How to Choose a Financial Advisor

Financial advisors exist for every budget and situation. Here's how to choose the right financial advisor for you.
Alana Benson
By Alana Benson 
Updated
Edited by Arielle O'Shea Reviewed by Tiffany Kent
How to Choose a Financial Advisor

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Nerdy takeaways
  • The first step in choosing a financial advisor is identifying your own needs. Do you need budgeting help? Tax help? Investment advice?

  • Then you'll need to determine which type of financial advisor is right for you. Online, automated or traditional?

  • Once you've found a financial advisor whose expertise and fee schedule suits your needs, it may be time to meet with them and hire them.

Nerdy takeaways
  • The first step in choosing a financial advisor is identifying your own needs. Do you need budgeting help? Tax help? Investment advice?

  • Then you'll need to determine which type of financial advisor is right for you. Online, automated or traditional?

  • Once you've found a financial advisor whose expertise and fee schedule suits your needs, it may be time to meet with them and hire them.

A financial advisor helps people manage their money and reach their financial goals. Advisors can provide a range of financial planning services, from money management and budgeting guidance to investment management.

Some financial advisors have additional certifications or expertise that allow them to help with complex financial topics, such as estate planning, insurance needs or tax preparation.

The number of different services and areas of expertise advisors provide makes finding the right financial advisor for your situation key — doing so means you won't end up paying for services you don't need, or working with an advisor who isn't a good fit for your financial goals.

Here are six steps to help you choose a financial advisor for you.

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Step 1: Identify your financial needs

Before you start looking for the right advisor, reflect on what you're hoping to get out of that relationship. Financial advisors provide a wide range of services, so it's a good idea to know what you need help with before you begin your search. Some advisors may specialize in particular areas of finance, such as debt management or investment advice, while others may provide holistic help, guiding you on everything from savings goals to retirement and estate planning.

Identify why you're looking for financial help by asking the following questions:

  • Do you need help with a budget?

  • Do you want help investing?

  • Would you like to create a financial plan?

  • Do you have savings goals you need help reaching?

  • Do you need to get your estate plan in order or create a trust?

  • Do you need tax help?

  • Are you interested in holistic financial management?

Your answers to these questions will help you find the right kind of financial advisor for you. And it could also help you to decide whether you need one at all. For example, if you just want assistance investing, a robo-advisor can invest for you for a minimal fee. On the other hand, if you have a complex financial life with multiple concerns you want to address, you may want to find an online or traditional financial advisor. (More on both options below.)

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Step 2: Understand the types of financial advisors

Financial advisors go by many names: investment advisors, brokers, certified financial planners, financial coaches and portfolio managers. There are even financial therapists. Some of the most common titles advisors use, including the term "financial advisor" itself, aren't tied to any specific credentials, so don’t assume that someone who uses an official-sounding title has any specific training or credentials.

So who does what — and who can you trust? There are a few ways to cut through the noise to ensure you're working with someone who is looking out for you.

Fee-only fiduciary financial advisors

  • Some financial advisors have a fiduciary duty to their clients, meaning they are obligated to act in their client’s best interest rather than their own. Working with a licensed, registered fiduciary — preferably one who is fee-only — ensures that the advisor is paid directly by you and not through commissions for selling certain investment or insurance products.

  • Financial advisors who hold a certified financial planner (CFP) designation have a fiduciary duty to their clients as part of their certification

    .

Investment advisors

» Learn more about the different types of financial advisors

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Step 3: Review the range of options for financial advisors

Financial advisors aren't just available at your neighborhood advisory office or bank. There are lots of ways to get financial advice. The option that's right for you will likely depend on your personal preferences, the services you need and your budget. Here's an overview of service types, ranging from inexpensive automated robo-advisors to high-touch, traditional financial advisors:

Robo-advisors

A robo-advisor is a digital service offering simplified, low-cost investment management. You answer questions online, then computer algorithms build an investment portfolio according to your goals and risk tolerance.

  • Low cost: Some robo-advisors have no or low management fees, and many services have no or low account minimums, so you can start investing with any amount of money.

  • Good when: You need help investing for financial goals like retirement but don’t want or can’t afford a complete financial plan.

  • Look elsewhere if: You need more rigorous financial planning. Although some robo-advisors offer higher-tier financial planning services, most excel at simple investment management.

» Ready to compare? Read our full roundup of the best robo-advisors

Online financial planning services and advisors

This is the next step up from a robo-advisor: an online financial planning service that offers virtual access to human financial advisors.

A basic online service might offer the same automated investment management you'd get from a robo-advisor, plus the ability to consult with a team of financial advisors when you have questions. More comprehensive services such as Facet Weath and Empower roughly mirror traditional financial planners: You'll be matched with a dedicated human financial advisor who will manage your investments and work with you to create a holistic financial plan. Many online financial advisors can match you with an advisor with a top-tier credential such as a certified financial planner.

  • Medium cost: Online financial planning services will typically cost less than a traditional financial advisor but more than a robo-advisor. Some services have relatively high investment requirements of $25,000 or more; others require no minimum investment.

  • Good when: You're comfortable meeting with an advisor online but would still like holistic financial planning services such as estate planning, retirement planning or help with company stock options. Online advisor marketplaces such as Harness Wealth and Zoe Financial, and many online advisors themselves, do the work of vetting a financial advisor for you.

  • Look elsewhere if: You'd prefer to work with an advisor in person.

» Ready to compare? Read our full roundup of the best financial advisors

🤓Nerdy Tip

Feeling overwhelmed? If thinking about money is stressful, it may help to talk with a financial therapist.

