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How to choose a financial advisor

Find the right advisor for you

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Money matters can be complicated, which is why hiring a financial advisor is so important. Having a professional by your side can help you make educated decisions and achieve your financial goals.

There are a lot of financial advisors out there, so here are some steps to finding the right one.

1. Ask yourself: Do I need a financial advisor?

Hiring a financial advisor may not be the right choice if you’re dealing with less significant decisions or small amounts of money.

However, there are a lot of reasons you may need a financial advisor. Put simply, if you’re making a financial decision that you’re not confident about, the experience and education of a financial advisor can help. This is especially true for important matters like building your retirement account or financial portfolio.

2. Choose the services you need

Financial advisors can help you:

  • Save money
  • Plan for your future
  • Invest
  • Manage your wealth
  • Buy insurance
  • Navigate your taxes

However, not every advisor offers every service.

Think about what you need help with. Are you looking to invest for retirement? Do you have a complicated financial situation that you need guidance on?

3. Consider the type of financial advisor you need

There are various types of financial advisors, including:

  • CPAs
  • Financial planners
  • Registered representatives
  • Money managers
  • Registered investment advisors
  • Registered representatives
  • Certified financial planners
  • Chartered financial analysts
  • Personal financial specialists

These professionals can have a wide range of qualifications and offer different services. It’s generally a good idea to find advisors that specialize in the services you need and prioritize those with more advanced qualifications. Keep in mind that some advisors only deal with accounts that involve a minimum amount of assets, though.

If you just want to be able to make investments and trades on your own, a robo-advisor may be a good option for you.

4. Do some research and make a list

Read reviews from past clients to see if they’re legit.

Take some time to look into organizations and individuals in your area or online that you want to work with. Make a list of these available options. Then consider your overall goals and how well each option matches your needs.

Research your choices carefully. Find out how financially stable they are, what type of investments they've handled in the past, their success rates and what types of people they usually work with. The more information you have, the better. Working with a financial advisor involves an element of trust, so you want to be confident in their abilities.

5. Consider the costs involved

Advisors don’t work for free. Their pricing can depend on multiple factors, but most advisors charge in the following ways:

  • Commission is a percentage charged when they buy or sell on your behalf. These generally range from 3% to 6%.
  • Flat fees cover specific services in their entirety. For example, creating a new financial plan often ranges from $1,500 to $7,500.
  • Hourly rates are often used for services that vary in difficulty. These rates usually start at $100 an hour.
  • Assets under management (AUM) fees are a percentage of the assets in your account(s) with a given advisor. These fees generally range from 0.5% to 2% of your assets under management.

If a person is providing you with suggestions and managing your portfolio, you are going to pay more for that service than if you were to hire a robo-advisor.

Expect robo-advisors to charge an annual fee based on the balance in your account. These fees are often as low as 0.25% of AUM, but they can be as high as 1%.

6. Book introductory meetings with the advisors you shortlisted

Once you have some idea of who you want to work with, set up meetings to talk with them. This is usually a free consultation, but some organizations charge a small fee.

During the meetings, ask questions and get to know each advisor. See what services they offer, find out their pricing (if you haven’t already) and get clarity on any details you’re unsure about. You don’t have to make a decision immediately, but combined with your earlier research, you should have enough information to make an informed decision and choose the right financial advisor.

What is a financial advisor?

Financial advisors provide financial advice and services to their clients. This title is actually an umbrella term for a variety of jobs, ranging from tax guidance to wealth management. There are no specific qualifications to become a financial advisor, but many of the more specific titles and certifications listed above require advanced education or experience.

Financial advisors can help you:

  • Trade investments
  • Manage your assets
  • Create custom financial plans
  • Develop tax strategies
  • Save for your children’s education
  • Prepare for retirement

Questions to ask a financial advisor

During your initial appointment with a financial advisor, you should ask questions to get insights into what these professionals can do for you. The key to remember is that this is an interview – you're hiring this person to help you build your wealth. You need to be sure they're experienced and dedicated to helping you do well.

Here are some questions to ask financial advisors in the first meeting. (You can also use this as a financial advisor meeting checklist to get started.)

What are my costs throughout the process?

Be sure to understand the fee structure for everything they may charge you. Ask when fees come out and how often you can expect to see changes in the fees over time. Also, inquire about the various situations that could affect these costs, such as what happens if your investment loses money. Try to get all of this information in writing.

What makes you qualified to work with me?

Find out about their skills and training. What type of education did they get? Where did they get their education? Also, ask more about their specific experience in working with people like you.

What are your credentials?

Ask about licensing and credentials to gain more insight into their experience and ethics. This can also tell you what type of services they're allowed to provide clients and what type of oversight they have.

Do you have investment benchmarks you follow?

Ask what strategies and specific goals they use. It’s helpful to get an idea of what they do so you can know how well this fits into your own specific needs and goals.

How do taxes change if I work with you?

This is often a straightforward question, but it’s also good to see if the advisor is working with your tax savings in mind. They may even be able to alter their strategies to help you save money on taxes.

Are you a fiduciary?

Fiduciaries are people obligated to act in another person’s best interest. Essentially, fiduciaries put your interests ahead of their own. Advisors that aren’t fiduciaries may be influenced by other factors.

Essentially, fiduciaries put your interests ahead of their own.”

How do you get paid?

This ties into the earlier question about costs, but you want to think about their answer in terms of what motivates their actions. If they get paid a commission every time you make a transaction, they may be motivated to recommend more frequent transactions. This is one reason fiduciary status is so important.

In what ways do you measure success?

Find out how you'll know if the account is growing and doing well. You might also want to know what type of goals they set so you can monitor progress toward reaching them.

What documents do you need from me?

If you're ready to set up an account, you will generally need your personal information, including your Social Security number, and relevant financial documents. Talk to your advisor to see what they need from you and how you can submit these documents.

Are there any conflicts of interest I should be aware of?

It’s crucial to know about the relationships your financial advisor has with others in the industry. You don't want them recommending something to you because of their personal profit potential.

Bottom line: Should I hire a financial advisor?

If you want help managing your finances and meeting monetary goals, hiring a financial advisor is often a smart choice. Every situation is different, though. That’s why it’s critical to find an advisor that specializes in the issues you’re facing and helping people like you.

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