Finding the right financial advisor is hard work.  There is no database that matches both competencies and personalities of advisors to clients. You are left with trying to use titles and compensation arrangements to find that needle in a haystack. What makes this worse is that as your wealth grows, you need a different haystack. 

Jessica is in a networking group that gives her resources for her client’s varied needs.  We have never met personally, but I see her all the time on networking zoom calls.  During the pandemic she and her husband moved from the San Francisco Bay area to a town between Reno and Carson City Nevada. When we have one-on-one e-mail dialogues, she is bright and cheery and always finishes her e-mails with “Happy. [fill in the blank with an obscure holiday] Day!” 

On one occasion, it was clear to me that Jessica was shopping for a financial advisor.  Perhaps a client needed someone. Like most of the public, she thinks every advisor does the same thing. (The industry does not help her in her search, because most financial advisors will say they do everything for everyone also.) When she googles “how to find a financial advisor,” the search engine says to find “someone who is a fiduciary.” 

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Perhaps the greatest compliment a colleague can give you is to recommend you to their closest friend. Pamela was that type of referral. Pamela was a college buddy of one of my friends, Janet. Pamela is a single mom who has been working for the same phone company for over 25 years. She works at least 40 hours a week dealing with customers’ technical problems. She has a high school daughter and a younger, special needs son. While she has a support team around her, they are unreliable, and she ends up doing most things herself. This includes decorating her house, and cooking for her family at holidays. She is well paid and saves plenty of money but spends very little time watching the money she has saved.  

When Janet discovered Pamela had nearly a half a million dollars in cash sitting in a checking account at Wells Fargo, she introduced us. But, through a series of conversations, it became obvious that the first thing Pamela needed was life insurance.  With her two young kids and a million-dollar mortgage; she needed life insurance for the next 10 years to pay off that mortgage. 

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Deborah is a long-time client who has made herself wealthy through plain old hard work.  She was referred to me by the tax preparer of another client with whom I’d become a resource. The occasion was her departing from a chocolate retailer and having a modest 401k account to roll over into an IRA. Deborah has always been single and was in her 30s when we began working together. 

Early on, from very open-ended conversations, I learned she owns a couple of rentals and her own house, as well as her investments.  But recently we were discussing buying another house and I asked to see a fresh copy of all of her assets. In this review I discovered a life insurance contract that I was up until then unaware of and asked about it.  Her description rang with frustration—about the contract, the agent and the company who underwrote the insurance.  Could we do something about this? 

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These three stories illustrate why I call “Fiduciary” and “Fee Only” the profession’s F words. 

Asking a financial advisor “Are you a fiduciary?” is like “does your family know that you rob banks,” it is a premise without foundation. 

Here’s a definition of fiduciary: 

“The term fiduciary refers to a person or organization that holds a legal and ethical duty to act in the best interests of another party, known as the principal or beneficiary. Fiduciaries manage money, property, or other matters requiring trust and confidence. Fiduciaries are loyal, act in good faith, and confidentiality, avoiding conflicts of interest and prioritizing the beneficiary’s interests over their own” 

Nowhere in this definition is there an assumption of competency.  So, I did the natural; thing and asked where the concepts of “Fiduciary” and “Competency” intersect. 

“Competency and fiduciary responsibilities interact significantly, as fiduciaries must be able to fulfill their duties effectively. Competency is integral to the Duty of Care, which requires fiduciaries to make informed decisions by thoroughly understanding and analyzing relevant information. This involves exercising sound business judgment and due diligence, similar to what a prudent person would do in comparable situations.”  

(*Site source Perplexity) 

 Now, remember, Jessica is not necessarily financially sophisticated when it comes to investing. How can she know that the fiduciary is also competent in the skill set? 

Well, she can: 

1. Review Credentials and Certifications: Check for professional designations that require specific expertise.  
2. Assess Experience and Background: Investigate the fiduciary’s education, work history, and references to ensure they have relevant skills.
3. Review Transparency and Documentation: Competent fiduciaries document decisions, disclose conflicts of interest, and explain their processes clearly. 
4. Use Oversight Tools: Organizations often provide tools to assess fiduciary performance, ensuring compliance with duties like care and loyalty. 

