How To Select A Financial Advisor


Because we weren’t taught much about money in school, most of us run around naked as adults, before embracing the first person who hands us a towel to drape over our streaking bodies.

It’s best not to go out in the buff in the first place. When looking for a financial planner, don’t be the exposed one. Put yourself in a position of power. It’s the least you can do for yourself.

For starters, the industry is filled with really personable people. If they have a reputation for being “successful” that means they smile nicely, return phone calls, they’re really polite, and they’re walking epitomes of Dale Carnegie’s masterpiece, How to Win Friends and Influence People. Your community members will probably love them, they’ll come with “touchy/feely” referrals, but none of them will likely accompany a suitable benchmark of performance—one that really determines whether an advisor is a “nice guy/gal” or a true investment professional. It’s a good thing we don’t measure airlines the way most people measure financial planners:

“Oh Gertrude, yes, everybody loves them. They’re so kind when checking in, and they serve the best onboard peanuts. Too bad they dropped us off 1000km from our destination.”

Here’s the rub. Most people, when hiring an advisor, don’t have a clue what their destination is supposed to look like anyway. So tasty peanuts and fluffy on-board blankets with beautiful accompanying smiles more than suffice. And if financial advisors took a page out of Richard Branson’s Virgin Airlines, they’d offer on board massages that would really elevate business.

But what should you be looking for?

This is going to sound awfully selective, but the first thing to look for is gray hair. Sorry, but a financial advisor in his/her 20s is never going to cut it. You need to find someone who’s both qualified and old enough to remember Roger Moore, On Golden Pond, Natalie Wood’s mysterious disappearance, and 18% mortgage interest rates.

Show me yours.

Again, if it’s your personal life savings we’re talking about, you have to take the selection of a financial planner with at least as much seriousness as you’d take when hiring someone to re-model your kitchen. But too many people put far more thought into hiring a carpenter. With a carpenter, the work is transparent. You can see the work that they’ve done in the past. With an advisor, the work is opaque, and very few people know how to recognize success or failure. Instead, clients talk about fluffy blankets, and gush how happy they are

Here’s the benchmark—The Airport Destination You Need to Compare To

You’ll need to make a comparison with a globally weighted basket of stock and bond index funds. Don’t give up on me if that sounds Greek. Ask to see your financial advisor’s personal portfolio from 10 years ago, 7 years ago, 3 years ago and last year. All you want are samples of 4 statements. Get them to explain what they owned and why. And calculate what their returns would have been, based on what they owned. As much as you might want to select a planner based on “feel” I don’t think financial planners should be selected the same way you’d pick a sweater. Instead, you’ll need to make a long term, hard core comparison.

Let me explain why Warren Buffett says this:

“Full-time professionals in other fields, let’s say dentists, bring a lot to the layman. But in aggregate, people get nothing for their money from professional money managers…The best way to own common stocks is through an index fund”

The stock and bond markets dish out money over time to people who own them. Own a representation of everything the stock and bond markets have to offer, and you’ll reap the benefits of what they give out. But few people make anything close to what the markets generously offer because of middlemen who skim from the proceeds.

Investing to beat finance professionals is really simple. Here’s the recipe:

  1. Buy a total stock market index fund representing your home country stock market
  2. Buy a total international stock market index fund representing the global markets
  3. Buy a bond market index fund

If you’re lucky enough to have a decent pension coming, ensure that the bond market fund makes up about 1/3 of your total portfolio. Without a pension, make sure that you have a bond allocation that’s roughly equivalent to your age.

It’s so shockingly simple. But I have yet to see an investment account run by a financial advisor who performs even close to this over a lengthy period of time. Give up just 2% annually over an investment lifetime, and you’re giving up more than half your eventual nest egg, come retirement. If someone invested $1000 in the year 2000, it should have grown at least 34%, with no money added, by 2010—despite the hammerings that the markets have taken over the past decade. Here’s an example of what the markets have dished out, and why you should be at least 34% ahead of the decade game: Check the Historical Performance Table.

The world’s strangest industry

Strangely, the financial advisory industry lacks accountability because too few people know what kinds of questions they need to be asking.

That’s why Jack Meyer,  the head of Harvard University’s endowment fund says this:

“The investment business is a giant scam. Most people think they can find fund managers who can outperform, but most people are wrong. You should simply hold index funds. No doubt about it.”

But there are advisors who do the job admirably

They offer advice, and you pay for that advice. You bring out your chequebook and cut them cheques, rather than allowing them the “ease” of taking money out of your account. For an upfront fee that you’d place on the table, they’ll assist you with financial planning, college savings plans and taxes.