Traditional financial advisors

Traditional financial advisors can meet with you in person and will be able to help you with all of your financial planning needs.

  • High cost: This is often the highest-cost option. Many traditional advisors charge about 1% of your assets under management. Some advisors also require a high minimum balance, such as $250,000 in assets.

  • Good when: You want specialized services, your situation is complex, you want to meet your financial advisor in person and develop a long-term relationship with them.

  • Look elsewhere if: You want similar services for less, are comfortable getting help online or don't want to vet a potential advisor yourself.

Step 4: Consider how much you can afford to pay an advisor

Financial advisors have a reputation for being costly, but there is an option for every budget. It's important to understand how much a financial advisor costs before you commit to services. Generally speaking, there are three cost levels you're likely to encounter:

  • Robo-advisors often charge an annual fee that is a percentage of your account balance with the service. Robo-advisor fees frequently start at 0.25% of the assets they manage for you, with many top providers charging 0.50% or less. On a $50,000 account balance, 0.25% works out to $125 a year.

  • Online financial planning services and advisors typically charge either a flat subscription fee, a percentage of your assets or both. For example, Empower charges 0.49% to 0.89% of assets under management per year. Facet charges an annual fee that starts at $2,000 a year and goes up based on the complexity of your financial situation. Both fees include portfolio management and financial planning.

  • Traditional financial advisors also often charge a percentage of the amount managed, with a median fee of 1%, although it can range higher for small accounts and lower for large ones. Others may charge a flat fee, an hourly rate or a retainer.

How much you should spend on a financial advisor depends on your budget, assets and the level of financial guidance you need. If you have a small portfolio, an in-person advisor might be overkill — you will save money and get the guidance you need from a robo-advisor. If you have a complicated financial situation, a robo-advisor may not provide what you need.

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Step 5: Vet the financial advisor's background

No matter what title, designation, certification or license an advisor claims to have, it’s on you to vet the advisor’s credentials and experience. Always verify any credentials they claim to have and check to see if they've had any disciplinary problems such as fraud.

You can research an advisor’s background by looking up their Form ADV before you agree to work with them. You can also review an advisor's employment record (and look for red flags like disciplinary actions) on FINRA's BrokerCheck website.

We also have a list of 10 questions you should ask a financial advisor, including whether they hold to a fiduciary standard, what their fee structure is, and how frequently you'll communicate.

Step 6: Hire the financial advisor

If you're happy with a particular financial advisor's background and are confident that they're a good match for your financial situation, the next step is to start working with them.

The hiring process for financial advisors will vary from advisor to advisor, but here is a general outline of the steps in engaging a financial planner or similar professional:

  1. A consultation with the advisor to discuss your financial situation.

  2. The advisor provides you with an engagement letter outlining their ethical principles and any potential conflicts of interest.

  3. The advisor provides you with legal documents to sign, such as a Form ADV and/or a Form CRS.

  4. The advisor begins gathering information on your financial situation and starts managing your finances.

Frequently asked questions

Financial advisors perform many services, though for the most part, they help clients manage their money. Often, this means managing a client’s investment portfolio. Financial advisors can help you cut expenses, pay down debt and prioritize your goals. Some financial advisors have expertise that allows them to help with complicated or holistic financial concerns, such as estate planning or tax strategy

If you're not quite ready to commit to a financial advisor but want to test the waters, many banks and brokerages offer free online libraries of financial advice and tools. Some organizations like the Foundation for Financial Planning offer free help to people in need, including veterans and cancer patients.

And while you shouldn’t believe everything you read on the internet, there are tons of reputable sources for financial information online, including government resources like Investor.gov and the Financial Industry Regulatory Authority. For more resources, check out our guide to getting free financial advice.

You can seek out financial help at any time, but it’s especially important to get financial guidance after significant life changes. Whether you’re buying a house, starting a job, getting married or having a child, these life events can have major financial implications, and some upfront financial planning can go a long way toward building a stable financial future.

It’s also wise to speak with a professional if your financial situation itself has changed. Maybe your salary has increased or you inherited some money from a relative. When money starts flowing in, it’s a good idea to give it a positive direction; otherwise, it can be all too easy to spend unnecessarily.

How much you should spend on a financial advisor depends on your budget, assets and the level of financial guidance you need. If you have a small portfolio, an in-person advisor might be overkill — you will save money and get the guidance you need from a robo-advisor. If you have a complicated financial situation, a robo-advisor may not provide what you need.

Financial advisor fees can vary significantly, so it’s important to keep your budget in mind when you are choosing financial services. Robo-advisors can cost as little as 0.25% of your account balance per year, traditional in-person advisors typically cost around 1% and online financial planning services tend to fall somewhere in between.

“Financial advisor” is a general term that is not regulated. If you are trying to pick a financial advisor, know that anyone can legally use that term. Always ask for (and verify) an advisor’s specific credentials. Anyone who gives investment advice — which most financial advisors do — must be registered as an investment advisor with the SEC or the state if they have a certain amount of assets under management.

While the two terms are often used interchangeably, “adviser” is the legal term used in the U.S. Investment Advisers Act of 1940 to refer to individuals who must register with either the SEC or with their state.

Today, “adviser” is commonly spelled “advisor.” The important takeaway is not to refuse to work with someone who uses an “o” instead of an “e,” but that the world of financial professionals and their titles can be murky; no matter what someone’s title is, you should ask for their certifications, verify them and make sure their professional designations line up with your needs. You can verify an investment advisor’s registration with the SEC’s Investment Adviser Public Disclosure tool (it also has a database that includes state-registered advisors).

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