top of page

How to Choose an Advisor

The door is wide open for almost anybody to enter the financial industry. The General Securities Representative Exam (Series 7) requires no formal education or experience. It is only 125 questions, and only 72% of those must be answered correctly to pass. 

There are, of course, far more rigorous degrees and credentials that can be earned. But how do you sort through those qualifications? 

wordcloud (1).jpg

1. Education


Would you have dental work performed by someone who had not graduated from dental school? Would you have a medical procedure performed by someone who was self-taught? Would you even feel comfortable driving across a bridge designed by someone without a degree in engineering?

Surprisingly, the financial industry is populated by many without education in finance, economics, or accounting. The depth of existing and emerging knowledge in these fields is immense. For those who have devoted many years to their own financial educations, it is shocking that others would attempt to practice without it. Your life savings is at stake. Please strongly consider the education and fields of specialization of your potential investment advisor.

2. Credentials


As of 2021, the Financial Industry Regulatory Authority (FINRA) lists 214 different certifications used by those practicing in the financial industry. Of those, 121 certifications begin with the letter "C." Some certifications are very easy to earn, and others are extremely demanding and require many years of education, experience, and continuing education. How do you differentiate among them?

  • Chartered Financial Analyst (CFA): The premier credential in investment analysis and portfolio management, the CFA charter recognizes the completion of a rigorous multi-year series of examinations. Earning the CFA charter requires a minimum of four years of work experience in the field of investment management. After earning the charter, CFA charterholders stay current in the investment field through local societies and continuing education, including the latest investment research published quarterly in the Financial Analysts Journal, one of the top research and practitioner journals in the field of finance. 

  • Certified Financial Planner (CFP): Like the CFA charter, earning the CFP designation requires formal education, testing, and experience. Maintaining the designation requires 30 hours of continuing education every two years. Unlike the CFA charter, the focus of the CFP is more on financial planning than on investment analysis and portfolio management. Still, it is a widely respected credential and might be a good fit for you and your needs. The credential is governed by the Financial Planning Standards Board. Note that the CFP credential is widely used by both fee-only advisors and commission-based brokers, so that remains an important consideration, as discussed below.

  • Certified Public Accountant (CPA): Generally, CPAs are not specifically trained in investment management or financial planning. However, the AICPA  offers some additional credentials to CPAs. The Personal Financial Specialist (PFS) credential focuses on financial planning issues and the Certified in the Valuation of Financial Instruments™ (CVFI™) credential focuses on valuing investment securities. Earning a CPA license requires passing four intense exams and completing 2,000 hours of work experience under a licensed CPA. It also requires a Master's Degree or equivalent, one of the highest thresholds of all financial credentials. Those education credits must be predominantly in business and accounting. Maintaining a CPA license requires 120 hours of continuing education every three years. That intense and ongoing training is extremely valuable in understanding company financial statements and most important, understanding the tax implications of your financial decisions. 

What all of the above credentials share is a focus on education, experience, continuing education, and ethics.

Background on these and all other financial credentials can be found here:

3. Compensation Model


It is very important that your financial success and your advisor's compensation model not be in conflict. There are two basic business models in the investment industry:

Broker-Dealers constitute the bulk of the retail investment industry. Their representatives have gotten away from calling themselves "stockbrokers" and now often call themselves "advisors," even if they are not associated with a Registered Investment Advisory firm, as described below. The compensation model for this segment of the industry is largely commission-based and may also include annual management fees, front-end, periodic, or back-end loads, proprietary fund fees, and underlying fund marketing fees. The legal obligation is to provide "suitable" investments to the client, but the standard gives broad leeway in determining that suitability.

Registered Investment Advisors are firms that are authorized to provide investment advice under the Investment Advisors Act of 1940.  The Act was designed to eliminate abuses by "unscrupulous tipsters and touts" in the securities industry which were found to have contributed to the stock market crash of 1929 and the depression of the 1930s. The firms registered under the Act were (and still are) required to act in the best interest of the client. This fiduciary relationship incorporates the duties of care and loyalty. There have been attempts to impose these stricter standards on Broker-Dealer firms, but to date, those efforts have been unsuccessful. It is up to the client to differentiate between these two types of entities.

There are, of course, good, competent, ethical advisors in both of the above categories. You can check out brokers at and advisers at


But a key difference to keep in mind is the impact of the compensation structure on your long-term investment returns. The broker-dealer model depends on relatively higher fees to cover higher overhead and multiple layers of profit centers. The impact of fees on long-term returns can be dramatic:

Fees over a lifetime graph.JPG

A typical broker-dealer client might pay a 1% annual management fee, another 1% (or much more) in annual commissions from trading, and another .5% to 1% in annual proprietary active fund fees. Combined fees of 2.5% to 3%, most of which are not transparent to the client, are not unusual.

In contrast, our fees range from 0.5% to 1% of assets, with no commissions, loads, or proprietary fund fees. Annual expenses on low-cost index funds are as low as 0.05%, and even actively-managed ETF fees can usually be kept under 0.5%. Individual stock and bond holdings have no ongoing fees at all. Combined, a 1% annual total fee structure is, if anything, on the high side. The difference over a lifetime of savings is illustrated in the above chart. For an individual (or couple) who starts saving at age 24 and saves 10% of income every year (please try to do this!) until age 65 will accumulate about $1.7 million by retirement if fees are kept to 1% per year. If fees are 3% per year, that figure is almost $600,000 less. That is the cost of paying higher fees over a lifetime. (This is for a college graduate starting out at an income of $50,000 per year (the approximate 2020 average), with 4% average annual increases and 7% average annual investment returns.) The accumulated dollar amount would, of course, be less if annual income is less, and more if annual income is more. But the relative impact of higher fees would be the same. And it is large. Wouldn't an extra $600,000 come in handy in retirement? 

You are probably not 24 years old and are probably already significantly along the curve. But still, the impact of fees on investment performance and your future wealth is substantial.

In selecting an advisor, please pay close attention to the compensation arrangement and fee schedule!

bottom of page