Navigating The Insane Complexity of Financial Advice Jargon

JL Collins’ Stock Series, which later grew into his best-selling book “The Simple Path to Wealth”, was life changing for me. His work simultaneously enabled me to take control of my investment portfolio and inspired me to become a blogger and writer. He’s someone I simultaneously consider a hero and friend.

So I cringed when listening to a recent interview he did promoting the updated version of “The Simple Path to Wealth.” Discussing financial advisors, he said the following:

“If you choose to use an advisor, my advice is (to) use a fee-based advisor, not one who is taking a percentage of your assets…that means you are going to have to pay a pretty steep hourly rate…and you’re going to have to be writing out checks as opposed to those fees that… you don’t see them, they’re hidden.”

To be clear, I agree with the substance of what he said and am certain he said it with the best intentions. However, he got the terminology dead wrong. What he is advocating is a fee-only advisor and more specifically a subset of them, an advice-only financial planner.

If Collins, someone with the best intentions who has helped over a million investors who have read “The Simple Path,” including me, is getting this financial advice jargon wrong, then what chance does the average consumer have of navigating it successfully? If you get this wrong as a consumer, it will cost you.

So let’s explore how to navigate financial industry jargon to find the highest quality, least conflicted financial advice at a fair price.

Navigating Credentials

One challenge to finding a good financial advisor is navigating the alphabet soup of credentials. Some big ones are:

• CFP® (Certified Financial Planner)
• CFA (Chartered Financial Analysis)
• CPA (Certified Public Accountant)

However, there are many other credentials. For example, I only recently learned of the PFS™ credential. The PFS™ is a designation available only to professionals who are already CPAs who also demonstrate knowledge in comprehensive financial planning. It is an impressive credential, yet even as someone in the industry with an abnormal interest in this topic, I had no clue it existed let alone what it was until a few months ago.

Other designations are far less impressive. They can be obtained by paying a few hundred dollars and passing a test that requires a weekend or less of study.

What Credentials Demonstrate

Are all these credentials helpful to consumers? They show at least a baseline level of education and competence. 

They also can indicate where the provider’s formal training is focused: comprehensive financial planning for CFPs, portfolio analysis and construction for CFAs, and tax issues for CPAs.

Where Credentials Fail Consumers

However, credentials aren’t good indicators of competence or expertise for your specific needs. They also don’t indicate how the advisor is paid, which unfortunately often dictates the advice you will receive.

I also wouldn’t rule out a provider simply because they don’t have a particular designation. Credentialing creates financial costs and other demands on professionals that aren’t always commensurate with the benefits.

For example, many CFP® professionals are frustrated with the recent announcement that their annual fees are being increased by approximately 25% to fund an advertising campaign. I’ve seen advisors frustrated with the board’s priorities threatening to drop the designation, which isn’t required to practice, in protest. 

Related: Is the Cost and Effort to Become a CFP® Worth It?

As another example, I recently passed all three exams required to be credentialed as an Enrolled Agent (EA) of the IRS. I studied and took the tests to level up my tax knowledge. This benefits me when writing about tax issues and working with clients on tax planning. However, I still haven’t taken the final steps to obtain the designation as I ponder the costs and benefits of holding another designation that won’t enable me to do anything I want to do that I can’t already do.

Bottom line, consumers must look beyond credentials.

Fiduciary Standard

Another common piece of advice is to seek an advisor who is a fiduciary. The fiduciary standard is a legal and ethical standard that requires a financial professional to act in a client’s best interests at all times. 

A couple of thoughts here. 

WTF?!?!?!

First, how insane is it that the whole industry is not held to this standard and the consumer has to ask? Many people who present themselves as financial advisors still operate under the suitability standard.

A substantial portion of financial advisors are held to a standard that doesn’t even pretend to act in the client’s best interests. Take a second to digest that before moving forward.

Can You Legislate Ethical Behavior?

Second, is the fiduciary standard enough? Can you be confident someone operating as a fiduciary will put your interests first? What happens when there are conflicts of interest which are inherent in all financial advice?

Related: Navigating Conflicts of Interest With Investment Advice

By the nature of those questions, you may sense my skepticism. In case you weren’t able to sense it, I’ll say it outright. I’m skeptical!

Let’s look at the CFP® Code of Ethics and Standards of Conduct. It requires “At all times when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary, and therefore, act in the best interests of the Client.” They also provide guidelines for Avoiding or Managing and Disclosing Conflicts of Interest. That all seems great.

Also directly from the CFP® website is a press release celebrating Nortwestern Mutual’s $1 million gift to the board. A headline from Northwestern Mutual’s website notes it “Leads (the) Industry with (the) Most Certified Financial Planners.”

To be clear, Northwestern Mutual is an insurance company. It is the largest life insurance provider in the country. They generated $36 billion in revenue in 2024, primarily by selling insurance products including whole life insurance and annuities that are often not in an individual’s best interests. 

“Advisors” are paid commissions that incentivize them to sell these products. When the fiduciary standard and the ability to put food on the table of the advisor’s family are in conflict, how often does being a fiduciary prevail?

Understanding Compensation Models

This is the basis for my skepticism. You can’t go solely by credentials or blindly trust the fiduciary standard.

I agree with JL Collins’ idea that you have to understand how financial advisors are paid. However, because this is so important and the terminology around it is so confusing, we must take care to get it right.

3 Broad Compensation Models

The National Association of Personal Financial Advisors outlines three ways financial advisors are compensated.

