Filbrandt Reports

Your 6-Step Checklist: How to Evaluate a Financial Planner

Volume 16, Issue 7



Executive Summary:

In this report, you will learn the following about how to evaluate a financial planner:

  • There are so many people offering financial advice, it’s difficult to know who you can trust.
  • We offer a six-step checklist to evaluate a  financial planner.
  • This checklist allows you to gain insight into whether your planner’s priorities mirror your own.

Our process for putting you and your financial goals first is inside this report.


There is no shortage of people willing to give advice on almost any financial topic. Investment managers, brokers, bankers, insurance agents, accountants, mutual fund companies and financial planners fill the online and printed listings. It seems like everyone is a financial adviser! Where should one start when there is so much information and so many people willing to give advice?

Following is a six-step checklist to help university professionals evaluate financial planners.

Included are some secrets that investment brokers don’t want you to know.

Step 1: Is your financial planning comprehensive?

Many individuals feel they have comprehensive financial planning because they have an adviser managing assets or focused on  investments. A comprehensive financial planning approach for university professionals will address three core aspects: investment planning, retirement planning and income distribution, and estate planning. A coordinated financial plan will also evaluate the relationship between the three areas and how decisions in each facet will have an effect on the others. Your financial needs are complex, and having an adviser is a great start. But make sure they have resources to assist with asset management, retirement planning and estate planning. If not, that is the equivalent of a blind spot in your future plan, and you may want to research alternatives.

Your 6-Step Checklist: How to Evaluate a Financial Planner

Step 2: Is the adviser a fiduciary?

Why all the fuss over the commissions paid to brokers and the high cost of some investments? Most people want objective advice; they don’t want to be sold a product. In order to find this advice, it’s important to evaluate the source of the information itself. If a salesperson is paid by commission, then it stands to reason he or she may be motivated to sell investment products. Why not remove this obstacle at the beginning of the process?

Simply ask the adviser: “Are you a fiduciary? Do you represent me first as your client? Do you have the legal duty and responsibility to represent my interest above all others? In other words, are you a buyer’s agent or a seller’s agent?” There is no middle ground to this answer; there’s no riding the fence. The adviser either represents the client or represents the product providers. An adviser that is paid by the client, and not the sale of a product, will be the most objective.

Step 3: Does the adviser work for a vendor or custodian?

One of the many advantages of being a university employee is the access to great vendors that administer university retirement plans. There are many  vendors incorporated into university retirement plans like TIAA, Fidelity, and Vanguard being some of the most common. These custodians offer a great low-cost investment platform and also offer unique investment opportunities you cannot get outside of these plans. Many of these custodians will also have individuals who can help give you advice on investment selection and retirement planning.

As good as these vendors are there are several questions to consider. These vendors are motivated to custody assets the same way as investment brokers are outside of the university. For example, if you have an adviser who works for vendor A, but you also have assets located with vendor B, the adviser cannot advise you on managing those assets. In order to incorporate all of your assets in their planning, they will encourage you to consolidate all assets with them. Often times this might not be in your best interest, as each custodian has unique strengths and opportunities. It is important to understand what those are.

Your 6-Step Checklist: How to Evaluate a Financial Planner

Step 4: Wholesale or retail rates on mutual funds?

With literally thousands of mutual funds in the marketplace, how should one evaluate funds from a cost standpoint? Although this can appear to be a very daunting task, here is how to cut through it with ease.

Most of the investments that are available in university retirement plans have very low expenses, especially when compared to investments sold by brokers. This is true for both the initial acquisition costs and the ongoing expenses. These low costs are a great benefit to participants, particularly when the market is going sideways. Low market returns while paying high expenses is not a winning combination.

The easiest way to increase returns without increasing risk is to lower expenses. Investments purchased through university plans are getting the advantage of wholesale rates. When purchasing investments as an individual, higher retail rates are the norm.

Consider the purchasing power of a large university compared to the average small investment purchase of an individual. The difference is really that of buying investments at wholesale vs. retail prices. How big is the difference between wholesale and retail rates? Huge!

Many times investment brokers will recommend mutual funds as a possible investment alternative. But there is no logical reason to purchase high-cost, commission-based funds through a broker. Mutual funds carry labels that indicate if commissions are paid on that particular fund.

Class A funds pay commission out of the initial investment. The typical commission can be 3 to 6 percent. Class B funds have a back-end surrender charge at the time of liquidation. Don’t settle for Class A or Class B funds, which are retail purchases.

High-commission, high-ex-pense and backend-sur-render penalties equal a profitable deal for the broker and a bad deal for you. Avoid them. Instead, use no-load funds.

No-load funds have low administrative fees and do not have front-end or back-end commissions. Better yet, invest in institutional funds that have extremely low costs.

Step 5: Is the planner pushing IRA rollovers?

An IRA rollover is the transfer of investments from a retirement plan to an individual account without income tax liability.

In general, an IRA rollover is not bad, but before you implement an IRA rollover, the reasons for doing it should be completely clear.

Never complete an IRA rollover for someone else’s reasons. A broker who’s paid on sales commission is transaction motivated. They get paid when you transfer investments from the university plan into the investment products they are selling.

In other words, be aware that you are moving money from a low-cost investment into products that may have high sales fees and other expenses attached to them. When considering an IRA rollover, brokers motivated by commissions are not what you are looking for.

One major reason why a retirement plan participant would choose to do an IRA rollover is to have access to investment choices that are NOT available under the university retirement plan.

Your 6-Step Checklist: How to Evaluate a Financial Planner

Step 6: Be wary of annuities

Investment brokers love to sell fixed and variable annuities. Annuities, in reality, are insurance products manufactured by life insurance companies. Fixed and variable annuities can be excellent financial investments and do have their place in an investment portfolio. Be aware, however, that when annuities are sold by brokers, they have front-end commissions of 2 to 9 percent or more, and even with large purchases by the investor, these commission rates are not reduced. This is why brokers love to sell them.

Investors get price breaks on mutual funds. This is not the case with annuities. A $1-million transfer from a university retirement account into an annuity with a commission of 5 percent will bring the broker $50,000 in commissions. In addition, an annuity has substantially higher internal expenses than a mutual fund. You can expect these annual expenses to be 1.5 to 2.5 percent. That means $15,000 to $25,000 per year is siphoned off a $1 million annuity investment before the balance is invested.

In addition to the huge front-end commission and high internal expenses, most annuities have back-end surrender charges. The annuity investment will lose as much as 9 percent or more of its value if the money is distributed in the early years. High front-end charges, high internal charges and early-surrender charges make for a very high-cost investment choice.


Volume 16, Issue 7

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