It’s Now Harder to Find Out How Your Advisor Gets Paid

by Kristin Hoppe

A woman at her computer making financial decisions

Unfortunately, it just got a little more difficult to tell whether your Certified Financial Planner (CFP) is actually a fiduciary.

This March, the CFP Board announced sweeping changes to its advisor search engine. Consumers will no longer be able to filter financial advisors on the board’s website through compensation — that is, whether advisors earn their money through product commission, investment management and advice fee, or a combination of both.

Why does this matter? Essentially, the move makes it less transparent for you to find out how your advisor is compensated. And when that’s the case, it’s hard to know if your advisor is a true fiduciary and has your best interests at heart.

Related article: I Went through the Trouble of Finding Financial Advisors So You Don’t Have To

But not to worry — there are still plenty of ways for you to ensure that your financial advisor is putting you first.

Understand the difference between fee-only and commission based

Fee-only advisors only make money off advising you, not a commission off selling financial products. Commission-based financial advisors make a commission off whatever financial products they sell you. Sometimes, these products give them an advantageous cut, which could lead them to choose products that are more in their interest than in your own. If you’ve ever wondered why some advisors keep pushing specific funds or insurance products on you, that’s the reason.

Some financial advisors are a combination of both. That’s when it’s important to understand how they are compensated, because it affects how they’re required to advise individual clients in terms of whose best interest to prioritize. Some clients are indeed looking for specific financial products and therefore may not mind commission-based services. For example, if you know you want insurance, you may go to a commission-based insurance advisor.

How to protect yourself

There are a growing number of people who want unbiased financial advice without the product push. Unfortunately, they unwittingly go to advisors who are commission-based, resulting in a poor experience. Here’s how to know what you’re getting into.

Related article: What is a Fiduciary?

Use search databases that list fee-only advisors

While the CFP Board will no longer disclose compensation, there are still plenty of search tools that exclusively list fee-only advisors. Those include:

Cross-check on broker databases

Find out if your prospective financial advisor earns commissions. There are two main tools you can use:

  • BrokerCheck database – Maintained by Financial Industry Regulatory Authority (FINRA), this is the fastest way to quickly distinguish how the advisor is paid. You can search by the advisor’s name or firm, and find out if they are registered as a “broker-dealer” (commission based), or “investment advisor” (fee-only). If they are registered as both, it means they are fee-based. You can also check if they’ve had any previous lawsuits or disciplinary action.
  • Investment Adviser Public Disclosure website – Overseen by Securities and Exchange Commission (SEC), this provides additional information on the advisor and his or her firm.

Ask the right questions

You can also directly ask your prospective financial advisor about how they’re compensated. This article walks you through the types of questions you should ask.

Lean on trusted sources

Regardless of the choices the CFP Board has made, My Financial Counsel has not changed our mission to match people with fiduciary advisors who put their clients first over commissions.

You can access our library of content around finding financial advisors. If you decide to seek a financial advisor through our network, we have personally checked that all our advisors are fiduciaries.

Regardless of how you go about getting an advisor, there still are many channels you can trust. It’s just important to know where to look.

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