How to Choose a Financial Advisor in 5 Steps

Finding a financial advisor is easy — but finding the right advisor for you can be a challenge. It's as much about making sure the advisor provides the services you need as it is about making sure there's a personality and overall philosophy fit. For the relationship to work, you need to feel comfortable.

Here's our five-step process for choosing a financial advisor, which includes the vetting process, credential checks and making sure you're getting the services you need — and not paying for the ones you don't.

A checklist for picking an advisor

If you’re ready to jump into your search for a financial advisor, follow this list:

• Clarify what you want help with. Common needs include investing, retirement, tax strategy and estate planning.

• Understand what you’ll pay. Costs vary widely and advisors use a variety of fee models (AUM, annual fees, hourly rates). Avoid overpaying by pinpointing what level of service you want.

• Look for advisors who fit your criteria. There are a number of free tools, services and directories that can help you narrow your search. 

• Verify credentials and vet candidates using sites like BrokerCheck or the CFP Board, which keep records of any disciplinary history. Use the advisor’s Form ADV to gather information about fees, services and conflicts of interest. It's good practice to interview several advisors who check the right boxes to determine if they’re someone you’d like to work with.

• Go over all the fees you’d pay before you hire your top choice. Understand what is and isn’t included in any annual fees or management fees. Also look at investment fees, such as expense ratios and any custodial fees.

For more details on each step in the process, read our full guide below.

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

Many people seek out a financial advisor for the first time after a significant life change — buying a house, starting a higher-paying job, getting married or having a child, for example. These life events can have major financial implications, and upfront financial planning can go a long way toward building a stable financial future. Similarly, changes to your financial situation can necessitate hiring an advisor — things like a large salary increase or an inheritance.

A financial advisor may address all of the above, or just a piece of it, or far more than you actually need. That’s why it’s important to clarify what you’re looking for before picking an advisor, so you can be sure they have the tools, experience and working style to help you. What are your most pressing questions? What problem(s) do you hope to solve?

• If you need budget and goal management: Look for a financial planner, consultant or coach if you need help with creating a budget, setting short- and long-term goals, or paying down credit card, student loan or other debt. Investing should be part of any financial plan, but it shouldn’t feel like it’s the only thing you’re getting. You want someone who will take time to listen and tailor your financial plan to your actual life and goals before setting you up with an investment plan. 

• If you need someone to manage your investments: Many financial advisors are also investment advisors, which means they help decide where to invest your money and help create an asset allocation strategy. The investment options they offer will vary. If you don’t need financial planning, your portfolio is relatively straightforward and you want automated management, you could consider a robo-advisor. If you have more complex investing needs (think alts, real estate portfolios or a lot of derivatives), look for an advisor who has experience with similar cases and the ability to customize your investment approach.

• If you need tax strategy and planning: Inheritance, equity compensation and other scenarios tend to involve tricky tax situations. If you’re in that boat, consider looking for an advisor with expertise in tax strategy. Consider looking for an advisor who is also a licensed certified public accountant (CPA). 

• If you need to plan for retirement: Look for a financial advisor who can help you create a retirement planning strategy, including how much to save, where to save it and how to balance this kind of ultimate financial goal with other priorities you may have.

• If you want estate planning: Most financial advisors will talk through what you need in your estate plan to protect your assets and ensure your loved ones have everything they need after you're gone. But they may refer you to an estate attorney or third-party service to draft the actual documents, which means additional appointments, conversations and fees. Ask detailed questions about what estate services a firm offers — and doesn’t — if you know you’ll need help setting up an estate plan or a trust.

For some financial planning services, such as tax filing, setting up trusts or creating business entities, you may need to find a specialist. So if you know you need a particular service, keep that top of mind when you start your search.

Step 2: Decide what you want to pay

Financial advisor fees vary widely. Advisors typically charge a percentage of your assets under management (AUM), but some charge flat annual or monthly fees, an hourly rate, a one-time financial plan fee or even commissions. For example, a 1% AUM fee on a $300,000 portfolio equals roughly $3,000 per year in advisory costs. Before you search for an advisor, take time to understand how financial advisor fees work, and align your expectations with your budget.

You can influence how much you spend by exploring your options.

• Financial planning fees vs. investment management fees: Many financial advisors combine these two major services in one fee, but separating them — or even dropping one, if you don’t need it — could lower your costs and clarify what you’re paying for. For financial planning with no investment management, consider working with an advice-only financial advisor. For investment management only, you might save money by working with a robo-advisor. 

• Type or depth of relationship: The duration of your relationship with an advisor (temporary vs. ongoing), as well as the mode of communication (in-person vs. virtual) may influence the cost. Not everyone wants a deeply personal relationship with a dedicated advisor, and opting for something less in-depth may cost less. But if personal and proactive attention is important to you, you should expect to pay more.

