisor will focus on those things as much as what is in your portfolio.

The single best way to increase the odds of hiring the appropriate person to manage your portfolio is to take the time to understand the advisor’s process. Ask pointed questions, and if they make a bold claim, keep asking, “Why?” until you’re satisfied. If the advisor enjoys the back and forth and is willing to take the time to educate you, that is a fantastic sign. Having faith in the reasoning your advisors employs to manage your assets dramatically increases your odds of having a good fit and gives you the necessary patience during the performance winters.

At the end of the day, remember that your advisor is not a lottery ticket. As Warren Buffett said, “If somebody offers you a quick profit, answer with a quick no.”

Breath of Expertise

“Taking a comprehensive, holistic approach in order to provide integrated solutions.”

Russ Alan Prince surveyed more than 500 financial advisors and discovered that only 8.4 percent of them fit this description. Most of the advisors surveyed (79 percent) were investment generalists who described themselves as “offering a broad range of investment products but do not have a comprehensive planning orientation.1”

Most financial advisors silo themselves to one type of expertise. For example, a lot of advisors are primarily insurance or investments driven, which is great if that’s what you’re looking for. However, many families will want a “go-to” person who can help them with investment and insurance, as well as retirement planning, estate planning, charitable planning, business owner issues, etc. It’s a good practice to ask an advisor (before you tell them all about your situation) what areas they specialize in and what they habitually handle for their clients.

This is an area where there is no good or bad; it’s just important to find the right fit.

Experience & Designations

I’m very biased on this one, having spent my fair share of nights and weekends at Starbucks (which is always freezing—heck yes, I’ll have another coffee!) studying. I can’t imagine the way I would see the world if I hadn’t gone through that education. I’ve met older professionals with no designations who did great work, but they were what I call “students of the business.” I’ve also met some very nice older advisors who were great salespeople but did shoddy work for their clients.

That being said, if they have designations get an idea of how much work it took to attain them. Many designations in the industry only take a few weeks to attain. Some designations are very serious multi-year endeavors. You want to know the commitment their designations show and what kind of knowledge they picked up. An MBA can mean Harvard, or it can mean an internet course.

Munger said, “I’ve never met a wise person who doesn’t read all the time, not one.” Ultimately, you want someone who is a student of the business and is into continuous learning. You can ask some indirect questions to see if their being a “student of the business” comes out.


It’s important to have the right investment philosophy to fit your personality. If you have accumulated a lot of wealth and want conservativeness and protection, your advisor needs to have a similar philosophy. Personally, I’m a devout value investor in the Graham/Buffett philosophy, so if somebody wants an advisor who’s going to invest them in the hot stocks of the moment, I’m the last guy they should hire.

You also want to settle into a comfortable rhythm with an advisor who has a similar service philosophy. If you need a lot of hand-holding that your advisor cannot provide because he or she has 300 clients, then it won’t be a good long-term fit. Your advisor’s service should be proactive (life will get in the way of you following up on items) at a frequent enough interval to make you comfortable.

A Word on “Fee Only” Advisors

Given the legacy of conflicts of interest in the industry, there is a group of advisors who hold themselves out to be “fee only” advisors (meaning they don’t do any products that pay them a commission). While this goes a long way in reducing certain conflicts, it creates others. For example, there is no way to charge a fee on term insurance. Term insurance is a basic building block of protection for many families, and it’s a pain to do a plan through an advisor and then have to go somewhere else to implement the insurance.

Sometimes, a commission product really is the best solution for a client. You don’t want your advisor to not present something to you because they have boasted they are “fee only” and can’t backtrack on their word. I would advise your advisor’s compensation to be “fully transparent and understandable.” If an advisor is willing (in writing, so there’s no funny business) to explain his or her compensation openly, that is the best protection you can have.


Interview several people and at least a minimum of three. Make sure to keep notes and highlight what you found most positive about the interview. It is not a bad idea to do the same with the items you found least desirable.

At the end of the day, you need to put in a little bit of effort to find the appropriate advisor for you. Don’t leave it up to luck. The upside is that finding the appropriate advisor is immensely rewarding. It’s a relationship that can last for decades!

We have compiled a list of 10 best questions to ask an advisor. Contact us if you would like to have the list.



Loic LeMener

Loic LeMener, CFA®, MBA, CFP®, is the founder of Opus Wealth Management.