Confessions Of A Self-Righteous Fee-Only Financial Planning Evangelist

250px-Saint_Francis_of_Assisi_by_Jusepe_de_RiberaEvangelical Christians have a PR problem, wouldn’t you agree?  If you want to evoke the scent of condescension, judgmentalism, self-righteousness or hypocrisy, all you need to do is tack on the adjective “evangelical” to the person, place or thing you’re describing, and voila—your work is complete.  The original evangelists—the Disciples, the Apostle Paul, Saint Augustine, even Christ Himself—don’t seem to engender so much animosity (today), but modern-day zealots who invoke these ancient names in pursuit of conforming others to their worldviews have become an easy target for cynicism, in many (while certainly not all) cases deservedly.  Self-righteous fee-only financial planning evangelists—of which I am one—are beginning to face a similar dilemma and may require an act of God to remake their reputation, especially within the industry.

My confession should not be seen as sins for which every fee-only advisor is guilty, but several others have shared similar thoughts with me—some making even bolder statements and passing firm-wide edicts outlawing comparisons designed to disparage the “unholy.”  While there are many individual acts to be brought to light, all of these indiscretions fall under a single umbrella transgression:

Instead of highlighting what we are FOR, we have magnified what we are AGAINST.  Instead of making our case to new and existing clients based on who we ARE, we have taken the more expedient route of peddling who we are NOT.  For example:

  • We are NOT salespeople.  We delude ourselves.  Everyone is selling, from the Pope, the priest and the pastor…to the doctor, the professor and the journalist…to the accountant, the attorney and the advisor…to the agent, the broker and the banker…all the way down to the butcher, the baker and the candlestick maker.  Whether it’s a product, a process or a personality, we all have something to sell.
  • We are NOT biased.  Yes, the bias of commissions is the most evident, but less evident biases can also be dangerous, and sometimes even more so when papered over with apparent altruism.  Hourly billing has an inherent economic bias to stretch an engagement.  Flat fees incentivize the service provider to clip their work, moving on to the next fee.  And those compensated by a percentage of assets under management have a clear conflict to prefer managing more, even if those assets would be better applied to debt repayment, real estate acquisition or investment in a small business.  All of us are biased, and to dispute otherwise is self-deception.
  • WE are NOT non-fiduciaries.  The spirit of fiduciary is vitally important, and the evolution of the industry depends on its application, but the word (fiduciary) itself is relatively meaningless and occasionally misleading.  Unfortunately, we have allowed the word fiduciary to become just another mousetrap to be sold, trampling the spirit of the word in our haste.  A true fiduciary is too busy acting like one to spend time yelling at those who they believe are not.
  • We are NOT, God forbid, Merrill Lynch or Morgan Stanley.  While the trend was already underway prior to 2008, the move away from proprietary wire houses to independent advisory firms turned into a tidal wave after the financial collapse.  It was primarily the investment banking and trading arms of behemoth brokerage firms that earned the public outrage, but while those complicit started raking in record bonuses the year after the crisis, tens of thousands of financial advisors were left with a heavy anchor on their business cards.  Needless to say, we didn’t exactly throw them a life vest.

Saint Francis wasn’t born with a halo around his head and animals flocking to his crib.  Early in life, he apparently lived it up as a wealthy merchant’s son and even tried his hand at being a warrior for his home town of Assisi prior to receiving the revelations that redirected his path.  The movements for which he became known, however, were enacted less through fiery rhetoric and more through penitence.  While the exact source is disputed, no one doubts that this quote attributed to Francis exemplified his life and work: “Preach the gospel at all times.  When necessary, use words.”  We as fee-only financial advisors would do well to seriously consider this admonishment.

Is it possible that the next phase of the financial industry’s inevitable transition (as well as the Church’s) will be led not by rigid demands for legalistic purity, but instead by a humbler, quieter, simpler, more effective practice grounded in affirmation?

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Make Your Financial Advisor Sweat

I was meeting with a new friend recently when she told me of an interaction with her financial advisor that completely changed her view of their professional relationship. She had received a lump sum of meaningful size, and following the advisor’s presentation of his recommendations for the new money, she did the unthinkable—she asked him how he would be compensated and how much he would receive if she followed through with his recommendations.

I know, crazy!  Who in their right mind would ask a service provider how they’re getting paid and exactly how much he or she would receive for services rendered?  The nerve of some people!

Yes, this is how the financial industry has treated the check-writers lining its mahogany-trimmed custom leather coffers for…ever.