• Level of financial guidance: Generally, as the complexity of your finances increase, so will the cost of financial advice. Similarly, the more you want an advisor to do for you (rather than doing it yourself), the more you’ll likely pay.

As you dig into these different dimensions, you’ll find that help exists for every budget and situation. For example, if you just want an advisor to create a plan you can then follow yourself, and you know you'll be able to hold yourself accountable, a one-time fee for a financial plan may be best.

But if you have multiple, competing goals, want ongoing advice from a dedicated advisor or need a more customized approach to investment management, a financial plan you follow independently may not provide what you need. You may spend more by having an ongoing relationship with a financial advisor, but it’s worth it if it helps you meet your goals and gives you peace of mind about your money.

» Frustrated with high fees? Find out how to fire your financial advisor

Step 3: Find financial advisors you may want to work with

As you start your search, your goal should be to compile a short list of possible advisors who provide the services you’re looking for and fit your budget. You may also prefer:

• Fee-only advisors who are paid directly by you and not through commissions for selling certain investment or insurance products. (Someone who is fee-based may be paid by clients as well as other sources, such as commissions.)

• Advisors with a fiduciary duty because they are required to work in the client’s best interests rather than their own or their firm’s. Registered investment advisers are held to a fiduciary standard and are required to act in your best interest. Broker-dealers are subject to a different standard called Regulation Best Interest, which applies when making recommendations but is distinct from the broader fiduciary duty.

• Advisors with verifiable credentials that help you understand their training and experience, feel confident they have relevant expertise and know the ethical standards they’re meant to uphold. For example, a certified financial planner (CFP) has completed financial coursework and gained enough experience to achieve one of the most rigorous certifications for financial planning. They also are fiduciaries and sign an ethics agreement when they’re accredited by the CFP Board of Standards.

There are several ways to kick off your search. An easy starting point is your personal network. Often, people have long-term relationships with their financial advisors. Check with family and friends — or even your tax preparer — to see if they can point you in the right direction. If your colleague has worked with an advisor for 10 years and loves them, it's probably a good sign.

You also could:

• Use a financial advisor matching service. Providers like Zoe Financial, Harness Wealth and Wealthramp will match you with a financial advisor for free. The advisors typically pay to be part of the service or to receive a client match, and they have to meet certain criteria to participate. That means the matching service is doing some of the work of vetting the advisor for you.

• Check with professional organizations or networks. These offer directories you can filter for criteria that matters to you. The National Association of Personal Financial Advisors lists fee-only advisors who follow a strict code of ethics. The CFP Board provides a list of its members, who hold one of the most well-regarded credentials. And CHIP’s directory includes Black, Hispanic and Latinx financial advisors and professionals who can assist with estate planning, tax strategy and financial planning.

• Search for local advisors if you want someone you can meet in person. Use our tool to search for a financial advisor near you. 

Step 4: Vet the financial advisors on your list

With your list in hand, it’s time to take a deeper look at your potential advisors. Remember, you’re planning to entrust this person with sensitive financial information and give them weight in your decision-making. Don’t skip this step!

Check for red flags

“Financial advisor” is a general term that is not regulated. Anyone can legally use it, so always verify an advisor's specific credentials and registration status." Your process for verifying potential advisors’ credentials and checking their background will depend on which certifications you’re verifying and how those certifications are regulated. You can review any registered investment advisor's employment record (and look for red flags, such as disciplinary actions) on FINRA's BrokerCheck website. If the advisor is a CFP, review any disciplinary history via the CFP Board’s website.

It’s also critical to research an advisor’s services and relationships by looking at their Form ADV on the SEC website. Look for details about fees, disclosure of any disciplinary action in the firm’s past and current relationships with other companies that might present conflicts of interest.

Book a consultation

It’s normal to meet with a few financial advisors before you decide who to hire. It’s really the only way to determine if you’ll like working with someone. If an advisor doesn’t offer a free consultation, it may be worth skipping to the next option. Bring questions. If you’re not sure what to ask, we’ve prepared a list to get you started.

This is a good time to ask about anything you can’t find in official documentation, such as the Form ADV or the advisor’s website. For example, fee information is typically in Form ADV. But it may lack specifics.

» MORE: What to expect when meeting with a financial advisor

Step 5: Hire the financial advisor

A financial advisor should carefully go over fees with you before you sign up for his or her services. That includes any fees you’ll have to pay in addition to paying the advisor. On an ongoing basis, you should be able to see how much you’re paying in management fees on your account statements.

Some advisors may be willing to negotiate their fees, asset minimums or both. It never hurts to ask!

Once you decide who to hire, you’ll typically follow these steps:

1. The advisor provides an engagement letter that outlines their ethical principles and any potential conflicts of interest.

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

3. The advisor gathers information on your financial situation and starts managing your finances.