Ratings Methodology for Online Financial Advisors

Ratings Methodology for
Financial Advisors

NerdWallet rates financial advisors on a scale of 1 to 5 stars, with 5 being the best possible score. The ratings are incremented in tenths of a star — for example, 4.7, 4.8 and so on. Detailed information about how we rate advisors and the factors we consider in our assessments is below.

How our financial advisor ratings work: Our ratings formula calculates a base rating for each financial advisor overall, from 1.0 to 5.0 stars. The rating is based on core features of the advisor — the factors that matter most to the average investor and directly affect how investors choose an advisor and use their services. Those are:

• Advisor access and credentials
• Services offered
• Fees
• Portfolio construction
• Expense ratios
• Asset minimum

We then apply a standard adjustment to the final score to account for factors we consider table stakes offerings. If the financial advisor doesn’t offer these, they do not get an adjustment. For the financial advisor’s overall score, this standardized adjustment applies if they earn 4 or more stars for advisor access and relationship, which requires offering each client a dedicated advisor with no extra fee or additional asset minimum requirement.

Data collection and review process

NerdWallet reviews over a dozen companies that either provide financial planning services in person, online or connect users with a financial advisor. This category generally does not include robo-advisors, but it does include those robo-advisors that offer clients access to human advisors as a premium upgrade.

We collect data from providers and observe provider demonstrations when necessary. Our process starts by sending detailed questionnaires to providers. The questionnaire answers, combined with product demonstrations, interviews of provider personnel and hands-on research by our specialists, make up our proprietary assessment process that scores each provider’s performance across more than 20 factors. The final output produces overall star ratings. Ratings are rounded to the nearest tenth. These overall star ratings appear on roundup pages and the provider’s review.

We then undergo an additional evaluation process to create lists of the best online financial advisors for certain types of consumers. This evaluation adjusts the weighting of factors (and may eliminate or add factors) to emphasize those that matter most to the consumer targeted by the list — for example, our list of the best wealth advisors heavily weighs tax strategy and the number of financial planning services offered. Because of this, a provider’s overall star rating is not always the primary factor that determines inclusion in lists or NerdWallet’s awards program.

Information updates

Our writers and editors conduct proactive information updates and research for reviews on an annual basis. Throughout the year, we maintain contact with providers and update any changes to their offerings. We also adjust our rubrics and ratings methodology as needed based on changes to the industry or to the scope of products we're reviewing.

Factor weightings

The weighting of each rating factor is based on our team’s assessment of which features are most important to consumers and which ones impact the consumer experience in the most meaningful way. Those factors vary depending on the category.

The review team

The review team comprises seasoned writers, researchers and editors who cover stocks, bonds, mutual funds, index funds, exchange-traded funds, alternative investments, socially responsible investing, financial advisors, retirement, and investment strategy. In addition to appearing on NerdWallet, the work of our team members has been published in The New York Times, The Washington Post, Forbes, USA Today, Bloomberg News, Nasdaq, MSN, MarketWatch, Yahoo Finance and other national and regional media outlets. Each writer and editor follows NerdWallet’s strict guidelines for editorial integrity.

The combined expertise of our investing team is infused into our review process to ensure thoughtful evaluation of products and services from the customer perspective. Our writers and editors together have more than 50 years of experience in writing about finance

Advisor credentials

This category analyzes the following:

• Contact methods: If the financial advisor offers in-person, video, chat or text, phone and email communication, the provider earns the highest rating. If it offers email or chat/text only, it earns the lowest rating.
• Credentials: If all of a provider’s advisors are certified financial planners, it earns the highest rating. If a provider’s advisors are brokers (series 65 or related only), it earns the lowest rating.
• Advisor access and relationship: If a provider offers a dedicated advisor for each client, with formal scheduled check-ins and unlimited access, it earns the highest rating. If a provider offers a team of advisors, but access is limited, it earns the lowest rating.

Services offered

For this category, we consider the following from each provider:

• Financial planning services offered: If the advisor offers basic estate plans, business planning, tax planning, debt reduction, etc. in addition to investment management, it earns the highest rating. If a financial advisor offers very basic financial planning advice, or operates primarily as a robo-advisor, it earns the lowest rating.
• Options for where accounts can be held: If a provider will manage accounts at any brokerage, it earns the highest rating. If customers must move money to the provider’s brokerage or custodian, it earns the lowest rating.
• Types of accounts managed: If a provider will directly manage a variety of accounts, including workplace plans and specialty accounts, it earns the highest rating. If it will directly manage only a small selection of accounts (for example, taxable only), it earns the lowest rating.
• Tax strategy: If a provider offers direct indexing or another specialized tax strategy, it earns the highest rating. If it offers no tax strategy, it earns the lowest rating.

Fees

This category takes into account an advisor's account management, planning or subscription fees: If a provider charges .75% or less (or a flat fee of up to $4,000) annually, it earns the highest rating. If it charges more than 1.5% (or a base flat fee of more than $9,000) annually, it earns the lowest rating. The middle three-star score is based on a 1% AUM fee, the average fee charged by financial advisors.

Portfolio construction

If a provider offers customization on a client-by-client basis, with the option to include any investment available through brokerages, it earns the highest rating. If it offers pre-built portfolios and limited choices, it earns the lowest rating.

Expense ratios

Expense ratios We consider the expense ratios charged by the investments used in portfolios built by the financial advisors. If those expense ratios average 0.10% or less, a provider earns the highest rating. If those expense ratios average more than 0.30%, a provider earns the lowest rating.

Account minimum

We consider the dollar amount required to open an account or get management from the financial advisor. If a provider’s account minimum is $50,000 or less, it earns the highest rating. An account minimum of $500,000 or more earns the lowest rating.

Customer support

We consider and rate the following for financial advisor search networks and online advisors, but it does not factor into the overall star rating:

• Customer service availability: If a provider has 24/7 customer service, it earns the highest rating. If it has no phone support and only offers assistance via email or chat, it earns the lowest rating. For providers that connect customers to financial advisors, this rating is based on the provider’s customer service availability, not that of the financial advisors.
• Website usability: We define website usability as how easy it is for our reviewers to find key details on the provider’s site. If we can find all information in under five minutes, a provider earns the highest rating. If we can’t find any information, the provider earns the lowest rating.

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