How to Choose a Financial Advisor

Financial advisors help people manage their money and reach their financial goals. They can provide a range of financial planning services, from investment management to budgeting guidance to estate planning. The advisor you choose will depend on your financial situation and your needs.

Picking the right financial advisor for your situation is 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.

We recommend following this process to choose a financial advisor.

The term financial advisor can apply to a variety of services, ranging from online robo-advisors to local, in-person traditional financial advisors.

All of these financial advisors help you manage your money in various ways:

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, easy entry: Fees start as low as 0.25% of your balance, and many services have no or low account minimums, so you can start investing with a small 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.

Here are a few of our top picks for robo-advisors. You can also read our full roundup of the best robo-advisors.

Online financial 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 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. Facet Weath and Personal Capital are examples of services in this space.

• Medium cost, varied minimums: 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 need a financial advisor and a holistic financial plan, but at a lower cost than a traditional in-person advisor.

If you're looking for a personal financial advisor, check out our top picks for online financial planners below, or see our full roundup of the best online financial advisors.

Traditional financial advisors

Traditional financial advisors include certified financial planners, stockbrokers, registered investment advisors, financial consultants and wealth managers. The same person can have more than one of these titles. For instance, a CFP may also be a registered investment advisor. You'll typically meet your advisor in person in a local office.

• Higher cost, higher minimums: This is often the highest-cost option, and some advisors also require a high minimum balance, such as $250,000 in assets.

• Good when: You want specialized services, your situation is complex or you want to meet your financial advisor in person.

» Interested in a personal financial advisor? Connect with Harness Wealth.

If you simply want help choosing and managing investments, a robo-advisor is a streamlined, cost-efficient choice. It's also good for those just starting out, because robo-advisors often have low or no account minimums.

If you have a complicated financial situation or want holistic advice on topics like estate planning, insurance needs, etc., you might want to choose an online financial planning service or a human financial advisor in your area. If you don't mind meeting with your advisor virtually, you may save money with an online service. These services also typically have lower account minimum requirements than a human advisor might.

You'll also want to think about what each service can offer you. For example, if you're interested in ethical and ESG investing, you'll want to ensure your advisor, no matter what kind they are, can help you with that.

It often makes sense to start with a robo-advisor or online planning service — you can always hire a traditional financial advisor if your situation grows more complex.

Financial advisors have a reputation for being costly, but these days 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 typically charge either a flat subscription fee, a percentage of your assets or both. For example, Personal Capital charges 0.89% of assets under management per year. Facet Wealth charges an annual fee that starts at $1,200 a year and goes up based on the complexity of your financial situation. Both fees include portfolio management and financial planning.

• Traditional human 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.

Always check out the record of the company or person you're considering by looking up the firm's Form ADV. Among other things, this form will outline how the firm or advisor charges for its service (and what the specific fees are), conflicts of interest and any past disciplinary actions.

We also have a list of 10 questions you should ask a financial advisor — including whether they hold to a fiduciary standard, which requires that they act in your best interest.

What do financial advisors do?

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 additional certifications or expertise that allow them to help with estate planning, insurance needs or tax preparation.

When should you talk to a financial advisor?

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 should you pay for a financial advisor?

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.

Who can be a financial advisor?

“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 either the U.S. Securities and Exchange Commission or the state, depending on their assets under management. (Learn more about investment advisors.)

What's the difference between a financial advisor and a financial consultant?

The term “financial consultant” is also a general term that does not require a certificate or license, but some financial consultants hold a designation called chartered financial consultant, or ChFC. ChFCs may offer more specialized financial planning than other financial advisors. Keep in mind: Not all professionals who call themselves financial consultants hold a ChFC, which is why it is always important to ask a potential advisor what certificates or designations they hold.

Why is advisor sometimes spelled "adviser"? Is there a difference?

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).

Where can I get free financial advice?