Back to the story.  The advisor took off his jacket, began pacing and started sweating as though Ray Lewis (of the world champion Baltimore Ravens—woo hoo!) was staring him down.  The gig was up.  His list of recommendations was catered to his personal financial best interest and not his client’s; he was completely busted.  All it took was a simple question anyone would expect as common practice in any other business, and the advisor imploded.

But not everyone in the financial industry is so bashful.  I know one financial sales person, in particular, who told me of an instance in which a prospect popped the question.  He responded with indignant self-righteousness, “You have no right to know how much money I make!”  I guess he forgot that he was talking to the person making his mortgage payment that month, possibly throwing in a vacation on top of it.

Now, I’m not suggesting you become a crass inquisitor with your broker, banker, insurance agent or financial planner—they are due appropriate compensation for a job well done—but you absolutely have a right to fully understand how your advisor is compensated and to what degree, for the following three reasons:

  1. Without understanding your advisor’s compensation regime, you’re unable to balance his or her economic bias in your decision making process.  For example, if the advisor is going to make more money if you pursue one recommended path over another, you should be able to weigh that conflict of interest.  It doesn’t mean you shouldn’t pursue the option that pays the advisor more, but he or she darn well better offer compelling justification.
  2. You have other options.  Fee-only financial advisors are required to provide full disclosure of all fees received, and if they are truly fee-only (note: “fee-based” is not fee-only), they are unable to receive any other compensation from referral sources or otherwise.  It doesn’t mean fee-only advisors don’t have an economic bias, but at least the transparency offers you an opportunity to see exactly what you’re paying.
  3. You ought to be getting a service that is proportionate to what you are paying.  But if you don’t know what you’re paying, how can you know if you’re getting your money’s worth?

And here’s the best reason to ask your financial advisor how and why he is compensated based on the recommendations you decide to implement: if he starts sweating like he’s in your hot yoga class, you should probably work up a sweat yourself…running for the door.

The Three Most Overrated (And Underrated) Financial Planning Recommendations

The economic and dogmatic biases of financial planners are so powerful that the tendency to overemphasize certain recommendations and underemphasize others is quite often the norm, not the exception.  Here are three of the most overrated recommendations and their corresponding biases followed by the least appreciated, most underrated recommendations.


  1. Tax privilege – Whether deferring, deducting, avoiding or evading, financial planners go to great lengths to minimize taxes today and in the future (and sometimes in the past).  This is not only a good idea, but a duty on the part of a qualified financial or tax advisor.  But any time tax privilege is billed as the tip of the spear, it’s probably a sales pitch.  Unscrupulous advisors prey on the elderly who, living off of a fixed income, are very sensitive to taxes as a meaningful factor over which they have no control.  But many are also in a very low tax bracket, nullifying the supposed benefit of the tax-free status of muni bonds or the tax-deferral of fixed annuities.  Many advisors also encourage their clients to maintain a mortgage into retirement “for the tax deduction,” but last time I checked, you need to pay the bank a dollar to save a quarter; and since you can only deduct mortgage interest, mortgages nearing the end of their amortization schedule offer very little deduction.  These advisors may just want to see the money you’d use to pay off your mortgage invested in the accounts they manage—and charge fees and commissions on.  The avoidance of taxes is a worthy endeavor, but “don’t let the tax tail wag the dog.”
  2. Rates of return – No, I’m not denying the power of compound interest, for goodness sake—my calculator and a bazillion sales slicks from mutual fund companies prove it works, and that even a slight difference in annualized rates of return over a lifetime have a powerful impact.  But the amount of attention this gets in the financial planning process is nearly absurd.  This is because in order to retain your investment management business (the primary cash cow for most advisors), they need to convince you of the positive difference that their skill or style will add to your bottom line.  But guess what factor has an even bigger role to play than your rate of return toward the goal of financial independence?  The amount of money you save and invest.
  3. Retirement goals – Beginning with the financial industry’s epiphany some years ago that the biggest, wealthiest generation the world has ever seen would be colliding with the largest transfer of wealth (to that biggest, wealthiest generation from their parents) in history, the practice of financial planning has become increasingly retirement-centric.  It’s almost as if every recommendation in a financial plan is serving the sacred cow of an extended, blissful, effortless retirement.  I’m all for reaching financial independence, but making financial planning solely about deferred gratification means that the practice adds very little value to our todays.  Additionally, as it turns out, both doctors and number crunchers confirm that most people would be better off to maintain some degree of productive work as long as possible.


