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Retire With Confidence is the podcast designed to help you move beyond the fear of the complexity of finances so you can be financially free to achieve personal significance. Tune in with Josh Duncan each week to turn fear into fuel that drives you into Freedom & Significance.
Welcome to the retire with confidence podcast. If you're a high earning professional, business owner, or someone approaching retirement and wondering whether you are truly on track, you are in the right place. This podcast is all about helping you make smart, confident financial decisions without the fear, confusion, or sales pressure that so often comes with money advice. Each episode is designed to break down complex topics like retirement planning, investing, taxes, and cash flow in plain English so you can understand what really matters and avoid the most common and costly financial mistakes. Everything you hear here is educational, fiduciary focused, and grounded in real world planning experience working with clients just like you.
Josh:I'm your host, Josh Duncan, partner at F5 Financial Planning. Let's get started. Have you ever tried to figure out what type of financial advisor you should work with and ended up more confused than when you started? You Google financial advisor and suddenly you're hit with a wall of titles, wealth manager, financial consultant, investment advisor, retirement specialist, insurance professional, CFP, CHFC, RIA, broker, planner, and they all say some version of the same thing. We put clients first.
Josh:We're fiduciaries. There's no cost to you. It's overwhelming. And here's the problem. Choosing the wrong advisor can quietly cost you tens or even hundreds of thousands of dollars over your lifetime.
Josh:Not necessarily because they're bad people, but because incentives matter. How someone gets paid shapes the advice you receive. So today, I'm going to break this down in a very practical way. We're going to cover the difference between a suitability standard and a fiduciary standard and why that matters. The single most important question you should ask any advisor you're interviewing, the three primary types of financial advisors based on how they're paid and what services they offer, and how do we evaluate credentials like the CFP designation without getting distracted by alphabet soup.
Josh:By the end of this video, you'll know exactly what to look for and what to run from. Let's dive in. Before we talk about types of advisors, we need to talk about standards, because not all advisors are legally required to put your interests first. There are two main standards in the financial advice world. The suitability standard and the fiduciary standard.
Josh:The suitability standard says that any recommendation made to you must be suitable based on your financial situation. Now it sounds good at first. Suitable sounds reasonable. But here's the catch. Suitable does not mean best.
Josh:Under suitability, if two products accomplish roughly the same goal and one pays the adviser a much higher commission, the adviser can legally recommend the higher commission product as long as it is technically suitable. That creates a conflict of interest. Now compare that to the fiduciary standard. A fiduciary is legally required to act in your best interest, period. They must disclose conflicts of interest.
Josh:They must avoid conflicts when possible. And their recommendations must be in your best interest, not just suitable. That's better. But here's where we need to be honest. Enforcement is challenging.
Josh:Just because someone says they're a fiduciary, does not automatically mean they are operating at a high ethical level. People can misuse that word. Some advisers are fiduciaries in certain parts of their business and not in others. So you cannot stop your due diligence at are you a fiduciary? You have to go deeper, which brings us to the single best question you can ask.
Josh:If you remember nothing else from this video, remember this. Ask any advisor you're interviewing, how do you get paid? And then be quiet. Listen carefully. If you ever hear the phrase, there's no cost to you, run.
Josh:Seriously, run. Because there is always a cost. If you're not writing a check, the product is paying them. And if the product is paying them, you are paying for it, usually through higher internal expenses, surrender charges, or commissions built into the contract. That's often how expensive annuities are sold.
Josh:Again, not every annuity is bad, but high commission products sold under the illusion of free advice are a red flag. When you understand how an advisor gets paid, you understand their incentives, And incentives drive behavior. Now, let's talk about the three primary types of advisors based on how they are compensated. The first type of advisor is the commission based advisor. These professionals are paid to sell financial products.
Josh:Common products include annuities, life insurance policies, mutual funds with commissions, certain alternative investments. They typically operate under the suitability standard. Now, let's be fair. Not every commission based advisor is unethical. Some truly care about their clients and try to do good work.
Josh:But the compensation model creates inherent conflicts. If you are paid more to sell product a than product b, human nature kicks in, even subconsciously. For example, an advisor might recommend a permanent life insurance policy with a large commission instead of a much cheaper term policy that accomplishes the same protection goal. Or they may recommend an annuity with a seven year surrender charge and high internal fees because it pays them upfront. The key question is this.
Josh:Are you looking for someone who sells products or someone who builds plans? If the majority of the conversation quickly turns into a specific product instead of your overall financial life, that's a sign you're in a sales meeting, not a planning meeting. This is fine if you're looking to purchase a product and move on. Just don't think you're getting a financial plan and ongoing service. Insurance salespeople are not financial advisors.
