Formulate a Financial Plan

Know Your Net Worth

Manage & Minimize Debt

Accumulate Assets

Budget to Live Within Your Means

Understand Investing Basics

Plan for Retirement

Insure People & Property

Deal with Financial Advisors

Review Your Employment Contract

Make Plans for Your Estate

Make Good Decisions


Regardless of whether you receive a strong recommendation for an advisor, you should interview multiple candidates representing different firms. The process may take you some time. View it as one of your more important investments.

Below are some interview guidelines. An Advisor Evaluation Template for screening prospective advisors is provided later in this chapter.

  1. Interview at least five advisors. Candidates will likely be thrilled to pitch their services, so it should be easy to set up interviews at your convenience.
  2. Don’t let the process drag on too long, as that invites distractions and lost focus
  3. Confirm that they will act as fiduciaries and ask whether there are circumstances under which they may not be fiduciaries
  4. Are they independent advisors or are they beholden to one company and more likely to pitch its products and services?
  5. Ask them to explain their fee structure. Do they charge by the hour, by AUM, third party fees, etc.? Are they fee-only or fee-based? Keep on the lookout for those compensation mechanisms that create conflicts of interest
  6. Do they receive any rewards or perks for productivity? For example, if they sell certain volumes of insurance or annuities or investment services, could they be eligible to go on vacations paid by insurance companies or other financial services companies? 
  7. Are they generalists? Assess the breadth of their expertise. Can they produce comprehensive financial plans?
  8. Are they specialists? Assess the depth of their expertise. How much do they know about their professed area of specialization (investing, insurance, college plans, employer benefits, taxation, estate planning)?
  9. What credentials do they have? Do they take any continuing education courses? How do they stay current on changes in products, best practices, and regulations?
  10. Which licenses do they have? Are these Federal or State licenses?
  11. How much relevant work experience do they have?
  12. How did they end up working in the industry?
  13. Assess whether the advisor is willing to acknowledge, at least philosophically, that advisors themselves are the source of some risk. Arrogant or ignorant advisors will likely deny this

Ask challenging questions politely and observe the responses. Does the candidate maintain poise and seem credible? Try to gauge whether the interviewee is trying to influence you using greed or fear. Salesmen are taught to leverage these in order to secure business. Be on the lookout for those who use clichés and one-liners. Is the person resorting to these because he lacks depth of knowledge?


Don’t Underestimate the Value of These Interviews

The default approach among some busy doctors is to quickly identify one advisor who seems less unpalatable than the others, and to crown that person as winner, or as the lesser of the other evils.

Instead of settling in this way, you can do yourself a great service by recognizing that these sessions are avenues for free learning. To obtain the desired learning you need multiple exposures to different sources. One interview with one advisor is relatively ineffective because it lacks context. Interviews with multiple advisors allow you to identify patterns and hone your critical evaluation skills.

With multiple interviews you can dig deeper. For example, ask the second advisor candidate his opinion about the investment strategy described by the first advisor. Ask the third advisor about the life insurance riders recommended by the second advisor. Instead of making a pitch to you, the advisors now critically evaluate each other. This gives you opportunities to see them on the hot seat, and to assess whether they react with integrity.

You can also go back to the first and second advisors and present them with the criticisms you heard in the later interviews. Gauge their reactions. Are their responses credible? Do they get defensive? Do they have the patience to explain their choices to you and address the critiques in detail?

You may initially want to present the opinions to be critiqued as your own rather than having come from other advisors. After you receive some answers reveal that the recommendations came from other professionals. Do candidates change their responses once they realize the criticism came from competitors. This can tell you something about their integrity. 

If you passively allow advisors to “pitch you,” you’re letting them follow their game plan. You can be sure they’ll utilize every subtle method of influence and manipulation known to modern psychology. By driving the interview, you remain in control and get a more unrehearsed set of responses.

After completing the interviews review your notes and identify the person who stands out from the crowd. If no one stands out, interview more people.

Advisor interviews may well be the most important time-investment you make. Take them seriously.


Some High-Level Suggestions

Here is a set of recommended guidelines for working with advisors.