Find one of these advisors, and then ask them about their money. You can’t afford not to.


andrew hallam

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

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41 Responses

  1. Hi Andrew! You offer great advice. As a young advisor, 22, and the co-owner of a wealth management firm in Dallas, TX I find your advice on not choosing a young advisor. We are aligned with very reputable alliances…DFA, DKE, CEG. Secondly, a personal CFO should not be judged just on his/her investment performance. The solution is easy for all families: hold a low-cost, globally diversified portfolio of market exposed funds. The true value of an advisor shines with wealth enhancement, transfer, protection, and charitable gifting. For example, titling of assets, mortgage issues, education issues, 401(k) selection, second home alternatives, business valuations, etc.

    You do share wonderful insights on the psychology on investor's choosing an advisor. You may be interested in reading a piece on our blog:

    All the best,

    Scott Wisniewski

    Arianna Capital

  2. Thanks Scott,

    If you're a fee based advisor, charging an annual fee and not a percentage of the client's assets, then I wholeheartedly take my hat off to you, my friend. Truly, that kind of service (and that type of charge) is very rare. You would also pass the benchmark test if, after a year with you, your client asked you how they did, relative to a diversified basked of indexes. You'd have the answer (especially if you used Dimensional Fund Advisors) and your answer would be a fair one that represented what the markets dished out during that year.

    I also have a friend who charges 0.4% annually, and trains his investors to go it alone, while providing educational support for them. This is also highly admirable.

    My post came as a result of an emaill from a friend in Canada. She has hooked up with a new advisor (new for her) who charges 1.28% on assets, doesn't have a transparent fee model outlined on his website and after I emailed him about his fee structure to ask him what it was (before I found out what she was paying), he suggested that it "depended on the service rendered". He buys ETFs and individual stocks that he selects. Considering that some Canadian ETFs can charge up to .5% or more, I didn't think it was fair that she should be paying so much for a guy who might make some mistakes with his individual stock picks. After all, 1.28% + .5% can be a killer fee weight.

    I'm 100% behind a fee based advisor who doesn't make more just because his client has more. So well done Scott. I would still, however, be biased about age. Granted, there can be some exceptionally historically minded young people, but experience, when dealing with the toughest part of investing (the emotional part) is pretty important. And if I was going to ask a carpentar to build me a house, I'd want to see the house he built for himself. We're far too polite when it comes to money. It's a cultural problem that can keep too many good people in the dark.

    Again, congratulations Scott, on doing the right thing and charging a flat fee for your service. You're a rare breed. And I offer you the very best professional wishes going forward. Thanks for the comment–and I'd love to hear from you again, at some point.

  3. Kevin@InvestItWisely says:

    Nice post, Andrew. I love the part about Dale Carnegie. These guys can be experts at getting you to feel smart when you go with what they want, and likewise stupid if you go against their recommendations. Thing is, they'll smile and pat you on the back with one hand, and take your money with the other…

  4. @Kevin@InvestItWisely

    You're right Kevin, in almost all cases, that's true. But I do like these fee based sorts who charge a fee that you pay with a cheque, to give non biased advice that doesn't leech off the size of the account.

  5. Kevin@InvestItWisely says:

    @Andrew Hallam

    Do you think that we could spread awareness of MERs, the problems with charging % of assets, etc… and see a real change in consumer sentiment that whips these guys into shape? One can hope… looking forward to the book. :)

  6. @Kevin@InvestItWisely

    I do hope so Kevin! I've written a book that most advisors certainly won't want their clients reading. I do commend fee based advisors though. Recently, I read a book by a longtime fee based advisor called, Why Do Smart People Do Stupid Things With Money….

    He urged advisors to be ethical and charge a flat dollar rate for service. He certainly pulled no punches when referring to most advisors.

  7. Good post, Andrew. Everyday vanilla financial advistors are about as useful as piano salesmen, they'll sell you the one with the highest commissions. You said it right, that asking for their own personal performance is the litmus test that most of them will do wel on. How do they vote with their own wallet? Just for kicks, I've had a couple phone session with (alleged) advisers at my insurance providers, who got a little uncomfortable when the tables were turned. All I did was ask them the same personal questions they were asking me, e.g. what is your yearly income, what's your level of debt, etc.

  8. Excellent post Andrew.

    Personally speaking, dentists, doctors and quite a few other professions offer services, knowledge and expertise that is not in my comfort zone. This is why I choose not to pull my own teeth, perform my own surgeries or build my own home. Kidding aside, because my comfort-level with personal finance and investing has always been there and continues to grow, this is why I feel I don't need a financial advisor. Others may feel differently and have every reason to feel that. I think it's important for folks to assess what is within their circle of competence and willingness to learn and apply. If financial matters aren't it, then so be it. Not everyone wants to know how to build their own home either :)

    Maybe someday my view will change but until then, this body of knowledge is not only something that's within my grasp; something I can mature into, but something I find enjoyable as well.