• Commissions-based: The advisor is paid through commissions on products he sells.
• Fee-Only: Compensation is based strictly on fees for services provided. A fee-only advisor can not earn commissions on products sold.
• A hybrid of commission and fees (AKA Fee-Based): An advisor charges fees, but may also collect commissions on products he sells.

NAPFA advocates for the fee-only model. From their website:

“NAPFA’s position is that the Fee-Only method of compensation is the most transparent and objective method available. This model minimizes conflicts and ensures that your financial planner acts as a fiduciary.”

To NAPFA’s credit, they don’t use the fee-based terminology, which sounds similar to fee-only and can easily be confused. However, it is commonly used elsewhere in the industry, making it important to understand the distinction.

Even if you get the fee-only terminology correct when searching for a financial advisor, you still are unlikely to find the type of financial advice Collins advocates for those that need to hire help. Again from the NAPFA website: 

“Fee-Only planners are compensated directly by their clients for advice, plan implementation and for the ongoing management of assets (emphasis is mine). All NAPFA members are required to work only within the Fee-Only structure, accepting no commissions for their work.”

Fee-Only Models

Adding yet another level of complexity, within the world of fee-only advisors, there are multiple ways advisors are compensated which impacts the amount you will pay for advice and the incentives advisors have which may shape that advice.

AUM

The most common way fee-only advisors are paid is through the assets under management (AUM) model. In this model you pay a percentage, typically 1% of your asset value annually, as the fee for managing your assets.

The argument for this model is summed up in Fisher Investments commercials and marketing materials which state, “we do better when you do better.” The basis for this statement is that clients doing better equates to clients having a larger account balance for longer. During this time their advisors would collect higher fees as a percentage of those assets.

However, if that is not your definition of “doing better,” then this model has serious conflicts of interest. There are many examples where AUM advisors do worse if your idea of “doing better” means using money you would have otherwise left invested. They include:

• Increasing your spending in retirement,
• Paying off your mortgage, doing major home renovations, buying a larger more expensive home, a second home, or investment property,
• Gifting money to your kids for education, a wedding, a home down payment, or any other way you want to help them get started in life,

The other downside of this model is that the fees are hidden out of site and out of mind. Thus they tend to be much larger and more sticky than most investors realize as they pay the fees without ever seeing them. 

Those fees grow over time with your portfolio. This creates a significant drag on your investment returns.

Advice-Only

It took me about 1,500 words to get to what JL Collins was actually describing and what I regularly advocate for those seeking a financial advisor. Unfortunately, it is necessary because there is so much confusing jargon to get here.

Full disclosure, my opinion is biased. The work I do through Abundo Wealth is all under the advice-only model. At Abundo, we only offer an ongoing subscription model for advice.

Abundo’s founder, Eric Simonson, also developed the Advice-Only Network. This is a group of advisors vetted to ensure they only use the advice-only model. This would be a great place to start if you want a one-time consultation or other limited engagement but not ongoing planning.

Advice-Only’s Conflicts and Downsides

Even while advocating for advice-only, I acknowledge every financial advice model has conflicts of interest and downsides. The biggest conflict of interest with advice-only is the possibility that an advisor might overcomplicate things to justify her existence.

That said, I find in my work the opposite is true. One of the things I frequently spend my time on is helping clients simplify their financial lives.

There are different flavors. They  include determining what to do with products like annuities and whole life insurance contracts sold by those incentivized by commissions as well as simplifying mind-numbingly complex investment portfolios recommended by those paid to manage those investments.

The biggest downside of advice-only planning is that you still have to implement the advice. Advice-only can be great if you are stuck in paralysis by analysis leaving you unsure what to do. It is not great if you already know what to do, but are the type of person that struggles to take action to get those things done.

Upsides of Advice-Only

The upsides for Advice-Only are many. First, it is the least conflicted model of paying for financial advice. You’re not being sold anything. Your fees aren’t dependent on the size of your portfolio.

On the flip side, you’re not restricted from getting quality financial advice because you don’t already have a sizable portfolio. Advisory fees are completely divorced from your investments.

While you could seek an advice-only planner who focuses on investment portfolios if this is your pain point, advice-only advisors tend to be more holistic. This is to your benefit as the consumer. The places where an advisor can add the most value are in tax planning and navigating complex programs including Social Security, student loan forgiveness, and health insurance/Medicare. 

Advice-only fees can seem expensive because you have to pay them directly by pulling out your credit card or checkbook. However, because you see exactly what you are paying, you will be much more likely to pay only for advice that adds value for you.

Simplifying the Complex

The irony is not lost on me that I’m suggesting the addition of the term “advice-only” to the already confusing world of financial advice jargon. This includes the alphabet soup of industry credentials, the well-intentioned but likely ineffective fiduciary standard, and advisory fee models that are anything but transparent.

While we can’t change all that has come before us, advice-only is the most clean and unconflicted way to pay for financial advice. Hopefully, starting your search with this term will simplify the process and give you the best chance at getting the quality advice you desire and deserve at a fair price.

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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning.

After achieving financial independence, Chris began writing about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence.

Chris also does financial planning with individuals and couples at Abundo Wealth, a low-cost, advice-only financial planning firm with the mission of making quality financial advice available to populations for whom it was previously inaccessible.

Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He has spoken at events including the Bogleheads and the American Institute of Certified Public Accountants annual conferences.

Blog inquiries can be sent to [email protected]. Financial planning inquiries can be sent to [email protected]]

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