  • To the extent you are comfortable, minimize your reliance on advisors. You retain more control and avoid exposure to advisor error and ineptitude. You also avoid paying advisor fees
  • For broad financial planning needs use the services of an independent, fee-only fiduciary with a CFP designation. See the Advisor Evaluation Template in the Resources section.
  • Use insurance agents only for insurance. Don’t use them as your primary or go-to advisors for investing, retirement planning, or general financial planning (more on this in the next section)
  • For legal or accounting advice use the services of a licensed attorney or accountant, respectively. Don’t try to moonlight as either of these professionals 
  • Manage your own investments and shop around for term life insurance through competitive online marketplaces.  


Avoid Using Insurance Agents for General Financial Advice

Insurance agents and brokers are compensated by commissions, with all the inherent conflicts of interest. Agents who work for insurance companies are more likely to receive some direct or indirect benefits or perks for selling their employers’ products—even if they insist they’re allowed to represent competitor products.

Insurance agents who provide investment advisory services may have to share advisory fees with their brokerage firm. For example, let’s assume an agent must give 0.5% of his investment advisory fee to his brokerage firm. If the agent wishes to earn 0.7% for himself, he’d have to charge you 1.2%. On top of this amount, you would have to pay the annual management expense ratios for any funds purchased in your account. The agent, acting as a non-fiduciary security broker, may fill your account with higher-fee funds, which could easily range from 0.5% to 1% annually. Clearly, under this arrangement your total fees could exceed 1% and even 2%—devastating for your nest egg!

Finally, insurance agents are more likely to suggest insurance products to solve all your financial needs. For example, they may pitch high-fee annuities as a “solution” to your retirement planning needs or permanent policies (such as Whole Life) as “investments.”     

The upshot is that you should only turn to insurance agents or brokers when you need insurance, and you should seek insurance from competitive marketplaces or independent brokers where you can examine various policies from different providers to secure good coverage at a fair price. There is no upside to doing any other business with insurance agents.

For everything else, find an independent, fee-only fiduciary who is not compensated by commissions.


Start with a Basic Financial Plan

The aforementioned interview process can help you identify a leading candidate to become your go-to generalist advisor. But at an early stage it’s wise to delay fully committing to someone who is a relative unknown. Instead, seek a more modest collaboration in which both parties get to know each other.

One way to begin building a relationship with an advisor without a long-term commitment on your part is to commission her to create a financial plan or even a smaller task that allows you to gauge competence, integrity, and demeanor.

Financial plans typically require between 6 to 15 hours of work, which roughly translates to a total cost of about $1,500 to $3,500. This depends on the complexity of your situation and the hourly rate.

The candidate’s plan should give you a clear picture of your financial circumstances and any glaring gaps or deficiencies, such as a need to change investments or add insurance coverage.

In advance you can sketch out a plan on your own, per the guidelines in the chapter on formulating a financial plan. I strongly recommend doing so, as it forces you to think about the issues and gives you something tangible against which you can compare the advisor’s plan. Discuss the differences with the advisor. This is a great way to get at crucial details that are very specific to your household.

The more information and documents you share during the process, the more comprehensive the results. Collaborating directly with the advisor on the plan gives you the best opportunity to assess her professional skills and personal style.

Make it clear upfront that the planner is only preparing the financial plan—but not implementing it. This way, she has nothing else at stake and therefore no motivation to “sell” any particular product. She can focus on creating the best plan for you, as a fiduciary. The resulting plan should ideally encompass all relevant areas: retirement, children’s college planning, insurance coverage, investing, risk management, elder care, estate planning, etc.

Once the process is complete, you’re free to:

  1. Implement the plan yourself, or
  2. Outsource components of the plan to other specialists—your planner may have some good referrals, or
  3. In the event the planner offers implementation services, you could even go back to her to implement the plan

Having gone through the process, you now have firsthand knowledge of the planner’s capabilities, and ideally, a personal relationship based on trust and respect.

Of course, you should not mention upfront that you will be allowing her to implement the plan, as that may lead to biased planning recommendations.