Money Talk with Malik | Financial Planning for Builders

Key Takeaways

Fee-only advisors charge a flat fee or percentage of assets; commission-based advisors earn money from selling products
Fiduciary advisors are legally required to act in your best interest; non-fiduciaries are not
Red flags include high-pressure sales, overpromising returns, and refusing to explain fees clearly
Ask about credentials (CFP, CFA), services offered, and how they get paid before hiring anyone
A good advisor should be able to explain their value beyond just investment management

How Do You Know If a Financial Advisor Is Actually Good

Hiring a financial advisor is one of those things most people do wrong. They get a referral from a friend, sit through a sales pitch, and sign up without asking the right questions.

A year later, they realize they're paying $10,000 per year for someone to put their money in a target-date fund and sell them whole life insurance.

I'm a financial advisor. I see this all the time. People hire advisors who aren't qualified, who charge too much, or who are basically just sales reps for insurance companies or brokerage firms.

Here's how to actually evaluate an advisor before you hire them.

Fee-Only vs Commission-Based: This Is the First Question

The way an advisor gets paid determines what they recommend to you.

Fee-only advisors charge a flat fee or a percentage of your assets under management. They don't earn commissions from selling products. Their only incentive is to help you grow your wealth because their fee is tied to your portfolio size.

Commission-based advisors earn money by selling you products. Life insurance, annuities, mutual funds with high expense ratios. Every time they sell you something, they get a commission. Sometimes that commission is 5% to 10% of the product value.

The conflict of interest is obvious. A commission-based advisor has an incentive to recommend products that pay them the highest commission, not products that are best for you.

This doesn't mean all commission-based advisors are bad. Some are great. But you need to understand the incentive structure.

When you meet with an advisor, ask: "How do you get paid? Are you fee-only, commission-based, or a mix?"

If they say "fee-only," great. Ask to see their ADV Part 2 (the disclosure document they're required to file with the SEC). It will list exactly how they charge.

If they say "commission-based" or "fee-based" (which means a mix of fees and commissions), ask what products they earn commissions on. If they won't tell you, walk away.

Fiduciary vs Suitability: This Is the Legal Standard

A fiduciary is legally required to act in your best interest. If they recommend an investment or strategy, it has to be the best option for you, not the option that makes them the most money.

A non-fiduciary advisor only has to meet the suitability standard. That means the recommendation has to be suitable for you, but it doesn't have to be the best option.

Here's an example. Let's say you need a low-cost index fund for your retirement account. A fiduciary would recommend a Vanguard or Fidelity fund with a 0.03% expense ratio. A non-fiduciary could recommend a similar fund with a 1.5% expense ratio because it's "suitable" for you, even though it's objectively worse.

Most people assume their advisor is a fiduciary. They're not. The majority of financial advisors in the US are not fiduciaries.

Ask: "Are you a fiduciary, and will you act as a fiduciary for all services you provide to me?"

If they say yes, get it in writing. If they say "sometimes" or "it depends," that means no.

Credentials: CFP vs CFA vs Just a Sales License

Anyone can call themselves a financial advisor. The title isn't regulated. You could start a business tomorrow, call yourself an advisor, and it's legal.

What matters is credentials.

The two main credentials are CFP (Certified Financial Planner) and CFA (Chartered Financial Analyst).

CFPs focus on financial planning. Tax strategies, retirement planning, estate planning, insurance. They're generalists. To get the CFP, you have to pass a rigorous exam and meet experience requirements.

CFAs focus on investment management and portfolio analysis. They're specialists. The CFA exam is one of the hardest professional exams in the world (three levels, pass rates around 40-50% per level).

A good advisor usually has one or both of these credentials.

If they don't have a CFP or CFA, ask what they do have. Series 65 or Series 66 (investment advisor license) is a minimum. Series 7 (stockbroker license) means they can sell securities but it's not a planning credential.

If they have no credentials at all, they're probably just a sales rep.

Red Flags That Mean Walk Away

Here are the things that should make you leave the meeting immediately.

High-pressure sales tactics. "This offer is only good today." "You need to sign up now or you'll miss out." Real advisors don't do this.

Overpromising returns. "I can get you 15% per year guaranteed." Nobody can guarantee returns. If they say they can, they're lying or breaking the law.

