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Financial Advisors: What You Need to Know to Choose One

Advisors, Financial Planning, Investing, Retirement Planning

Financial advisors earn a living by helping people decide how to manage their money and reach financial goals. But financial planning isn’t a one-size-fits-all activity. There are several types of financial advisors, so let’s figure out which one is best for you.

We’ll start with the basics, but feel free to jump to a specific section using the links to the left.

What is a financial advisor?

The term “financial advisor” applies to people with a variety of specialties, certifications and titles, but all of them help you manage your money. It isn’t an official designation.

For example, a certified financial planner generally will focus on helping you reach your financial goals, while a broker focuses on helping you buy and sell securities, and an enrolled agent prepares your taxes. All provide a type of financial advice.

These days, “advisor” also refers to companies that use computer algorithms in a more hands-off approach to money management. The best robo-advisors help you choose and rebalance your investments, manage the tax effects of investing, and offer online tools to help you plan for the future at a fraction of the cost of a regular advisor. Hybrid advisors offer the best of both worlds: combining the hands-off automation that is the calling card of robo-advisors with the option to access a human advisor.

How do I know if I need a financial advisor?

It may make sense to hire a financial advisor if you’re:

  • Dealing with a big life event: If you’re getting married, starting a business, want to quit your job to travel the world for a year, or experiencing another life change, consider hiring a financial expert.
  • Feeling overwhelmed by money issues: Maybe you’re trying to invest an inheritance, juggle multiple financial goals, handle finances during an impending divorce or reduce your tax bill. An advisor can help you prioritize.
  • Looking for someone to hold you accountable: Sometimes it’s hard to stick to money decisions. No matter how good the financial plan, it won’t work if it isn’t implemented and there’s no accountability.
  • Making decisions in the dark: Do you know your net worth or how to figure it out? Do you know your retirement account asset allocation? If not, it might make sense to consult an expert, says Bob Carroll, a CFP, CPA and managing director of the Cincinnati office of Carnegie Investment Counsel.
  • Not feeling financially secure: If your life and career are going great but your finances aren’t, Carroll says “that’s a telltale sign” you should probably talk to someone.

» Are you on track for retirement? Run your numbers with our retirement calculator.

Which category of financial advisor is right for you?

You want to narrow your search by choosing the right category of financial advisor for your situation. If you don’t, you risk spending more money than necessary on a service that may not suit your needs. For example, say you want help setting up a plan to meet your financial goals. In that case, a certified financial planner would be the best choice, not a stockbroker. Maybe you’re looking to get going on retirement saving. A robo-advisor can help you with that at a lower cost than most human advisors.

A key factor in figuring out which type of advisor is best for you is how much money you have to invest (or have invested), including your retirement accounts. Some financial advisors won’t work with people who have less than about $250,000 in investable assets. Also, if you don’t have much to invest, it doesn’t make sense to pay a big fee for money management services.

  • If you have less than $25,000 to invest, you likely are best served by a robo-advisor that has no or low minimum account requirements, because these companies offer low-cost money management, plus tools for setting financial goals for the future.
  • If you have $25,000 to $250,000 to invest/already invested, you might consider either a human advisor or a robo-advisor that offers access to human advisors, depending on the complexity of your financial situation.
  • If you have $250,000 or more in investable assets, you’ve got choices. Many advisors will consider you a valuable client. That doesn’t mean you need a human to manage your money. The decision comes down to whether the type of one-on-one guidance a human advisor can offer is worth the cost to you.

Consider how complex your financial situation is. If you simply want to get started on investing for the long term, that might mean a more “set it and forget it” approach from a robo-advisor. If you have estate-planning or other more complex needs, then a human advisor is probably your best bet.

» Ready to find a financial advisor? See our guide to finding the right financial advice.

How to choose a specific financial advisor

Once you’ve decided among robo-advisor, hybrid solution or human financial advisor, it’s time to pick a specific advisor.

  • If you’re going with a robo-advisor, look for low minimums, low fees and robust tools. And if you’ve got a hankering to save for retirement, make sure the robo-advisor works with retirement accounts.
  • If you are leaning toward the hybrid model, look for low fees and make sure the advisors are available in a way that meets your needs. For example, some robos offer unlimited access via text, while others offer a limited number of phone calls.

Here are our top picks for robo-advisors of every stripe, including ones that allow access to human advisors.

  • If a human advisor is your best bet, your next step is to find a few to interview. Many advisors will work on a remote basis, so you don’t have to find someone in your area. While some advisors only accept new clients who have more than $250,000 to invest, others will work with clients who have less, often by charging an hourly or flat fee. Generally, wealthier folks pay a fee that is a percentage of their assets under management.

To find such planners, check out the websites of the National Association of Personal Financial Advisors, Financial Planning Association, XY Planning Network, Alliance of Comprehensive Planners and Garrett Planning Network.

Once you’ve found a handful of prospective advisors, set up interviews to make sure this person is the right one to help you meet your financial goals. If you are unsure what you should ask a financial advisor, check out our 10-question guide to the interview.

OK, what’s next?

Now that you know about the different categories of financial advisors — robo, hybrid and human — it’s time to take the next step. Our guide will help you pick the exact right provider for you.

Read: Find a financial advisor »

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