Your Financial Advisor: Friend or Foe

Image by: Leo Reynolds

Image by: Leo Reynolds

The volatile market of 2008 highlights the importance of focusing on controllable variables. A basic factor investors often overlook is the value added by their financial advisor. Here are five questions to ask your financial professional:

1. What education does your advisor possess?

Insurance representatives, annuities salespeople and stockbrokers all refer to themselves as “financial advisors.” Are these individuals qualified to provide objective, comprehensive financial advice and act in their clients’ best interest? While these salespeople are well equipped to illustrate how their particular product is appropriate for any given client, they may not have the education or financial motivation to present possibly superior alternatives.

The Certified Financial Planner (CFP™) designation is widely recognized as the “platinum standard” of financial planning expertise. Unfortunately, only seven percent of “financial advisors” are CFP™ certified. A CFP™ has the education, knowledge and access to financial tools necessary to evaluate all potential investment options and make recommendations based on an individual’s specific circumstances.

2. How is your advisor compensated?

It is important to realize your advisor’s behavior is influenced by his or her compensation. Advisors are generally paid either by commission on products sold or by fees charged to their clients. Commissioned advisors have financial motivation to sell products that may not be the best option for their clients. Fee-only advisors are prohibited from collecting product commissions and are exclusively compensated by their clients. Thus, a fee-only planner’s compensation encourages objective advice and behavior that is always in the client’s best interest.

Know how much you pay your advisor. Remember that your advisor’s compensation is in addition to the fees charged by your actual investments. Total fees, covering both your investments and advisor, should be less than two percent.

3. Does your advisor act as a fiduciary?

Planners who accept a fiduciary responsibility to a client are legally obligated to act in that client’s best interest. Advisors that don’t accept a fiduciary responsibility only commit to act in a manner which does not harm their client. Big difference! If your advisor isn’t familiar with the term “fiduciary,” look elsewhere.

4. Does your advisor provide adequate service?

When was the last time your advisor called you? Is your advisor aware of changes in your goals, family, or personal situation that would affect your financial future? Advisors must be up-to-date on the rapidly changing lives of their clients and should meet with their clients at least once per year.

Service is impacted by compensation. Commissioned advisors generate income by continually selling products to new clients. Consequently, they often don’t have time or motivation to adequately service previous customers. When the advisor is only compensated by the client, the advisor has tremendous motivation to continually exceed client expectations.

5. Does your advisor provide you with a comprehensive financial plan?

A financial plan detailing insurance needs, investment options, tax consequences, retirement projections and estate planning should be the basis of all financial action. Having a comprehensive long-term plan will minimize emotion and emphasize logic when making financial decisions. However, beware of financial plans that are simply a sales pitch. A financial plan should be objective in nature and investment decisions should be based on the plan; the plan should not be a tool to steer you toward predetermined and limited investment options.

Enduring today’s market is challenging. Make sure you have an educated and knowledgeable financial advisor who is compensated to act in your best interest and has financial motivation to ensure your perpetual satisfaction.

About the author

Lon Jefferies, CFP®, MBA

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a Certified Financial Planner (CFP®) and a member of the National Association of Personal Financial Advisors (NAPFA). He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Utah CEO, Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as and (by The Wall Street Journal). Additionally, Lon is an expert author at Lon has been quoted nationally in publications such as the NY Times and Investment News.

Lon can be contacted at (801) 566-0740 or Learn more about Net Worth Advisory Group at and visit Lon's blog at

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