It is easy to find an advisor who sounds knowledgeable.
It is much harder to determine whether their business is actually built around good advice.
Terms like financial advisor, wealth manager, financial planner, and investment consultant can be very confusing. Two advisors may use the same title while offering completely different services.
One may prepare your taxes, run retirement projections, help with Social Security decisions, and coordinate your investments with the rest of your financial plan.
Another may mainly manage your portfolio and refer you elsewhere whenever a question falls outside of the investment account.
That does not necessarily make one advisor bad. It does mean you should understand exactly what you are hiring someone to do.
These four questions can help you dig deeper to understand how an advisor actually operates:
1. “How Do You Do Tax Planning?”
Do not stop at asking whether an advisor offers tax planning.
Almost everyone will say “yes”.
Ask them to explain exactly what they do for clients throughout the year.
Real tax planning goes far beyond deciding whether to contribute to a traditional IRA or a Roth IRA. It may include:
- Preparing & reviewing your tax return each year
- Managing capital gains
- Identifying tax-loss harvesting opportunities
- Minimizing tax during inheritance and wealth transfers
- Running Roth conversion projections
- Planning around required minimum distributions (RMDs)
- Choosing which investments belong in each type of account (brokerage, IRA, Roth, etc.)
- Planning tax-efficient retirement withdrawals
- Accounting for Social Security taxation
- Estimating the effect of income on IRMAA-adjusted Medicare premiums
- Creating a tax strategy for real estate assets
Each of these decisions can affect the others significantly.
For example, a Roth conversion may reduce future required minimum distributions. But it may also increase your current tax bill, cause more of your Social Security to become taxable, or increase your Medicare premiums in a future year.
A good advisor should analyze and show you all the tax tradeoffs behind their decisions rather than just focusing on your investment portfolio.
Strong tax planning needs to be updated regularly, not just in April. A strategy that made sense last year may no longer make sense after an income change, retirement, inheritance, new tax law, or major market movement.
Green Lights
- The advisor can clearly explain their process.
- They may prepare and review your tax return annually, run multiyear projections, estimate future required distributions, evaluate Roth conversions, and look for opportunities to minimize capital gains tax.
- They should also explain how tax planning connects with the investment and retirement recommendations they make.
Red Flags
- The advisor gives a vague answer or immediately tells you to simply “speak with a CPA”.
- Tax planning appears to mean little more than asking whether you prefer Roth or traditional contributions & doing tax-loss harvesting a few times during the year.
2. “Are You Fee-Only, and Do You Act as a Fiduciary 100% of the Time?”
Fee-only and fiduciary are separate terms.
Fee-only describes how the advisor is compensated. A fee-only advisor is paid directly by clients and NEVER receives commissions from recommending any financial products.
Fiduciary describes the legal duty the advisor may owe you when providing advice. A fiduciary is required to place the client’s interests ahead of their own.
These distinctions matter because some advisors charge clients an ongoing advisory fee while also earning commissions when they recommend annuities or insurance products.
That arrangement is often described as “fee-based”, which is very different from fee-only.
When a fee-based advisor is providing investment advice, they may be acting as a fiduciary. When they sell an annuity or insurance product for a commission, they may be acting as an insurance salesperson instead, which falls under a looser legal standard.
In that situation, the advisor may not be required to act as a fiduciary for the recommendation.
That distinction matters. An advisor could tell you they are a fiduciary while managing your investments, then earn a large commission selling you an annuity or insurance policy under a different legal standard.
A fee-only advisor can still advise a client on annuities and insurance, but they aren’t allowed to be paid a commission for the sale of the end product.
Green Lights
- “Yes, we are fee-only, and we act as a fiduciary 100% of the time when providing any financial advice.”
- Willing to put their fee-only fiduciary commitment in writing.
Red Flags
- The advisor avoids giving a direct answer or uses “fee-only” and “fee-based” as though they mean the same thing.
- Ask whether the advisor receives commissions, referral payments, sales incentives, or additional compensation from any company whose products they recommend.
3. “What Are My Total Fees?”
Many investors know the percentage they pay their advisor.
Far fewer know the additional costs that may be hiding in their portfolio.
