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Hiring a Financial Advisor

Hiring a Financial Advisor

March 12, 2019
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Managing all the things life throws at you is tough on its own, but add to that managing your finances, no wonder we’re all stressed and sleep-deprived. Sometimes, it can be beneficial to hire an expert.

In this article, we’re going to explain the duties and responsibilities of a financial advisor. As well as the benefits and what to look out for.

What is a financial advisor?

A professional that provides advice and services for your finances. They will often create financial plans that include short-term and long-term goals, retirement planning, estate planning, investment management, insurance coverage, and more. However, many will provide these services outright instead of writing it up in a plan.

Most financial professionals, in some form or fashion, have to complete a licensing examination. This enables them to sell products, services, and advice to prospects and clients.

Here are the most common tests.

  • Series 6 - Sell mutual funds, variable annuities, and insurance
  • Series 63 - State regulation license. Enables you to transact business in your state
  • Series 65 - Investment Advisor. Allows you to provide advice, plans, etcetera for a fee
  • Series 7 - Sell a variety of investments including stocks, bonds, mutual funds, options, and more

Keep in mind that financial advisors can also go by different titles. Here are the more common ones.

  • Financial Consultant
  • Registered Representative
  • Financial Planner
  • Investment Advisor Representative
  • Wealth Manager

Legal responsibilities

  • Fiduciary Standard - Requires the financial advisor to act in their client’s best interest before their own. Most common for professionals that charge a fee for their service, as opposed to charging a commission for selling a product.
  • Suitability standard - This requires the professional to make sure that the product they are recommending is appropriate given the client’s risk tolerance, goals, time horizon, and financial profile (income, net worth, tax bracket, etc.)

Here’s the difference.

If a financial advisor meets with a client, and after reviewing that client’s necessary information (suitability) he recommends a mutual fund. Prior to that recommendation, he reviewed the mutual funds appropriate for that client.

All else being equal, the only difference is one would pay the advisor a 5% commission and the other would pay him 2%. The advisor operating according to the suitability standard could pick the 5% because he did his legal duty in recommending something appropriate. The advisor working as a fiduciary would choose option C and pick the mutual fund with no sales charge because he’s charging a fee.

This makes sure the client receives the best fund available for their situation.


There are several ways an advisor can charge for their services.

  • Commission - Charged by advisors when they sell a product. Commissions on annuities can get as high as 8%. Other products, such as mutual funds, ranging from 2% to 5.75%. Most funds, however, offer breakpoints. Meaning, the more you invest with that fund family, the lower the sales charge.
  • Wrap accounts - Set up when an advisor manages a client’s assets for a fee, as well as providing advice to the client without an extra fee. This fee is charged as a percentage of the client’s assets, with the average at 1% annual.
  • Retainer fees - A retainer fee is when an advisor charges you a monthly fee for the services they deliver throughout the year.
  • Plan fee - When a financial advisor charges a set fee to write a detailed financial plan. Typical costs for this type of fee structure is $1,000 to $3,000 per plan.
  • Additional expenses - The last thing I want to mention about fees has to do with the cost of investing. If your advisor is utilizing mutual funds and/or ETFs, it costs money to run those funds. This is listed in the “expense ratio” section. You’ll want this number to be as low as possible. Not to mention it also costs money to make trades, as well. (*Note: these aren't collected by the advisor)


There are many benefits to working with a financial advisor.

  • Stick to plan - When the market is in a downward spiral, it’s human nature to want to sell what you own and wait until the bleeding stops. An experienced advisor will reassure that it’s more beneficial (situation dependent) to stay in the market, even during a downturn. Most people wait too long to sell and have encountered most of the drop already. Similarly, when it’s time for them to get back in, they are often too scared from the recent drop to do that effectively.
  • Better overall understanding of finances - A financial advisor is someone that lives and breathes finances. They should have a good grasp on a variety of financial topics, and may even specialize in certain areas.
  • Specialties in certain areas - There are advisors that specialize in estate planning, individual retirement plans, business retirement plans, personal finance, and more.
  • The objective point of view - If you are discussing finances with your spouse or other family members and you have different points of view or different money philosophies, your advisor can act as a mediator.

What to watch out for

That said, there are a few things you should watch out for.

  • Fiduciary responsibility - In my opinion, it’d be wise to hire a financial advisor that is labeled as a fiduciary. If they are a fiduciary, they’ll charge a set fee for a plan or services.
  • Conflicts of interest - If you are a client and being charged a fee for the advisor’s services, you should not also be charged a commission when they sell products. This would constitute a conflict of interest.
  • Professional designations - If the advisor has letters after their name, such as CFP, CFA, ChFC, then they went through more schooling and examinations to obtain those letters. Some of these designations come with their own advisory board charged with the goal of trying to ensure that their designees are acting according to their rules and regulations.

For a long list of designations, check out this list on FINRA’s website.


Not all financial advisors are created equal, so it’s important to do your homework when you decide to hire one. However, when you do begin working with one and establish a relationship with them, they can make your life a whole lot easier. Not only that, but they should be able to help you make progress on your financial goals.

To learn more about how we operate here and the services we offer, drop me a line!