How to choose a financial advisor

Key points

• Knowing what services you need from a financial advisor is an important first step.
• Not all advisors call themselves fiduciaries.
• Financial advisors can charge fees or commissions, though it’s common for clients to pay a percentage of their assets under management.

A financial advisor can rescue you when you’re experiencing a major life change or simply need help with your finances. These professionals can help tackle various financial challenges — from managing your cash flow and finding the best low-risk investments to devising a plan to save for your child’s college education.

But given the sheer number of professionals and types of credentials, finding the best and most trustworthy advisor for you can be difficult. To simplify your search, we’ve broken down what you need to know about financial advisors, the available types, and how to choose the right one.

Decide on the financial services you need

Financial advisors can offer various financial services, from cash flow management to estate planning. Here’s a general overview of some services they can provide: 

• Cash flow management and budgeting.
• Debt management.
• Retirement planning.
• Investment management.
• Tax plan.
• Estate planning.
• Planning for financial goals.
• Overall financial advice.

Knowing what services you need from a financial advisor is an important first step in finding the right one. Remember that an advisor who’s the best fit today might not be the best fit in a decade or two, depending on how your financial situation and goals change.

How to choose a financial advisor

While there is no crystal ball to predict what financial shifts will occur in your lifetime, your current needs can guide you as you begin your research.

To find a financial advisor who is right for you, you must first understand your situation to determine the help you need. 

Key aspects of life, such as age, geographic location, marital status, and family plans, dictate what type of advisor makes sense. For example, someone nearing retirement with adult children needs guidance differently from someone starting their career and expecting their first child.

Financial advisors operate in many roles, with distinctions based on expertise and certifications. Whether your primary objective is saving for retirement, creating an estate plan or maximizing your investments, you can find an advisor to help you achieve your goals. 

Registered financial advisors

Some advisors may be more comprehensive, while others may be more specialized. Different titles may provide similar services. For example, a wealth manager and retirement advisor can offer retirement planning and wealth management services. 

Remember that while some designations, such as a certified financial planner and registered investment advisor, require professionals to meet certain criteria to use them, anyone can call themselves a financial advisor. 

You’ll want to ensure your financial advisor is properly licensed with a certifying organization, such as the CFP Board, Securities and Exchange Commission, or Financial Industry Regulatory Authority.

Fiduciary advisors

Another important factor is whether the financial advisor is a fiduciary, meaning they must act only in their client’s best interest.

“A fiduciary responsibility is the highest standard of responsibility and liability any individual or professional can have,” said Ronnie Thompson, an investment advisor representative and owner of True North Advisors. “If an advisor is operating their practice as a fiduciary on behalf of their clients, this can cover a great deal of the concerns one might have when choosing the right financial advisor.”

Certified financial planner

One common type of financial advisor is a certified financial planner. CFPs offer comprehensive financial planning and must undergo rigorous training and pass a series of exams. 

A CFP can help you formulate a holistic plan for your financial goals, from investing to saving for big expenses. CFPs also have a fiduciary duty to their clients, meaning they must put your interests ahead of their own. 

Registered investment advisor

Investment advisor is a legal term for an individual or company registered with the SEC or a state securities regulator to provide investment advice for a fee. The SEC regulates larger investment advisors, while state agencies regulate smaller investment advisors. Registered investment advisors are fiduciaries. 

Investment advisors give investment advice but may provide other services, such as portfolio management. They may go by names like asset managers or wealth managers.

Wealth manager 

Wealth managers typically work with high-net-worth individuals and provide services beyond standard investment management. The SEC defines high-net-worth individuals as those with a net worth of at least $2.2 million, or $1.1 million in assets under management.

These managers oversee various aspects of a client’s wealth, often combining investment management, financial planning and tax strategies.

But you should note that not all wealth managers are fiduciaries, so inquire before partnering with one.

Insurance agent/broker

Insurance brokers and agents search the marketplace on behalf of clients to help them select products. They can also be captive, representing a single insurance company and selling only its products.

“Insurance brokers are typically limited in the scope of what they can or cannot provide as a service,” said Steven Conners, founder and president of Conners Wealth Management. “Many will help with life insurance needs and the part of financial planning focused on mitigating risks.”

Retirement advisor

Retirement advisors specialize in financial planning for people in or approaching retirement. They may also focus on taxes and how they can impact your retirement. 

Retirement advisors can help you transition from earning income to living off savings and investments.

