How to Choose a Financial Advisor

A financial advisor helps people manage their money and reach their financial goals. But it's important to avoid paying for services you don't need and for financial advisors who aren't a good fit for your goals.

Here's how to choose a financial advisor.

Step 1: Decide what you want the financial advisor to do

Some financial advisors provide holistic help; others are specialists in certain areas. Think about what you want out of the relationship so you get what you need.

Financial advisors primarily provide services in these main areas.

• Personal finance: This involves helping clients create budgets or financial plans, as well as helping prioritize short- and long-term goals such as planning for home ownership, college or a large purchase.

• Debt management and repayment: This could be helpful if you are struggling with credit card, medical, student loan or other debt and are unsure how to tackle it.

• Investing: Investment advisors help select specific places to invest money. They can work with you online or in person, or you could opt for a digital version, such as a robo-advisor.

• Tax strategy and planning: Some advisors have expertise in tax strategy or may hold a certified public accountant (CPA) credential.

• Retirement: A retirement advisor helps people find ways to save money for retirement, stay or get on track for retirement, and create a retirement strategy to provide personalized investment or planning recommendations.

• Estate planning: A financial advisor might help you set up an estate plan or a trust to ensure your assets disperse in a certain way or that your loved ones have everything they need after you're gone.

• All of the above: If the idea of having one dedicated person or firm for all your financial questions and concerns is appealing, a holistic planner might be a good fit. Plenty of financial advisors offer full-service financial support. 

Step 2: Look for key financial advisor credentials

Don’t assume that someone with an official-sounding title has any specific training or credentials. Financial advisors can go by many names (e.g., investment advisor, broker, financial planner, financial coach, portfolio manager, wealth advisor, wealth manager or even financial therapist). However, many of the titles advisors use (including the term "financial advisor"), aren't based on specific credentials.

Here are two actual credentials to look for when choosing a financial advisor.

Certified financial planner (CFP)

Financial advisors who hold a certified financial planner designation have a fiduciary duty to their clients as part of their certification^[0]

Registered investment advisor (RIA)

Registered investment advisors are individuals or companies that provide numerous financial services, including personalized investment advice, and are bound by fiduciary duty. RIAs are also registered with and regulated by either the U.S. Securities and Exchange Commission or state regulators, depending on how much money they manage^[0]

» Who does what? Learn more about the different types of financial advisors

Step 3: Select a financial advisor service type

There are three main service models or channels through which you can find a financial advisor:

1. In-person access to a human financial advisor.

2. Virtual access to a human financial advisor.

3. Online robo-advisor.

The option that's right for you depends on your preferences, the services you want and your budget.

Traditional financial advisors

Traditional financial advisors can help you with most or all of your financial planning needs. Many are local advisors who will meet with you in person; some offer the option to meet virtually.

• Good when: You want specialized services, your situation is complex, or you want to develop a long-term relationship with your advisor. Many traditional financial advisors offer a holistic look at your finances, including goal-planning.

• Look elsewhere if: You only need basic advice or want automated investment management, or you don't want to vet a potential advisor yourself.

Virtual and online financial planning services and networks

These give you access to human financial advisors and investment management in a virtual setting. Many online financial advisors offer the same services as traditional financial advisors; the difference is you will meet via video or phone calls. There are also online financial planning services that offer streamlined guidance for a lower fee — they might automate your investment management or provide you with access to a team of financial advisors vs. one advisor you always work with directly.

• Good when: You're comfortable meeting with an advisor online or don't know how to find an advisor. Online advisor marketplaces such as Harness Wealth and Zoe Financial do the work of vetting a financial advisor for you. (NerdWallet also operates NerdWallet Advisory, a registered investment advisor offering advisor matches.)

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

Robo-advisors

A robo-advisor is a digital service offering automated, low-cost portfolio management. You answer questions online, then computer algorithms build an investment portfolio according to your goals and risk tolerance. Some robo-advisors offer higher-tier financial planning services for an added cost.

• Good when: You can’t afford a complete financial plan just want simple investment management.

• Look elsewhere if: You need more rigorous or holistic financial planning, you want to work with a human or you want a customized investment portfolio that isn't automated.

Step 4: Decide what you want to pay

Traditional financial advisors often charge a flat fee (the average is $2,554 per year), and a relative few charge by the hour ($268 is the average per hour). The majority, however, charge a percentage of your assets under management (the average is 1.05%)^[0]

• On a $100,000 account balance, 1.05% works out to about $1,050 per year.

Online financial planning services typically charge either a flat subscription fee, a percentage of your assets or both. For example, Empower charges 0.89% for the first $1 million of assets under management per year. Facet charges an annual fee that starts at $2,100.

• On a $100,000 account balance, those rates work out to $890 to $2,100+ per year.

Robo-advisors typically charge an annual fee that is a percentage of your account balance. Fees frequently start at 0.25%; many top providers charge 0.50% or less.

• On a $100,000 account balance, 0.25% to 0.50% works out to $250 to $500 a year.

Step 5: Vet the financial advisor

Always verify a financial advisor’s credentials before you agree to work with them.

• Research an advisor’s background by looking at their Form ADV on the SEC website. 

• Review an advisor's employment record (and look for red flags, such as disciplinary actions) on FINRA's BrokerCheck website.

Step 6: Hire the financial advisor

Here is a general outline of the steps in engaging a financial planner or similar professional:

1. You have a consultation with the advisor to discuss your financial situation. This is typically free.

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

3. The advisor provides you with legal documents to sign.

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

Not sure whether a financial advisor is right for you? Take our quiz to help you decide.