How to choose a financial advisor

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If you’re seeking professional help to manage your finances, you have a variety of advisors to choose from. Financial advisors offer various services, may carry a variety of certifications and operate under several different fee structures.

Here’s how to choose a financial advisor that’s appropriate for your situation.

1. Decide what you want to accomplish with a financial advisor

Before you seek out a financial advisor, ask yourself what your financial goals are. If you want a financial advisor to build you a holistic financial plan that addresses every aspect of your financial life including debt management and retirement planning, you may want to seek out a certified financial planner (CFP) who can design a financial roadmap and guide you every step of the way. If you only want investment advice and portfolio management, a registered investment advisor (RIA) may be a good option. RIAs can include both human and robo-advisors.

No matter what kind of advice you need, you can typically find a financial advisor specializing in one or more of these services:

• Financial planning
• Budgeting and savings
• Debt management
• Investment advice
• Portfolio management
• Tax planning
• Home buying and mortgages
• Insurance
• Retirement planning
• Estate planning
• Wealth management

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• Access a team of fiduciary portfolio management specialists and financial, tax and estate planning professionals.
• Transparent fee structure with no commission-based products.
• Get tax-efficient wealth management that reduces your tax burden and preserves more of your assets.
• Tailored financial plans for your unique needs and goals.
• Ongoing consultations to adapt your evolving plan.

2. Learn about the types of financial advisors

Financial advisor is an umbrella term covering many professionals that provide financial advice. CFPs, financial coaches and RIAs are different types of financial advisors. But always ask a financial advisor if they’re a fiduciary before hiring them.

Fiduciary advisors are legally required to put their client’s best interests above their own. Whether an advisor operates under the fiduciary standard often depends on their official designations.

Fiduciary advisors

Here are two types of financial advisors that are legally fiduciaries:

• Registered investment advisors. An RIA is an individual or company that specializes in securities advice and investment management. They are required to be fiduciaries and must register with the Securities and Exchange Commission (SEC) or state regulators.⁽¹⁾
• Certified financial planners. A CFP is a fiduciary who designs financial plans that can address various financial goals like debt management, savings and retirement planning. Many CFPs work on a fee-only basis, meaning they’re compensated only for giving you financial planning advice, and they don’t earn commission for selling any financial products.

Non-fiduciary advisors

Here are two types of financial advisors that may not be fiduciaries:

• Commission-based financial advisors. Sometimes called fee-based financial advisors, these professionals may earn commissions for selling you particular investment or insurance products. Getting you to invest in one particular fund over another because it offers a commission fee may create a conflict of interest.
• Broker-dealer. These are firms or individuals licensed to sell securities like stocks, bonds and mutual funds. Broker-dealers adhere to the suitability standard, which means they can recommend securities that pay them the highest commissions as long as they reasonably align with the client’s financial profile, investment goals and other circumstances.⁽²⁾

3. Choose how you want to work with a financial advisor

Financial advice is available in many ways these days. You can get advice from an individual, a digital platform or a combination of both.

Online financial advisors

Some firms offer suites of digital financial services alongside financial advice. For example, in addition to virtual meetings with an advisor, the financial services firm Empower offers digital tools like a dashboard to track all your financial accounts and an interactive retirement planner, as well as access to a self-directed brokerage account and portfolio management services. Meanwhile, SoFi Invest® provides a robo-advisor and digital financial management tools, plus access to financial planners. Members of Facet get access to CFPs as well as financial management tools and a retirement portfolio.

• Best for: Those who want financial advice entirely or almost entirely online, with meetings taking place virtually or by phone.
• Look elsewhere if: You prefer to meet with an advisor in person.

Traditional, in-person financial advisors

Those who want face-to-face advice can always go with a traditional financial advisor. Various financial advisor marketplaces like Zoe Financial and Wealthramp can connect you to in-person financial advisors in your area based on your specific needs. The National Association of Personal Financial Advisors is also available to match you with fee-only financial advisors in your area.

• Best for: Someone who wants personal, one-on-one financial advisory services.
• Look elsewhere if: You prefer a primarily digital approach.

Robo-advisors

A robo-advisor is a digital platform that uses an algorithm to build and/or manage an investment portfolio on your behalf based on your financial goals, risk tolerance and time horizon. Advisory fees for robo-advisors tend to be less than a traditional financial advisor, but you also don’t get as comprehensive of advice.