    My Own Advisor

  9. Mel Marten says:

    Some good points, the article is really getting at the fact that the majority of money managers don't outperform the market. As you point out, most financial advisors charge annual fees also, while some charge you for your actual financial plan or estate plan, which can be very helpful to individuals just getting started or with complicated needs. Our firm – – offers a free service to match individuals to financial advisors, and you can screen advisors by types of fees and find advisors' specialties to find someone who is a good fit for your needs.

  10. DIY Investor says:

    Really good post and good quotes. I actually like to lead with quotes when I talk with people because it gets their attention. Besides being financially illiterate the country is also mathematically illiterate. Also it is easy to manipulate numbers.

    Along these lines I was interested in the chart presented in the link referenced by your first commenter. I've always been interested in DFA and wondered about fees charged by advisors along with the fees charged by their funds. I've wondered if they aren't defeating the overall goal of capturing close to market returns with their overlapping fees.

    At the advisor level many firms don't audit their numbers so they can pull out anything. The president of a company I worked at liked to pull out a graph showing how the money had grown for the firm's first client over 15 years. What he forgot to mention was that the first client was his aunt and he never charged her a fee.

    Thanks for the plug.

  11. DIY Investor says:

    @Financial Cents

    Good points though I would argue that for the big ticket items in life – major surgery, architectural work on building a house, investing and living off a nest egg and even pulling wisdom teeth – people should explore various alternatives.

    You are exactly right that some people aren't interested in doing the manual labor of managing a portfolio. Still I don't think they should just hand the nest egg over to the family broker who works at Morgan Stanley without seeing if there are other approaches.

  12. @Mel Marten


    I'm very impressed with your business. I'm not sure how many advisors you have in your data base, but I put the only American zipcode I knew "90210" and only one fee based planner came up. I figured that would be a reasonably affluent area, don't you think? Any idea how many advisors are in your database?

  13. @DIY Investor

    Hey Robert,

    Have you heard of groups like Claro-Connect before? You can see the rep's comment above. I'd be interested to get your thoughts, as I'm sure some others would as well. Thanks!

  14. @Financial Cents

    And from watching and reading your blog, you're doing really well Mark. But here's a question for you: what kind of fee structure is fair is someone is going to hire an advisor?

  15. @Andrew @ 101 Centavos

    Andrew, turning the tables on them? Brilliant. And why not? I want to take nutritional advice from an embodiment of health, not the average donut eating Joe–even if Joe has a degree in nutrition.

  16. @Andrew Hallam


    Sorry for the late response. I was expecting an email when someone commented – did not happen to the best of my knowledge.

    I appreciate your advice and warm acknowledgment. We developed our practice in order to change the industry and attempt to do the right thing for people (after seeing many malpractices). People have pointed out our youth, but we have a solution for that. We have teamed up with a firm called DKE, who have been in the business for over 30 years. We consult with them on a daily business, and are virtually an extension of our business. Any advice that we give is passed through them. Not only that but we are partnered with CEG and DFA. These two alliances have taught us about handling the emotional aspects of clients. We also attend various Landmark conferences.

    On the other end of the spectrum (since you are skeptical about age). Let's take a 40, 50, or 60-year who has been in the business for quite some time. Let us look at their client tenure, experience, and results. I would suspect we would find very lackluster results. 95% of the industry within that age sector are not servicing the client, rather their firm (selling products, high fees, focusing solely on investments, etc).

    Any attachment or aversion can be overcome, whether it is age or money – and we help with that. I would love to show someone how we have overcome the age factor and our now trumping experienced advisors all of the country. We have strong, meaningful relationships with the knowledge and resources to construct the best possible solution. Can't be skeptical about that :-)

  17. @DIY Investor

    A great thought: Do DFA advisors justify their fee, even with their low-cost solution?

    Here is a research paper by Duke intimately examining the issue:

    In summary, they showed a DFA advisor does justify a fee of even 1%.

  18. Mich @BTI says:

    You're gonna love my post today Andrew, check it out.

  19. @Mich @BTI

    Mitch's post made me smile. Check it out.

  20. Has anyone wondered what to say at a cocktail party when asked, "What do you think the market is going to do?"

    Let's look at a few logical responses:


  21. @DIY Investor – Good points as well.

