You may think financial advisors only work for the wealthy, but people in all sorts of financial situations can benefit from help with their financial planning.
Saving up for retirement, managing your debt, diversifying your portfolio, extending your paycheck, having more discretionary income, budgeting for weekly outings or family vacations – if any of these goals apply to you, a financial advisor can help.
With so many options now available, it’s key that you first learn how to find a financial advisor that’s right for you.
6 steps to finding the right financial advisor
- Learn about the different kinds of financial advisors
- Identify why you need financial advice
- Know how financial professionals get paid
- Determine whether you need the fiduciary standard
- Search for the financial planning you need
- Meet potential financial advisors or brokers
Step 1: Learn about the different kinds of financial advisors
Just what, exactly, is a financial advisor? This job description includes more duties than you might think, so make sure you know a bit more about what you’re looking for.
Some financial advisors resemble coaches. They can help you make basic financial decisions and teach you solid spending, saving, and borrowing habits.
Other financial advisors perform high-level investment management for the wealthiest individuals and businesses. Here’s a summary of the main types of financial advisors out there:
Investment advisers know market conditions and can help create a holistic plan. You’d pay them a fee for their advice about whether and when to trade specific securities. It’s worth noting that an investment adviser is purposely spelled with an “e” instead of an “o," to specifically identify legally regulated investment professionals.
An investment adviser must be registered with the Securities and Exchange Commission (SEC) or a state securities regulator. The term is not interchangeable with financial advisor, which has a broader scope, generally refers to brokers and is not bound to a fixed legal definition.
For those looking for more transactional help, stockbrokers buy and sell securities like stocks and bonds on behalf of their clients. They’re usually associated with a brokerage firm and can make trades for both retail investors (everyday investors like you and me) as well as institutional investors.
Certified financial planners
Certified financial planners (regulated by the CFP Board) help clients create long-term wealth management plans, taking into account your entire financial life: retirement and investment goals, insurance, taxes, and more. They often work with specific types of clients like small businesses.
Robo-advisors are digital investment management services that use algorithms and data about your financial goals to tailor suggestions about where and how much you should invest.
Many advisors use a hybrid model which combines some contact with a person in addition to robo-offerings.
Some experts are critical of robo-advisors, alleging that they don’t have the same level of risk management as a human does. If you’re attracted to this low-cost option, industry insiders recommend picking a hybrid model — such as Schwab Intelligent Portfolios Premium or Vanguard Personal Advisor Services — to combine the ease and low cost of a robo-advisor, while chatting through risk management with a human.
Step 2: Identify why you need financial advice
Finding the right kind of financial advisor is easier after you determine why you need one.
Are you early in your career and want to know how much — and how — to save for your financial goals?
Are you paying for your child’s education, or navigating finances during a divorce? There’s likely an advisor for your specific situation. Some of the issues they can help with include:
If you’re saving for a house, car or nice vacation, it can be hard to put aside money for something in the future like retirement. But a financial advisor can ensure you’re maximizing retirement-specific tools like your 401(k) or Roth IRA so you can maintain your lifestyle after you finish working.
Paying down debts
If your mortgage or other debt is weighing you down and keeping you from meeting other goals, a financial advisor can help you find solutions.
No matter your stage in life, investing requires regular re-balancing — replacing stocks with relatively safer options like bonds, for example — to ensure your portfolio always matches the level of risk you want to take on. A financial professional can help you do this, as well as recommend specific financial products that make sense for your investment portfolio.
Many factors play into what you owe Uncle Sam, including what kind of financial products you buy and use. A financial expert won’t help you prepare and file taxes, but the right advisor could help you limit your exposure to taxes as you work toward other financial goals.
It’s safe to say you don’t want to spend your paycheck the moment it hits your bank account. But what should your financial goals be? How much can you spend, and how much should you be saving or investing? A financial advisor can help you determine what makes sense for you, and adjust the plan as you earn more or meet an unexpected hardship.
This encompasses a lot. Whether you’re saving for your child’s college tuition or a wedding, a financial advisor can offer investment advice to help you meet your goals without having to take out loans or use high-interest credit cards.