Robo-advisors aren’t financial advisors in the traditional sense. Unless there’s a human component to the service, the “advice” is limited. You typically complete a questionnaire and the robo-advisor recommends a portfolio. It then applies an algorithm to keep your portfolio allocation on track. That’s about the extent of it.

Examples of robo-advisors include Wealthfront, Acorns and Frec. Wealthfront and Acorns are typical robo-advisors, in that they recommend and manage a portfolio of ETFs on your behalf. Meanwhile, Frec is an automated direct indexing platform — you build a portfolio of individual stocks to match a target index and then Frec automatically manages and rebalances your portfolio, harvesting tax losses to try to save you money.

• Best for: Hands-off investors who want to pay low advisory fees for portfolio construction and management.
• Look elsewhere if: You want to interact with a human financial advisor or are looking for financial planning that goes beyond portfolio management.

Dive deeper: Robo-advisors vs. financial advisors: What's the difference?

4. Understand financial advisor cost structures

Depending on their fee structures and the scope of your financial needs, financial advisor costs can vary widely. Advisors with hourly fees typically charge in the range of $120 to $300 per hour. Those charging an assets under management (AUM) fee may charge 0.5% to 2% of the assets they manage on your behalf.⁽³⁾ So, an annual 0.5% AUM fee on a $20,000 portfolio would translate to a $100 fee per year.

Here’s a look at different financial advisor costs:

Fee type	Typical cost
AUM	0.5%–2%
Hourly fee	$120–$300
Per-plan fee	$1,000–$3,000
Commissions	3%–6%(4)
Performance-based fees	20% of the returns above benchmark

5. Research financial advisors

When planning your financial future or handing off your money to be invested, it’s crucial to do your homework. Not all financial advisors are created equal, so here are a few things to consider as you search.

• Ask them if they are legally obligated to work as fiduciaries to clients at all times
• Compare costs and fees
• Look them up on Broker Check by the Financial Industry Regulatory Authority (FINRA) to verify their credentials
• Verify CFPs on the CFP Board

8 important questions to ask a financial advisors

Before you shake on it, ask your would-be financial advisors some key questions.

1. Are you a fiduciary? Fiduciaries are legally obligated to act in your best interest, while non-fiduciary advisors can push certain products on you because it makes them money.
2. What are your credentials? FINRA recognizes more than 200 professional designations such as chartered financial analyst (CFA) and certified tax specialist (CTS).
3. How do you get paid? Financial advisors may operate under a variety of different fee structures, like fee-only and commission-based.
4. What advisory and planning services do you offer? Available services can vary from debt management to retirement and estate planning. Make sure they specialize in what you need.
5. What’s your financial planning approach? You may prefer frequent in-person meetings or a more digital approach. Make sure you feel comfortable with your advisor’s planning approach.
6. Do you have any conflicts of interest? Advisors who are also working for third parties like mutual funds or insurance companies may earn commissions by recommending specific products that may not be in your best interest but earn the advisor more money.
7. How often will we meet? Interaction with your advisor may be more frequent depending on the complexity of your financial needs.
8. Are you dually registered as a broker-dealer and investment advisor? If they’re dually registered, they’re required to act as fiduciaries when building financial plans but can act under the less strict suitability standard when selling financial products.

Compare financial advisors

Compare financial advisors by available asset types and minimum deposits. Select Go to site to sign up for an account or More Info for a comprehensive review.

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Bottom line

If you think you need a financial advisor, choosing the right one takes an understanding of what these different financial professionals offer, how they’re paid and whether they’re legally obligated to act in your best interest.

Frequently asked questions

What is the best way to pick a financial advisor?

One effective way is to use an online marketplace that connects you to fiduciary financial advisors.

How do I know which financial advisor to use?

Knowing which financial advisor to use depends on the kinds of services you need. So, ask if they specialize in those areas and verify their credentials.

What are seven things you should look for in a financial advisor?

Look for the following seven things in a financial advisor:

• Are they legally required to work as fiduciaries at all times?
• Do they work on a fee-only basis?
• Do they have FINRA-recognized designations?
• Are they registered with the SEC or state regulators if offering investment advice?
• Do they specialize in the advisory services you seek?
• Do they work under the suitability standard?
• Do they work on a fee-based structure?

How much money should you have before seeing a financial advisor?

Anyone with a need for financial guidance can consider a financial advisor. Some wealth management firms have investment minimums of $1 million, and some robo-advisors have no investment minimums. Compare minimum asset requirements across advisor.