  1. Career – Most of us will spend the majority of our waking adult hours engaged in the act of work.  It is often the way we support our families, contribute to society and make our mark on this world, and it is also the means toward the end of saving and investing for the future.  But how many advisors engage in (or are skilled at) career counseling?  As the primary source of funding for our financial future—and the way we expend much of the energy we have to give in our lifetimes—this is the most underrated (and under-resourced) financial planning recommendation.
  2. Liquidity –401(k)s, IRAs, Roth IRAs, 529s, annuities, cash value life insurance policies and irrevocable trusts have tangible benefits, but they all lack the intangible and underrated benefit of liquidity.  All these accounts that have been given special federal dispensation to allow for various (typically tax oriented) benefits have handcuffs, making it difficult to access your cash for any other reasons.  And life is filled with “any other reasons”!  Surprises and change are two of the only guarantees a financial planner can make, and that means we must plan for them by infusing financial plans with the capacity for flexibility through margin.  This means you should have cash in the bank and boring, conservative investments in an individual or joint brokerage account to fund the short-and mid-term, in addition to the long-term.  Liquidity isn’t sexy enough to sell and your advisor doesn’t get paid on your cash in the bank—that’s why you don’t hear about it as much.
  3. Simplicity – As a young stock broker and insurance agent, I was taught to make things complex to convince prospects that they were in desperate need of my proprietary knowledge (and products) to secure their financial futures.  But in addition to the economics of manipulation, ego also comes into play here.  Advisors love to talk about the most complex things they know because it makes them feel smart, but a truly gifted advisor will take complex matters and simplify them for you.  And, in my opinion, unless there is compelling evidence that your life or balance sheet is going to be materially impacted to the positive, advisors should err on the side of simplicity, not complexity.

Economic and egotistic bias drives the financial industry, but it need not drive your financial planning.

Finding A Financial Advisor App

This is the 15th exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can read the backdrop for the exercise HERE, or just jump right in with the instructions given below:

Fiduciary Questionnaire

The compensation methodology and regulatory oversight of your financial advisor are not the only thing to consider when choosing an advisor, but they are a very important part of the picture.

You can also navigate directly to the following website to find a downloadable, printable questionnaire you can use to ask your advisor or a prospective advisor to complete for you.  At the end of the questionnaire is a Fiduciary Oath you should ask your current or prospective financial advisor to sign, showing their willingness to put your interests ahead of their own, or those of their company.

Navigate to the Fiduciary Questionnaire by clicking HERE.

And of course, you can also read more on the topic in the book Jim and I co-authored, The Ultimate Financial Plan, in Chapter 15, “The Gift of Discretion: Choosing a Financial Advisor.”

There Is No Panacea!

We continue our exploration of the inherent conflicts of interest in the business of financial advice in this next 90 Second Finance video depicting the Economic Bias of Fee-Only Financial Advisors.

YES, in doing so, I’m turning the sword on myself—I am, indeed, a fee-only financial advisor.  Having spent time as a commission-only, fee-based and now fee-only advisor, I don’t shrink from my belief that the fee-only model is the best…but that doesn’t mean it’s perfect.  And as I mentioned in the introduction to this series, EVERYONE is biased; it’s a fact of money and life!  The goal should be to acknowledge biases where they exist and reduce them to the greatest degree possible.


The Economic Bias of Commissioned Financial Advisors

What do a used car, an old television with rabbit ears and an annuity policy have in common?  You’ll have to see in this new 90 Second Finance video in which I discuss the Economic Bias of the commission-only financial advisor.

Last week, I introduced the topic of Economic Bias in the financial advisory realm.  I discussed each of the three primary compensation models for financial advisors, and this week we take a closer look at the Economic Bias of those who earn their compensation solely from commissions.

I’d love to hear your feedback and any experience you may have had to support OR contradict my thoughts.

The Economic Bias of Financial Advisors

After a great September of guest posts from internationally recognized bloggers and authors[i], I’m going to spend the month of October turning a constructively critical eye toward the very business of which I’m a part—the realm of financial planners and advisors.

I’ll be tackling this territory in 90 Second style, beginning with an examination of the three primary compensation models into which nearly every financial advisor fits.  And in keeping with my 2011 resolution, I can pledge that each of these video snippets DOES fall within my prescribed 90 second timeframe!


[i] If you missed any of the guest posts, check them out: musical philanthropist/author,Derek Sivers; travel-hacker/life blogger, Chris Guillebeau; personal finance blogging pioneer, J.D. Roth; and financial artist/industry agitator, Carl Richards.