Finding the Right Financial Advisor: Why It’s So Hard (and How to Succeed) 

“I think it’s very important to have a feedback loop, where you’re constantly thinking about what you’ve done and how you could be doing it better. I think that’s the single best piece of advice: constantly think about how you could be doing things better and questioning yourself.” — Elon Musk 

You’re navigating a financial landscape that’s more complex than ever before. Perhaps you’ve experienced a significant life event – a new job, a growing family, an inheritance, or even just the realization that your financial decisions are no longer simple. You’re facing choices you’ve never had to make, and your unique situation means that what worked for a friend or family member might not work for you. 

The significance of these decisions cannot be overstated. A series of missteps now can have profound, long-lasting effects, impacting your quality of life for decades to come, perhaps even forever. This isn’t a time for guesswork or relying solely on intuition. The stakes are too high. 

 This is why you need a financial advisor. More specifically, you need the right financial advisor. Your true challenge isn’t whether to seek advice, but how to effectively find the appropriate professional who possesses both the experience and expertise to understand and guide you through your unique financial circumstances. Unfortunately, many people stumble at this hurdle, especially during their first attempt. 

Part of this difficulty stems from the very nature of the financial advice profession itself. There are two significant deficiencies that make it particularly opaque and challenging for the public to navigate. 

The First Deficiency: A Labyrinth of Standards, Not a Single Path 

Consider the medical or legal professions. While there are specialists within each, there’s a clear, undeniable, and universally required standard that every doctor or lawyer must meet to practice. You know they’ve passed rigorous bar exams or medical boards. This foundational standard provides a baseline of trust and competence. 

In the financial advice world, this simply isn’t the case. While highly respected designations like the Certified Financial Planner™ (CFP®) certification and the Chartered Financial Analyst® (CFA®) charter exist, and indeed boast great attributes, they are not universal nor required standards for all who call themselves “financial advisors.”

 The Proliferation of Designations: There are scores of different designations for financial planners and advisors. Each varies wildly in terms of the professional preparation, education, and experience required. Some involve extensive coursework and exams, while others can be obtained with minimal effort. This creates a confusing alphabet soup for the average consumer trying to understand an advisor’s qualifications. Without a universal standard, it’s incredibly difficult for you to discern what level of expertise or ethical commitment each designation truly represents. 

• Competence is Not Guaranteed by Designation Alone: You will find many excellent financial advisors who do not hold a CFP® or CFA® charter. Conversely, possessing these certifications doesn’t automatically guarantee that an individual is the “best” advisor for your specific needs. While these designations certainly indicate a commitment to professional development and a certain level of knowledge, they don’t encompass the full spectrum of what makes an advisor effective – such as their communication style, their understanding of niche financial situations, or their personal integrity. 
• Investor Protections, But No Universal Bar: While investor protections have certainly improved in recent years, the absence of a single, universal standard for all advisors leaves a gap. It means that the responsibility is largely on you, the client, to meticulously vet credentials and understand what each one actually means, rather than relying on a baseline level of assurance. 

This fragmented landscape of qualifications means that simply seeing a string of letters after an advisor’s name isn’t enough. You need to dig deeper to understand their true capabilities and how they align with your specific needs. 

The Second Deficiency: Opaque and Non-Standardized Fees 

Beyond the confusing array of qualifications, the financial advice profession also lacks standardized fees based on client needs or the scope of engagement. This stands in stark contrast to other professional services, creating significant difficulty for the consumer. 

• A Contrast with Medicine and Law: 

• Medicine: While medical costs can be notoriously opaque, there’s a general understanding that a general practitioner costs less than a specialist, and a hyper-specialist even more. Furthermore, government standards and insurance companies exert some control over these costs. Even when we try to manage these costs ourselves, we often fall short, but the underlying structure is more predictable. 

• Law: The cost of an attorney’s time varies widely, but clients generally know the hourly rate or project fee before signing an engagement letter. Even with legal assistance programs, costs are typically transparent upfront. 

• The “No Cost” Illusion: In financial advice, when you hear an advisor say their service “doesn’t cost you anything,” a red flag should immediately go up. This usually means they are compensated through commissions embedded in the products they sell, particularly insurance products. These products often come with “surrender charges” – penalties if you withdraw your money within a certain timeframe – which are essentially hidden costs. The advisor’s compensation in these scenarios is tied to the sale of a product, not necessarily to ongoing, holistic advice tailored solely to your best interest. 