(*Site source Perplexity) 

Wow.  Jessica is simply trying to make a referral.  The four points above sound like a full-time job! Now, what about those oversight tools she needs to use: 

1. Fiduciary Focus Toolkit™: This tool monitors advisor activities against prudent practices, automates processes, and generates reports for better oversight and compliance. 
2. FORT Tool: Helps plan sponsors delineate responsibilities, identify tasks that can be delegated, and mitigate risks from omissions. 
3. Fiduciary Assessments: Evaluates advisors’ due diligence, documentation, and adherence to investment standards, including tools like the fi360 Fiduciary Score. 
4. Benchmarking: Measures of fiduciary performance against relevant benchmarks to track long-term goals and portfolio success. 

(*Site source Perplexity) 

This is even more work! In fact, this sounds like a job description for a professional drawing a meaningful salary.   

What about that other F word? 

Extensive research on the percentage of “Fee Only” financial advisors in the United States does not get us to a conclusive answer. Both Pamela and Deborah need to get a problem solved. My compensation will not be a fee, it will be a commission.   What I am saying is they really don’t care how I get paid; they just want their problem solved.  Whether it a “fee” or a “commission” is irrelevant. 

Is this wrong? Here’s a list of different types of financial professionals and how they are compensated.  Seems like all of these professionals can either exercise a duty of care, or not.  How they are paid is incidental. 

1. Insurance.  My friend George is a New York life insurance agent.  He helps young families who need to make sure that if their income source passes away, the dependents will have money to survive.  He also works with business owners who want to provide for their employees. He sells life insurance. This is generally a commission-based product.  The consumers, with Georges help and mine, should review not just the cost, but also many other details of the product. 
2. Real Estate purchases.  My friend Belinda is a realtor.  Her days are spent working with buyers and sellers trying to help buyers find a home and sellers get a good price for something they are selling.  This takes a lot of time! Like insurance, this is a commission-based product.  The consumer has a wide range of choices in how they buy and sell real estate for both personal and investment purposes. With Belinda and me, they should compare options. 
3. My friend Casey is a mortgage broker.  As you are aware, there are an enormous number of mortgage options available to Americans. There are dozens of options and even more banks and institutions who want you to use their products.  Along with many other factors, the consumer should compare pricing options with Casey and me. 

Note: I purposefully brought the first three investment experiences into this narrative to demonstrate how useless it is to put financial advice into a business model. The mechanism to pay for services should be an important but not primary dimension of the investment decision. 

4.Investments.  If you insist on a “fee only” approach, you can find an advisor who has products offered in this fashion. In some cases, you see the amount you are billed.  In other cases, you do not. Depending on who that advisor works for, there might also be products that charge a commission. Depending on the advisor, they may or may not offer these commission-based products 

My message here is that like you mom told you, you shouldn’t use the “F-word!” Have several conversations with the advisor.  Talk to multiple advisors.  Ask tough questions. See how well you communicate. Then decide if they are a match.  This has much more to do with specific competency and personal chemistry than how they are compensated.    

Jessica should refer investment professionals to clients where she is comfortable with their competency and with a belief that there is a personality match.  Knowing specifically the type of client an advisor works with, what kinds of investment products they utilize with those clients and perhaps even the type of client experience with a specific advisor is the key. 

Pamela and Deborah need a problem solved.  They both know the financial professional will be compensated for their time.  They seek a “Standard of Care,” not a business model. 

Conclusion: don’t rely on the F-words as the quick way to hire a financial advisor.  Doing the work, it could save you thousands, or even tens of thousands of dollars over time. 

*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. 

  Investment Advisory Services offered through Integrated Advisors Network LLC (Integrated), a Registered Investment Advisor. Registration does not imply a certain level of skill or training. 

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.