There are always new insurance products coming to market. Whether you’re choosing home insurance, life insurance or even annuities, a financial advisor can help you find the product that best fits your needs — and point out any holes in your coverage.
It’s easy to put off planning for your death, but it’s also necessary to ensure your loved ones are taken care of. Financial advisors can help get your paperwork, like a will or revocable living trust, in order. Advisors can also help you identify people to make decisions when you can’t, like a health care proxy and an executor.
Identify why you need a financial plan. You may need more than one kind, and that’s OK. Then make sure the financial professionals you’re considering have the skills, knowledge and experience to help you.
Step 3: Know how financial professionals get paid
Financial advisors get compensated for their time and expertise in a variety of ways:
- Hourly rate: You could pay an advisor for his or her time like you would an attorney or plumber.
- Flat or annual fee: Your financial advisor could collect an annual percentage of your assets under management.
- Commissions: Your advisor could collect commissions on the financial products he or she sells to you.
- Retainer fee: If you have a complex financial situation, sometimes a financial advisor will work through a retainer model, for a monthly, quarterly, or annual charge. Since this is not asset-based, it can help minimize conflicts of interest and focus on advice.
Some financial advisor fee structures combine two of these methods. An advisor could charge a flat fee while also collecting commissions on sales of new products.
If you need advice for a specific problem and don’t plan to build a long-term relationship that includes investment management, you’ll probably pay an hourly rate.
It’s important to find out for sure because you don’t want to be surprised when your account takes a big hit or you receive a quarterly bill in the mail.
And, if you’re wondering whether you can trust a financial advisor to look out for your best interests instead of putting their commissions first, you’re already a step ahead of the game.
Step 4: Determine whether you need the fiduciary standard
You might think all financial advisors would put their clients’ needs first and avoid conflicts of interest — but that’s not always the case.
Many different financial professionals fall under the term “financial advisor” only some of them must adhere to the fiduciary standard. This standard requires them to put their clients’ best interests ahead of their own, even if that means recommending strategies that could reduce their own compensation.
Registered investment advisors have this obligation while critics say brokers do not, despite a recent regulation that was intended to strengthen these standards.
This comes as a surprise to a lot of people: a 2019 survey from the digital wealth manager Personal Capital found that 48% of Americans mistakenly believe that all financial advisors must meet this fiduciary standard.
Meeting the fiduciary standard matters most when you’re hiring a financial advisor to invest and choose financial products on your behalf. If you’re simply seeking help building a monthly budget, this issue is likely not as crucial.
In either case, don’t be shy about asking potential financial advisors whether they are fiduciaries and any other questions about how they’re compensated. It’s your net worth at stake, after all.
Since this is a complex topic that deserves more attention, we dug a little deeper. Read our in-depth research further down below.
Step 5: Search for the financial planning help you need
Alan Rosca, a securities attorney, jokes that people will travel to faraway gas stations or appliance stores to find the cheapest gas, dishwashers, or dryers. They’ll spend hours at car dealerships before buying a car. But they’ll rely on a quick Google search to find the right financial advisor.
“We should spend the same amount of time before we give somebody our hard-earned money,” he adds.
While you could always use the internet to find financial advisors in your area, you have more precise search tools available:
BrokerCheck is provided by Financial Industry Regulatory Authority’s (FINRA). You can do some digging into someone’s experience and see whether prospective advisors have faced any disciplinary actions.
The SEC’s IADP website is a database that can help confirm that a Registered Investment Advisor (RIA), be it a firm or an individual, has the certifications they say they do.
NAPFA is a professional association of fee-only financial advisors. Use their Find an Advisor search tool to find fiduciaries in your neighborhood.
Step 6: Meet potential financial advisors or brokers
Once you’ve identified some potential advisors in your neighborhood or city that meet your requirements, start making calls and set up appointments.
There are various ways an advisor makes money — like a commission for selling products, the annual percentage of an investors’ assets, or an hourly rate — so you shouldn’t be afraid to ask for the details.
