If you’re not an expert in money matters, choosing a financial advisor to manage your money life can be a tough decision. It’s almost impossible to know every financial arena well because they can be so specialized. Estate planning is completely different from picking the right investments, for example. Managing a portfolio is different from crafting a monthly budget.
Here’s what to think about when you’re searching for a financial advisor to work with and some tips for choosing the right advisor for you.
How a financial advisor can help you reach your financial goals
Finding the right financial advisor can take a lot of weight off your shoulders, but giving someone access to one of the most sensitive parts of your life is often emotionally challenging.
A financial advisor can help with various aspects of your financial life, ranging from budgeting and saving for retirement to managing an investment portfolio or estate planning. Many of these issues can be complex and intimidating. Financial advisors spend their time working with these issues and are there to guide you through your own financial journey.
If you’re looking for an advisor who can provide real value to you, it’s important to research a number of potential options and not simply pick the first name that advertises to you. Here are some tips to help you choose a trustworthy financial advisor that you can rely on.
1. Identify your financial needs and why you need an advisor
Before you choose an advisor, you’ll want to spend some time thinking about why you’re looking for a financial advisor in the first place. Some people are primarily looking for investment advice or help saving for retirement, while others are looking for advice on how to pay off debt or develop an overall financial plan.
“I was recently divorced and needed someone to manage my retirement accounts,” says one Bankrate staff member who works with an advisor. “My financial advisor got all my accounts organized and invested in ways that worked for my situation and my risk tolerance. When I started on this path, I was not interested and wanted as little as possible to do with any of it, but with my advisor’s help, I have learned so much and feel like I can actually make decisions that affect my retirement goals.”
You also should consider if you’d like ongoing access to an advisor to meet with a few times during the year, or if you could benefit from one or two sessions to help you develop a financial plan. Many advisors offer services by the hour and this may help you save money in the long run compared to paying an annual fee for decades.
2. Know what you’re looking for in a financial advisor
Review types of financial advisors
There are a few different categories of financial advisors to choose from. Find which one best fits your needs.
| Type of financial advisor | Overview |
|---|---|
| Robo-advisors – automates the investment process by building an investment portfolio based on your goals and risk tolerance |
Typical cost: Typically around 0.25 percent of assets annually.
Good for: Those looking for help building an investment portfolio based on their goals and risk tolerance. Consider alternatives if: You have a complex situation or are looking to meet with an advisor on a regular basis. |
| Online financial advisors – level of service can vary significantly depending on the firm, but typically performs most financial planning services. |
Typical cost: Varies, but should fall in between fees for human advisors and robo-advisors.
Good for: Those looking for help with a financial plan with regular check-ins throughout the year. Consider alternatives if: You want to meet with an advisor in-person, or you only need help building a portfolio. |
| Traditional financial advisors (in-person) – involves working with a dedicated advisor on a variety of financial planning needs. |
Typical cost: Varies, but you can typically expect to pay around 1 percent of assets annually.
Good for: High-net-worth clients or those with complex situations. Consider alternatives if: You’re starting with a small portfolio or don’t need ongoing advice. |
Know what credentials to look for
Consumers looking for financial advisors should also check their professional credentials, seeking out well-recognized standards such as chartered financial analyst (CFA) or certified financial planner (CFP). These designations require their holders to act as a fiduciary.
Bankrate Insight
You’ll want to ask whether a potential advisor is a fiduciary, which requires them to put your interests before their own. Advisors who hold the Certified Financial Planner (CFP) credential are required to act as fiduciaries for their clients.
“These individuals have mastered a complex body of knowledge, have passed a comprehensive examination (or in the case of a CFA charterholder, a series of examinations), and agree to abide by a code of ethics,” says Robert Johnson, professor of finance at Creighton University.
Johnson cites part of the code for CFA charterholders that exhorts them to “act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests.”
You can verify an advisor’s credentials at the CFA Institute’s site or the CFP Board’s site. While these credentials don’t guarantee that someone is indeed working in your interest, they do indicate a certain level of education and competence, and those are valuable.
You may also use Finra’s BrokerCheck tool to see employment history and any disciplinary action against a firm or an advisor.
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3. Understand financial advisor fees
Financial advisors charge fees in different ways, and the costs can vary significantly depending on the type of advisor. Here’s how the fees break down.
- Robo-advisors: Robo-advisors typically charge an annual fee as a percentage of assets under management, which tends to come in at around 0.25 percent annually. This translates to $25 for every $10,000 you have invested.