The advisory fee may be only one layer. Depending on the firm and investments being used, you could also pay:
- Mutual fund or ETF expense ratios
- Commissions & sales loads
- Platform/custody fees
- Trading costs
- Third-party money manager & sub-advisory/SMA fees
- Insurance & annuity expenses
- Surrender charges
- Financial planning fees
Some costs appear directly on your statement. Others are deducted inside the investment and can be easy to miss.
An advisor might charge 1% while also using funds that cost another 0.75% per year. In that case, the client’s total cost is closer to 1.75%, before accounting for any other charges.
That difference becomes meaningful over a long period of time.
Fees are not the only factor when choosing an advisor. The services you receive matter too. Still, you should know the fees you are paying and what you receive for it.
Green Lights
- The advisor explains each layer of cost in plain English.
- They should be able to state the advisory fee, investment expenses, and any other charges you may incur.
“On a $1M portfolio, our advisory fee would equal approximately this amount each year. The investments we typically use would cost approximately this amount. We do not receive commissions, and your estimated total annual cost would be approximately this much.”
That gives you a number you can compare.
Red Flags
- The advisor only discusses the management fee.
- The advisor mentions that they earn commissions.
- Be very careful if they dismiss investment expenses or commissions as insignificant, or claim they cannot estimate total fees.
- Advisor mentions proprietary products or investments that create additional compensation for the advisor or parent company.
4. “Is Your Firm 100% Independent?”
Independence is another term that can mean different things depending on who is using it.
Some advisors are employees of banks, insurance companies, or large brokerage firms. Others operate under a separate company that controls their investment platform, compliance structure, or approved product list.
An advisor may describe themselves as independent while still working under a large parent organization.
That does not automatically mean their advice is bad. It does mean you should understand the structure.
Ask who owns the advisory firm.
Ask whether the firm offers proprietary investments.
Ask whether the advisor is limited to an approved list of products or providers.
Ask whether any company pays the advisor more for recommending one solution over another.
A true independently owned firm like Kraft Capital generally has more freedom to compare investments, custodians, and planning strategies when we don’t have to answer to any shareholders or large corporate interests.
Independence by itself does not guarantee quality.
It can, however, eliminate the pressure an advisor has to meet sales quotas or recommend products tied to certain companies.
Green Lights
- The advisor clearly explains who owns the firm and whether any outside company influences the recommendations being made.
- “Yes. We own 100% of our own registered investment advisory firm. We do not have proprietary products, sales quotas, or a parent company directing which investments we recommend.”
Red Flags
- The advisor becomes defensive, avoids discussing ownership, or argues that there is no meaningful difference between an independently owned firm and one operating under a large parent company.
- Another concern is an advisor who claims to have access to everything but consistently recommends products issued or managed by the same affiliated companies.
- Ask to see the firm’s Form ADV. This document can provide information about ownership, fees, services, conflicts of interest, disciplinary history, and other important details.
How Kraft Capital Answers These Questions
Kraft Capital is a fee-only, 100% independently owned and family-operated firm.
We provide investment management, tax planning & preparation, and ongoing financial planning.
Tax planning is completed year-round based on our Service Calendar, and is coordinated with your entire financial picture. This includes preparing your tax returns or reviewing them if completed by an outside CPA, running Roth conversion projections, managing capital gains/losses, planning retirement withdrawals, and accounting for Social Security taxes and Medicare premiums.
Our fees are explained clearly before a client ever signs an agreement.
Kraft Capital never receives commissions for recommending investments or financial products. We do not have proprietary funds, sales quotas, or a parent company controlling our recommendations.
We don’t have to answer to corporate interests, just our clients.
What a Consultation Includes
Kraft Capital offers a complimentary 30-minute consultation for those who want a second opinion.
The review may cover:
- What you are currently paying
- The hidden expenses of your investments
- Whether your portfolio matches your long-term financial plan
- Whether tax planning is being handled proactively
- Retirement planning opportunities
- Services you may not be receiving from your current advisor
- Clear next steps you can consider
If everything looks good, we will tell you.
If we find areas worth reviewing, we will explain them clearly and show you why they matter.
To schedule a complimentary consultation with Kraft Capital, please click the button below!
– Clint Kraft
Founder and Financial Advisor, Kraft Capital