pitfall of financial advisors

Who’s Who: The Full Mess Of Financial Advisors [Infographic]

Some days it seems like everyone is a ‘financial advisor’.  When I go to the bank, I get suggested a meeting with their financial advisor.  I’ve got some financial advisor who consistently hounds me on the phone for a meeting about how he “can help me”.  And at the bar, there’s a financial advisor too.  Armed with their bachelors degree, and 2 week introduction course from their employer, they all have the latest and greatest financial instrument or portfolio suggestion for me.  I’ve heard some them out for mere comical value, and none of them have anything of value.  The better ones have just the typical diversified portfolio for about 5x the cost of diversified portfolio through a robo-advisor.  Some of the worse ones, have high load fee mutual funds, or some mythical strategy to ‘protect’ your investment.  The reality is, they’ve all got bullshit.  That’s not saying there aren’t great financial advisors out there, but generally most of them are financial salesman, more concerned with their commission check than your portfolio.

So when everyone (most) is an advisor peddaling overpriced and/or crap investments, who’s who?   Morgen Beck Rochard of Origin Wealth Advisors recently created the helpful infographic below on the wide range of possibilities you can get when you hire a “financial advisor”.

What can we tell from all this?  The term “financial advisor” is extremely broad, kind of like saying “dog”.  It tells us nothing about:

  • Their qualifications, certifications, or years of experience.
  • The types of financial instruments that suggest (sell); individual stocks, active funds, passive funds, life insurance products, or annuities.
  • How they are compensated (flat fee, percentage of assets, commissions).
  • Whether they are a fiduciary (legally required to always act in the client’s best interest).

All of the robo-advisors I suggest for everyone who wants a ‘hands-off’, effective portfolio, including my sister, such as Wealthfront, Betterment, WiseBanyan, Schwab Intelligent Portfolios, all find their place near the top of the chart in the “Fee-only Passive Management” category.  They are all Registered Investment Advisors, which are fiduciaries legally required to act in your best interest, and they are  Securities Investor Protection Corp (SIPC) insured, which means that the securities in your account are protected up to $500,000 per individual account type (Note insurance cover mis-management, not portfolio fluctuations).  All of them will give you a well diversified portfolio of low-cost passively managed funds based on your risk tolerance and investment horizon.  Their fee, which is all relative low, around 0.25%, is based on the total value of your account.  The provide limited financial planning using well designed software.  In my opinion Betterment does the best of financial planning with their tax loss harvesting and tax coordinated portfolio’s.

Stay away from everything in the yellow, orange and red boxes.  Here you get complicated universal life insurance, mythical hedge fund strategies, and expensive mutual funds often with managers who will not even invest in their own funds.  By simple avoiding the crappy financial products, you’re already doing better than the average investor.

Up at the very top are the unicorns of financial advisors.  A well qualified human advisor that evaluates your financial position, and life financial picture holistically, and acts as fiduciary sounds great, but it is also out of reach for most of us.  These guys often won’t even say return your call unless you’ve got an account balances over $1,000,000m they also tend to be a bit more expensive.  The Form ADV of Origin Wealth Advisors (firm who published the infographic above), reveals that over 75% of their clients are “high net worth” and the portfolio management fee  is 1.5% annually, unless you have more than $5 million.  That’s clearly not for most people and quite frankly it would be hard for any advisor to add that much ‘alpha’ to a portfolio.

There are lower cost financial planners out there, but they are hard to find, and still have a minimum investment beyond what most can invest.  On the otherhand, anyone with $500 can go to Betterment an awesome portfolio, coordinated with their goals, and with tax strategies implemented, for 0.25%.  A $100,000 portfolio will cost just $250 per year.  Not even 10 years ago, this kind of investing was only available for the upper echelon of investors.

Statistically, all investors would be best served just saving up a bit and opening an account with any of the robo-advisors mentioned here, and then consistently investing into the account.  That means avoiding all the other financial advisors and their largely unmet promises.  At the same, learn all about investing, taxes, market history, and investor psychology so you can be your own financial advisor.  It’s really not that hard, and I believe everyone should… thats part of why I started this site!


Founder of a home service / specialty trade contracting company (think patio’s and deck) with a focus on customer experience. Quantitative investor. Data driven marketer. Runner.

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