Fee-based financial advisors

A fee-based financial advisor charges clients a fee for their services. Here are the most common fees advisors charge:

• Assets under management: For this fee, advisors charge a percentage of the assets they manage. According to Advisory HQ News Corp., traditional advisors often charge around 1% AUM for investment amounts of $1,000,000 or less. Robo advisors usually cost less than traditional advisors. 
• Flat fee: Some advisors charge a flat fee for their services. The fee may be applied annually or as a one-time fee for creating your financial plan. 
• Hourly fee: Some advisors charge an hourly fee, meaning you’ll only pay your advisor when they’re actively working for you. Regarding fees, fee-only financial planners may charge around $200 to $500 per hour, according to Wealthramp.

Weigh your options

In recent decades, financial planning services have become increasingly accessible. You may not even need to work with a human advisor to get the help you need.

Robo-advisors

A robo-advisor is an automated financial advisor that uses algorithms to build client investment portfolios. This can be the easiest way to start receiving investment guidance, as many platforms can create a portfolio in minutes. 

Robo-advisors can be more cost-effective than human advisors. According to AdvisoryHQ, robo-advisor fees typically range from 0.25% to 0.50% of your account balance per year. In comparison, human advisor fees usually range from 0.59% to 1.18% of assets under management, depending on the amount invested. 

It’s common to see financial management fee charts, such as the one below, that express the percentage charged for the amount of assets invested. 

Remember that you won’t get the same personalized advice from a robo-advisor that you would from a human advisor, although some robo-advisors offer access to human advisors.

Traditional financial advisors

Consider working with a traditional financial advisor as your financial situation becomes more complex. 

“While robo-advisors can offer cost-effective, accessible and automated investment solutions, they do not provide personalized comprehensive financial planning and advice,” said Stephen Langlois, president of Kestra Financial. 

Traditional advisors typically provide tailored recommendations, financial planning and guidance based on your unique situation and goals.

Online financial planning services 

Gone are the days of being limited to financial professionals in your geographic area. Now, you can find online advisors who can help you wherever you are.

Online financial planning services are a great middle-ground for people with situations that are too complex for a robo-advisor but want to avoid the hassle of meeting a human financial advisor in person. Overall, finding a professional you trust who has experience with clients like you is important.

Choosing the right advisor for you

A key factor in deciding which financial advisor to work with is how much you can afford to pay. 

Robo-advisors are typically the cheapest option, but depending on the complexity of your situation, paying for more comprehensive services from a human financial advisor may be worth it. 

Determine how much you can afford to pay an advisor

Financial services can be costly and vary based on the advisor and firm. The three common ways advisors are paid are commissions, hourly or flat fees, and advisory fees.

Understanding the all-in costs of an advisor can help you determine if working with them is worth the investment. Don’t be afraid to come out and ask the advisor how much working with them will cost. If they can’t give you a straight answer, you may be better off with another advisor. 

Check the advisor’s credentials and social media

You can start researching financial advisors after you identify the services you want. There are a few ways to check an advisor’s credentials.

You can verify a professional’s CFP certification on the CFP Board website. You can find additional regulatory information through the Financial Industry Regulatory Authority and SEC websites.

One of the best ways to find a reputable advisor is by asking friends and family for recommendations. You can also consult your banker or attorney.

To see honest feedback from clients, check out what others say online. Google reviews and social media platforms can be useful tools for seeing the standard of service you can anticipate.

The bottom line is that you want to choose someone you can trust and who has a proven track record of helping people like you. 

Frequently asked questions (FAQs)

Is hiring a financial advisor worth it?

Whether or not hiring a financial advisor is worth it depends on your financial situation. A financial advisor may not be necessary if you have relatively simple finances and are comfortable managing your investments. 

If you’re going through a major life change, have a complex financial situation or aren’t comfortable managing all areas of your finances, a good financial advisor might be right for you.

Where can I get free financial advice?

There’s no shortage of free advice available online, but it’s important to ensure you get information from trustworthy sources. Many financial institutions, including banks, credit unions and brokerage firms, share free educational articles and host events. 

You can even turn to the Consumer Financial Protection Bureau, a U.S. government agency, which ensures that banks and financial institutions treat consumers fairly. Or check out the many organizations that certify financial professionals, such as the Certified Financial Planner Board of Standards, also known as the CFP Board.

Finally, you can get advice directly from financial advisors. While many require that you pay for their personalized advice, you can find free articles that were either written by or include advice from credentialed financial professionals.

How much should I expect to pay a financial advisor?

The cost of a financial advisor can vary, but many traditional advisors charge 1% of assets under management. So if your advisor is managing a portfolio of $100,000, you can expect to pay about $1,000 annually.