Refusing to explain fees. If you ask how much they charge and they give a vague answer or change the subject, walk away. Fees should be crystal clear.

Pushing whole life insurance for everyone. Whole life has a place in some situations, but it's not right for most people. If the first thing they recommend is whole life insurance, they're probably earning a huge commission on it.

Claiming to "beat the market" consistently. Nobody beats the market long-term except a handful of professional investors. If your advisor says they can, they're either delusional or dishonest.

No clear process. A good advisor should be able to explain their process in simple terms. How they build a financial plan. How they choose investments. How often they review your situation. If they can't explain it, they don't have a real process.

Questions to Ask Before You Hire Anyone

Here's the list of questions I tell people to ask.

How do you get paid? (Fee-only, commission, or both?)
Are you a fiduciary?
What credentials do you have? (CFP, CFA, Series 65, etc.)
What services do you offer beyond investment management? (Tax planning, estate planning, insurance review, etc.)
How often do we meet, and what does a typical meeting look like?
What is your investment philosophy? (Active vs passive, index funds vs individual stocks, etc.)
How do you handle conflicts of interest?
Can I see a sample financial plan you've created for a client?
What is your total fee, including any underlying fund expenses?
Can I see your ADV Part 2? (The legal disclosure document.)

If the advisor can't answer these questions clearly, they're not the right advisor.

What a Good Advisor Actually Does

A lot of people think a financial advisor's job is to pick stocks and beat the market. That's not what good advisors do.

A good advisor does financial planning. They look at your entire financial picture. Income, expenses, taxes, retirement goals, insurance needs, estate planning. They build a plan that covers all of it.

Investment management is just one piece. And for most people, investment management is simple. Low-cost index funds, asset allocation based on your risk tolerance and timeline, rebalancing once or twice a year. That's it.

The real value of an advisor is everything else. Tax strategies. Retirement planning. Making sure you're not overpaying for insurance. Helping you decide when to exercise stock options. Walking you through big financial decisions like buying a house or changing jobs.

If your advisor is only managing your investments and you're paying 1% per year, you're overpaying.

How Much Should You Pay

Fee structures vary. Here are the most common:

Assets under management (AUM). The advisor charges a percentage of your portfolio. Typical range is 0.5% to 1.5% per year. On a $1 million portfolio, that's $5,000 to $15,000 per year.

Flat fee. The advisor charges a fixed annual fee regardless of your portfolio size. Typical range is $2,000 to $10,000 per year depending on complexity.

Hourly. The advisor charges by the hour, like a lawyer. Typical range is $150 to $500 per hour.

Retainer. The advisor charges a monthly or quarterly retainer for ongoing planning. Typical range is $200 to $500 per month.

Which is best depends on your situation. If you have a large portfolio ($1 million+), AUM can be expensive. A flat fee or retainer might be cheaper.

If you have a small portfolio but complex planning needs (stock options, equity compensation, tax strategies), a flat fee or hourly rate is better than AUM.

Don't pay more than 1% AUM unless the advisor is providing a ton of additional services. And make sure you understand exactly what you're paying for.

What If You Already Have an Advisor

If you already have an advisor and you're not sure if they're good, ask yourself these questions.

Do I know how much I'm paying in total fees? (Including fund expenses.)

Has my advisor explained their investment strategy in plain English?

Do I meet with my advisor regularly, or only when I call them?

Has my advisor helped me with anything beyond just managing my investments?

Do I feel like my advisor is trying to sell me products, or trying to help me?

If the answers are mostly no, you might want to look for a new advisor.

Summary

Fee-only advisors are paid by you. Commission-based advisors are paid by the products they sell. Understand the difference.

Fiduciaries are legally required to act in your best interest. Non-fiduciaries are not. Always ask.

Credentials matter. CFP and CFA are the gold standards. No credentials means they're probably just a sales rep.

Red flags include high-pressure sales, overpromising returns, and refusing to explain fees.

A good advisor does financial planning, not just investment management. If you're only getting investment management, you're probably overpaying.

Ask the 10 questions before you hire anyone. If they can't answer clearly, keep looking.

How to Evaluate a Financial Advisor: Red Flags and Questions That Separate Good Advisors from Sales Reps