• Layers of Fees: Even if a financial planner quotes an annual fee (often a percentage of assets under management, or AUM), you must ask: Does this include all fees? As we’ll explore in future discussions, there can be many layers of fees: the advisor’s fee, mutual fund expense ratios, platform fees, trading costs, and more. These can accumulate quickly and significantly erode your returns over time. In many cases, these underlying product costs are completely out of the advisor’s hands, yet they directly impact on your net returns. 

• Competency and Cost Disconnect: Crucially, the cost mechanism often has no direct correlation with the advisor’s competency or experience. A highly experienced, ethical advisor might charge a similar fee to a less experienced one, or vice versa. The fee structure itself doesn’t guarantee quality or suitability. 

This lack of transparency makes it incredibly challenging for you to compare advisors’ apples-to-apples and truly understand the total cost of the advice and products you’re receiving. 

The Business of Advice: Understanding Advisor Motivations 

Beyond standards and fees, understanding the underlying business models of financial advisors can shed light on their motivations and how they operate. Many advisors, like doctors or attorneys in private practice, often lament that they received little to no business training in their professional schooling. They had to learn how to run a practice on their own, which impacts everything from client acquisition to service delivery. 

Let’s consider different compensation models and their inherent challenges: 

• The Commission-Based Advisor: This model is often associated with insurance agents. Their business cycle is typically: find a new client, discover an appropriate product (often an insurance policy or annuity), present the product, collect a commission, and then move on to the next “find another client” phase. There’s nothing inherently wrong with this model, provided the product is genuinely appropriate for the client’s needs and the advisor acts ethically. However, the constant need for new sales can sometimes create a bias towards products that generate higher commissions, rather than those that are truly optimal for the client. 

• The Asset-Based Fee Advisor (AUM-based): Advisors charge a percentage of the assets they manage for you. While this aligns their success with yours (as your assets grow, so does their fee), transitioning to this model can be economically challenging for an advisor. The fees from new investment assets are often modest initially. Advisors either go through one or two lean years, sacrificing immediate commission income for future consistency, or they try to do both commission and fee-based business simultaneously, effectively working twice as hard. This dual approach can sometimes create conflicts of interest if not managed transparently. 

• The Fee-Only Advisor: These advisors are compensated solely by fees paid directly by the client, typically an hourly rate, a flat fee for a plan, or a percentage of AUM, but they do not earn commissions from selling products. While this model is often seen as having fewer conflicts of interest, it presents its own set of challenges for the advisor. They are constantly looking for more assets to manage (if AUM-based), deciding on appropriate fees for planning services, and diligently keeping existing client’s content. This involves meticulously matching clients to appropriate investment selections, continuously monitoring those investments, and staying abreast of evolving client needs. Add to this the increasing regulatory requirements and product complexity, which drive up administrative workload. 

This administrative burden can lead to significant time management issues for the advisor. If their ultimate goal is to find new assets or clients, they need to find time for both the necessary administrative work (which is often low-pressure but time-consuming) and business development (which involves sales work, daily rejection, and frustrations). This internal conflict can lead to motivational problems, where an advisor might rationalize that they don’t really need new clients and can simply provide more service to existing ones, hoping for referrals. While referrals are great, a lack of new client acquisitions can indicate a practice that isn’t growing or evolving. 

Your Path to a Better Choice 

 The financial advice profession is complex, with inherent structures that can make it difficult for the public to find the right guide. By understanding the nuances of advisor qualifications, fee structures, and business models, you empower yourself to ask more insightful questions and make more informed decisions. 

Remember, choosing a financial advisor is a profoundly personal and important decision that will impact your financial well-being for decades. Take your time, do your due diligence, and focus on finding a professional whose expertise, transparency, and approach truly align with your unique needs and goals. 

This post is an adaptation of a chapter from my upcoming book, “How To Fire A Friend” designed to help you navigate the complexities of financial advice. 

*Note: For more detailed information and sources, please click on the embedded links throughout the text. 

About Michael Ross 

Michael Ross is a 30+ year veteran financial advisor. After 30 years with Morgan Stanley, he is now an independent financial advisor who excels in helping business owners exit their businesses and move to the next phase of their lives. 

 Advisory services are offered through Integrated Advisors Network LLC, a registered investment advisor. 

Learn more: www.mylatticewealth.com 

Disclaimer: 

The information provided in this blog is for informational purposes only and should not be construed as financial advice. It is important to consult with a qualified financial advisor to discuss your specific financial situation and goals. Past performance is not indicative of future results. Investing involves risk, and there is always the potential for investment loss.