“Different payment structures might create different incentives,” Rosca says. “If somebody is paid only to sell investments, it means if he doesn’t sell you anything, he doesn’t make any money.”
If an advisor doesn’t want to discuss these details, don’t be afraid to move on to someone else.
The most important thing is for you to understand what’s going on with your financial life and feel the freedom to continue asking questions until you do understand the details.
COVID-19 and financial advisors
Previously, finance experts prioritized in-person meetings with their clients and the bulk of the counseling was still done face-to-face, but this has changed with the pandemic.
Stay-at-home orders pushed professionals to turn to video calls in order to keep their business relationships running and help the increasing demand of clients in need of advice.
Although face-to-face meetings will still be important, video calls and other digital means of communication are expected to stay in place even after a return to normalcy.
People looking to hire a financial advisor online will find it increasingly easier, as many agencies and self-employed professionals are adapting and growing their online presence and services.
How much does a financial advisor cost?
Going rates for financial advising vary, but the average fees average:
- 1 to 2% per year of your assets under management
- a fixed fee of between $1,000 and $3,000 for a service such as creating a full financial plan
- an hourly fee of $100 to $400 per hour, according to financial advice site SmartAsset
Robo-advisors are worth looking into as an affordable alternative. The best robo-advisors charge as little as 0.25% in annual management fees and some don’t even have account minimums. You won’t get the same attention to detail, but it can be a good starting point.
The fiduciary standard isn’t always simple
Consumer protection advocates have long been pushing for a more strict and clear fiduciary standard across the industry. But they’ve been disappointed with many of the moves made to further the protection of individual investors.
- Only recommend products that are in the customer’s best interest
- Clearly identify any possible conflict of interest or financial incentive the broker-dealer may have.
The problem with the new regulation? The SEC didn’t clearly define “best interest,” says James Watkins, attorney and managing member of InvestSense. It, therefore, doesn’t protect investors to the extent that a true fiduciary rule would.
The SEC said it will be defined on a case-by-case basis, but lack of clarity “only serves to create unnecessary uncertainty and unnecessary risk exposure for both advisors and investors,” Watkins says.
How do you protect your best interests?
The best way to protect yourself is to choose a financial analyst who voluntarily minimizes the conflicts of interest in their business model and voluntarily adheres to a fiduciary standard higher than the one the SEC enforces, says Barbara Roper, director of investor protection for the Consumer Federation of America.
Look for advisors with the CEFEX certification, which audits firms and advisors and certifies them as meeting a true fiduciary standard.
It’s also important to keep in mind that brokers may have a different pay structure than advisors. They may make money by selling you products that are okay for you (and will offer them a bigger commission) but are not necessarily the best for you.
Don’t be shy about asking prospective advisors how they’re compensated. Watkins also recommends asking whether an advisor is “open architecture” or “closed architecture.”
Open architecture means that the advisor can sell anything to you. Closed architecture, conversely, means the advisor is limited in what they can sell, often because they’re receiving some sort of compensation from whoever is marketing the investment, like a mutual fund manager.
It may be best to actively find someone who is “open architecture,” and seek out advisory firms that are fee-only, paid exclusively by the client, so you know third-party incentives aren’t involved at all.
Questions to ask prospective financial advisors
Whether it’s a look at their credentials or a detailed explanation of their pay structure, don’t be afraid to ask for what you need. After all, your life’s savings are at stake.
- Who are your typical customers?
- How will we communicate with each other?
- How much will I pay and how is that number determined?
- How are you compensated?
- Are you compensated for recommending certain products?
- How do you select the investments and products for your clients?
- If charged an annual percentage, will it be billed quarterly or monthly?
- Do you charge by the hour?
- Do you have a fiduciary duty to your customers?
Ask questions about your specific situation:
- If you’re a divorced woman in your 40s, does the advisor have other clients in the same boat?
- If you’re a small business owner, do they have experience with that specialization?
- If you’re just starting out in your career, have they worked with millennials or Gen Zers in the past?
Don’t fall victim to fraudulent practices
Scammers can easily pass themselves off as financial advisors or experts, lending an air of legitimacy to their scheme. It pays to be aware of the red flags, and avoid being fooled by anyone who is claiming to be somebody they are not.