    @Andrew – what about billable hours instead of a on-going management fee? In most other professions, the customer decides what level of service they wish to receive in trade for the professional's knowledge, expertise or work – at a point in time. There is a baseline or market norm for what those services would be and the client would decide if they want to pay the fee for the service. You don't pay your dentist when you're not having work done? One quick example, getting advice about a real estate transaction from a lawyer. Folks can certainly buy what they want, when they want, and by-pass this service for advice, alternatively, some folks may take advantage of that service depending upon the complexity of the transaction or their circle of competence.


    I have to check out Mich's post now :)

    Great discussion Andrew, you're good at facilitating these…must be that teacher in you.



  22. @Scott Wisniewski


    The data suggested here in this article is both correct and incorrect. I've pasted the gist of the article:

    "Over the long term, investors in unhealthy stocks are rewarded. The stocks of distressed companies have outperformed the stocks of healthy companies on average since the dawn of recorded time in the US,1 and by more in other markets around the world. It should be mentioned that individual stocks have a lot of "noise" in their returns, which means there will always be individual distressed stocks that perform terribly and individual healthy stocks that perform well. In diversified portfolios, distressed stocks are expected to outperform healthy stocks over the long run."

    The "long run" that's being referred to here might not be what you think it is. In any given year, if you take the distressed businesses and select those stocks, versus the businesses of sound, healthy businesses, then as an aggregate the "Dogs" will outperform the "stars" based on the probability of what Siegal refers to as "earnings surprise" and valuation. The expectations are low, so the prices are, in Buffett's words "cigar butt cheap": which he uses to refer admirably to Benjamin Graham's deep value system.

    However, if you were to buy and hold a collection of distressed businesses, versus well-priced great businesses (and you couldn't trade them) the great businesses would be better long term stocks if bought at valuation yields that exceeded the yields on 10 year bonds. One of the subtle differences is this: annually picking distressed businesses and getting those final puffs on a regular basis is only more effective when it's done regularly. Fama's "long term" is the reference of the regularity of buying deep, distressed value, but not buying and hold those same businesses. It doesn't work when buying and holding a set of distressed businesses, long term. When Eugene Fama refers to long term, he's referring to a long term strategy of regularly buying cigar-butts on the ground and getting a final puff (Benjamin Graham-style). That's what the "long term" data refers to. So the article is correct, but also misleading. Long term, deeply discounted, distressed companies are better investments. But the same deeply discounted, distressed stocks, in a portfolio meant to buy and hold, versus those with high returns on capital bought at sound prices that are also meant to be held….well, the distressed stocks lose out. This is why and how Buffett was influenced by Philip Fisher and Charlie Munger–to seek great companies at a fair price, rather than poor companies at a great price.

  23. @Financial Cents

    Mark, you're absolutely right about "billable time". That's probably how I should refer to it. I think I referred to it before as "Fee-based" but that's misleading and corruptable.

    You've nailed it with the "billable time" label. An advisor should charge by the hour. Should they be compensated more just because a client has amassed a larger account? Is it really harder to manage a $1 million account rather than a $100,000 account. It certainly isn't. And thanks for the facilitating compliment. I was fearing that I was too opinionated. Cheers!

  24. @Andrew Hallam


    I am sorry, but your comments are confusing and hard to make-out. We know that picking individual stocks is a loser's game – no argument there. Your justification to pick individual stocks/companies is unclear.

    We know that over the long-term we can expect value companies to outperform growth. Also, small companies will outperform large companies.

    "However, if you were to buy and hold a collection of distressed businesses, versus well-priced great businesses (and you couldn’t trade them) the great businesses would be better long term stocks if bought at valuation yields that exceeded the yields on 10 year bonds." & "But the same deeply discounted, distressed stocks, in a portfolio meant to buy and hold, versus those with high returns on capital bought at sound prices that are also meant to be held….well, the distressed stocks lose out." – This is based on speculation, the return on speculation is zero. No one can predict the future and know when prices are "sound."

    Rather, invest where expected returns and risk are compensatory.

  25. @Andrew Hallam

    Advisors who charge hourly run the risk of not fully servicing their clients. The advisor's focus will now be based on ONLY serving the client when working FOR the client. An advisor should be providing value to his/her clients at all times (mortgages, taxes, gifting, education, transfer, etc.). Since an advisor is always working to add value (under pay per hour structure), the bills would run considerably high.

    I think there is confusion and a focus on the investing portion aspect of advisor-client relationship. The advisor should not only focus on investments but all aspects of a client's life. This is something that cannot be valued by an hourly "charge". Advisors offer a huge spectrum of value. Is a pay/hour client going to be billed for a phone call or email or meeting with his/her advisor? In this case, the client may be reluctant to call or make any contact – giving the client further anxiety about the situation. A pay/hour is not mutual. It actually lays a large burden on the client, both financially and emotionally.

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