Josh:Again, incentives matter. Now let's move on to the second type of advisor. The second type of advisors are fee only and charge based on assets under management, or often abbreviated as AUM. This means they charge a percentage of the money they manage for you. Full disclosure, my firm has a service offering with this fee structure.
Josh:The common example you may hear is 1% per year on your investment portfolio. Many advisors tear down the percentage of their fee as invested assets increase. These advisors operate under the fiduciary standard. Their services can range from investment management only to comprehensive financial planning. And this is an important distinction.
Josh:Some AUM advisors primarily focus on portfolio management. Others, and this is where the real value often lies, provide comprehensive planning that includes goal setting, cash flow planning, investment strategy, tax planning coordination, insurance planning, and estate planning coordination with attorneys. They become the quarterback of your financial life. Now, you may have heard criticism of this model. You'll hear people say fees drag down performance.
Josh:And technically, yes, a fee reduces gross returns. But here's what that argument often ignores. Behavior. The greatest destroyer of wealth is not a 1% advisory fee. It's panic selling in a bear market.
Josh:It's never creating a plan in the first place. It's failing to coordinate taxes, estate planning, and risk management. It's sitting in cash because you're afraid. A good advisor's value is not just picking investments. It's helping you both create your financial plan and take action.
Josh:It's keeping you disciplined when markets are volatile. It's making sure your tax strategy, insurance coverage, and estate documents align with your goals. The real question is not, does this fee reduce returns? The real question is, does this advisor help me make better financial decisions over decades? Because better decisions compound.
Josh:Now, let's talk about the third type of advisor. The third type of advisors are also fee only, but they charge hourly or on a project basis instead of managing your investments. They typically create, update, and review comprehensive financial plans. You pay for their time and expertise, similar to working with an attorney or CPA. This model is excellent for people who want professional guidance, are comfortable implementing their own financial plan, and prefer not to delegate portfolio management.
Josh:Maybe you enjoy managing your portfolio but want a professional second opinion. Maybe you need help building a retirement income plan. Maybe you want a one time review of your tax strategy or college funding plan. This structure provides flexibility. The trade off?
Josh:Implementation is on you. There's no ongoing portfolio management. There's no built in behavioral coaching unless you continue scheduling reviews. For disciplined hands on investors, this can be a fantastic option. Now, let's talk about credentials.
Josh:The most widely recognized and respected certification in financial planning is the certified financial planner or CFP designation. To earn the CFP marks, an advisor must complete specific coursework in investments, retirement planning, tax planning, insurance, and estate planning. They must pass a rigorous, comprehensive exam, and they must complete six thousand hours of relevant experience, roughly three years of full time work. That's meaningful. It shows commitment to the profession.
Josh:But here's the important part. Alphabet soup does not automatically equal competence or fit. There are many other designations out there. Some are rigorous, some are less so. Before selecting an advisor, look up what their credentials actually require.
Josh:But beyond credentials, ask, do they communicate clearly? Do they listen? Do they explain trade offs? Do they align with your values? Technical knowledge matters.
Josh:Trust and alignment matter more. So how do you pull all of this together? Here's a simple framework. First, ask yourself, do I want someone selling me products or building me a strategy? Second, ask, do I want ongoing partnership and implementation help or periodic guidance?
Josh:Third, ask every advisor, how do you get paid? If the answer is confusing, that's your answer. If it's transparent, clear, and easy to understand, that's a good sign. And finally, remember this, the right advisor for your neighbor may not be the right advisor for you. Some people want full delegation, some want collaboration, some want education, and to implement themselves.
Josh:There's no universal best model. There is only the best fit for your personality, complexity, and goals. Let's recap. Number one, understand the difference between suitability and fiduciary. Fiduciary is stronger, but don't stop there.
Josh:Number two, always ask how do you get paid. If you hear no cost to you, be extremely cautious. Number three, know the three primary advisor models. Commission based, fee only AUM, and fee only hourly, and choose the one aligned with how much help you want. Number four, credentials like the CFP designation matter, but fit, communication, and transparency matter just as much.
Josh:At the end of the day, financial advice is not about products. It's about clarity. It's about making confident decisions. It's about building a life of freedom and purpose. As a fee only certified financial planner, I believe advice should be transparent, aligned, and designed around your life.
Josh:If you're interviewing advisors, take your time. Ask good questions. Trust your instincts. Your financial future is too important to outsource blindly. If you found this episode helpful, please consider subscribing to the podcast and leaving a review.
Josh:It helps more people find the show and continue learning how to make smarter financial decisions. I'm Josh Duncan, partnered F5 Financial Planning. If you would like to learn more about how we help our clients achieve financial freedom for personal significance, please visit our website at www.f5fp.com. Thanks for listening, and I'll see you in the next episode.