- Fee-only advisors: Fee-only advisors typically charge fees either at an hourly rate, flat rate or an annual rate as a percentage of assets you have with the firm.
- Fee-based advisors: Fee-based advisors may charge fees on an hourly or annual basis, but may also earn commissions on the sale of certain products.
Financial advisor fee types
- Hourly: Fees are charged based on the number of hours an advisor works on your account. Hourly rates vary by advisor.
- Flat rate: Some advisors may charge a flat rate that includes all the services you’ll receive. Rates can vary, but you may pay around $6,000 per year or more.
- AUM fee: Many advisors charge clients a percentage of the assets under management, which often runs around 1 percent annually. This means that if you have $100,000 with an advisor, you’ll pay roughly $1,000 in fees each year.
A few questions you can ask include the following, says Brian Walsh, CFP, head of advice and planning at SoFi: “Do they earn commission on insurance sales? Do they earn commission on stock transactions? Are they affiliated with a financial company that offers proprietary products?”
Be very careful around an advisor that you’re not paying for service. As the old saying goes, “He who pays the piper calls the tune.”
If you’re just looking for some initial guidance, you may be better off scheduling one or two sessions with an advisor that charges by the hour. You can get a financial plan without the ongoing costs. Those in more complex situations may benefit from working with an advisor year-round where the annual fees make more sense.
4. Research and vet financial advisors
There are thousands of financial advisors across the U.S., so it can be intimidating to try to find the right one for you. Here are some tips to help you research and find financial advisors in your area.
- Ask friends and family: It may sound simple, but asking friends and family who they use as financial advisors is one of the best ways to find an advisor. They can share good and bad experiences and you can trust their opinion.
- Advisor matching tools: There are many online services that match clients with advisors such as Zoe Financial, Wealthramp and Harness Wealth. These tools are typically free to clients and can help you narrow the list of potential candidates.
- Professional organizations: The CFP Board and the National Association of Personal Financial Advisors (NAPFA) both offer tools to search for advisors in your area. Just plug in your zip code and you’ll get a list of advisors located near you.
“Speak to friends and family to see who they would recommend and why,” says Bill Van Sant, managing director at Girard, a wealth management firm in the Philadelphia area.
“Ultimately, you need to feel confident in the advisor’s competency, objectivity, and their responsiveness to your needs,” says Van Sant. “The advisor-client relationship, like many relationships, is built on trust and communication, so doing the proper due diligence in choosing an advisor should provide long-term benefits and peace of mind for all parties.”
Questions to ask a financial advisor
When shopping around for financial advisors, you’ll want to get a clear understanding of what they bring to the table. Here are some key questions to ask before you hire someone.
- How do you get paid? Understanding how an advisor gets paid is the key to understanding a lot about how the relationship might unfold. You’ll want to make sure their incentives are aligned with yours and that they won’t be taking action just to earn a commission.
- What are your credentials? Understanding the advisor’s educational background and professional credentials is also important. The financial world is complex, and you’ll need an advisor who has shown they’re competent at handling it. Look for designations like CFA or CFP to ensure the advisor has gone through proper training.
- Are you a fiduciary? Acting as a fiduciary means that an advisor is obligated to put your interests before their own. You’ll want to be sure they are committed to acting as a fiduciary all of the time for you.
- What happens if you change firms? As in any business, people leave their jobs for new opportunities, but that can be disruptive when a trusted advisor leaves without notice. They might not be allowed to contact you at their new firm and your account might get passed on to someone you’re not familiar with.
- How does your firm measure your performance? This is also key to understanding your advisor’s incentives. They might say that they’re working for you, but if their annual bonus depends on them doing something else, they’ll likely act in the way that most benefits them.
What to expect after hiring a financial advisor
After you’ve hired a financial advisor, you’ll likely have an initial meeting where you lay out your financial life to them and start developing a plan based on your goals. They may ask you what you’re saving for in the short and long term and they may have you answer some questions to determine your risk tolerance.
Once you’ve developed an overall financial plan, you should continue to have periodic check-ins with your financial advisor to see how things are going and if your goals have changed. Financial plans are based on your life and things can change, sometimes dramatically. You and your advisor should continue to update your plan as you move through life.
Bottom line
Finding an advisor is not as simple as going with the person a fund company or insurance broker assigns you. You need to actively search for someone who’s going to work in your best interest, and that takes some time. But in the end, you’re probably going to get better advice, save money and earn more while achieving your financial goals. That’s worth the extra legwork in helping you find an advisor that you can work with for decades.
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