That being said, “real” financial advisors can also engage in investment fraud. So even if you are meeting an advisor with a seemingly legitimate practice, you should know what are considered fraudulent practices and what signs to watch out for.
Most common investment frauds
This scam exploits the trust between tight-knit communities and specific groups of people (ethnic, religious, professionals, the elderly, etc.). A scammer will approach and convince a trusted member to invest, who then unwittingly encourages more people from their community.
The investment generally turns out to be a Ponzi scheme. By the time people are wise to the scam, the money is long gone. Always be skeptical of an investment opportunity and analyze it thoroughly, no matter who presents it.
Your broker makes an excessive amount of selling and trading with the goal to increase their commission earnings, disregarding your best interests. Watch out for unauthorized or frequent trading, and any suspiciously high amount of fees in your portfolio, as it could be a sign that your broker is defrauding you. Be especially wary of advice to buy variable annuities, as they have very high fees, and are commonly pushed by brokers who want to earn higher commissions.
Promissory notes fraud
Promissory notes are a legitimate form of investment. Investors lend money to a company, which in turn promises a fixed return. However, promissory notes are commonly used to scam individual investors so before investing in these types of securities, you must check out their legitimacy.
A promissory note must be registered, either with the SEC or with the state securities regulator. You can verify a promissory note online with the SEC’s EDGAR database or by calling the state securities regulator.
Pump and Dump
This scheme artificially raises the value of a company (“pump”) by spreading misinformation, with the goal to increase demand and inflate the value of the stocks. After the stocks have gained their temporary, artificial value, the scammers will sell their shares (“dump”) at the inflated price, and profit. After that, the stock goes back to its true value and the other unknowing investors lose their money.
A legitimate, trustworthy financial advisor will:
- Fully disclose potential conflicts of interest
- Make realistic promises of returns (as opposed to grand promises of above-average returns)
- Accurately inform you of the risk level for each investment
- Always act in your best interest
Steer clear if you notice any of the following:
- High-pressure sale tactics
- Use of phrases like “once in a lifetime opportunity” or “breakthrough technologies”
- Cold calls from unregistered and unsupervised salespeople claiming to be brokers
- E-mails from unknown senders promising a great investment opportunity
- Refusal to send written information about an investment
- Advice to keep the investment opportunity “confidential”
- Pressure to make a quick decision
You can notify the SEC of any suspected securities fraud by using their Tips, Complaints and Referrals Portal. If eligible, you can apply for whistleblower status and earn additional protections and confidentiality guarantees.
By following our six-step guide, you’ve done enough homework to know how to find a financial advisor and whether someone’s skills and reputation check out.
That said, once you enter into a relationship, remember you always have the freedom to choose a different certified financial planner, broker, investment manager, financial advisor, certified public accountant (CPA), Chartered Financial Consultant (CHFC), or Chartered Financial Analyst (CFA).
If your first choice does not inspire confidence or you disagree with their recommendations, don’t be afraid to say no or search for new counsel, until you find the right fit.
How to find a financial advisor FAQs
What is a financial advisor?
A financial advisor is a professional who provides guidance and expertise on matters of personal finances, investments, and assets management. The term financial advisor is broad, and includes several types of professionals. Advisors may serve as counselors but the term can also refer to brokers who exchange market securities or investment advisers who will invest in your name and are bound by legal regulations.
What does a financial advisor do?
A financial advisor will counsel their clients on financial planning, budgeting, and risk management, with the end goal of helping you build more long-term wealth.
Do I need a financial advisor?
This depends on your financial profile and goals. It doesn’t make much sense to pay for a long-term financial advisor, if you don’t have a lot of assets, investments or overwhelming personal debt. However, anyone can benefit from meeting with a financial advisor to map out a strategy for specific goals, like retirement or large expenses.
It’s key that you know what financial goals or needs you have to find the appropriate professional for the task. This could mean scheduling a one-time session with a counselor to optimize your finances or it might mean having a certified investment adviser on retainer to manage your assets.