How to Choose a Financial Advisor (2024)

Vault’s Viewpoint on Financial Advisors

• A financial advisor can offer a professional, outside viewpoint to help you make decisions about your money.
• Carefully consider your short-term and long-term financial goals as you choose a financial advisor.
• There are different types of financial advisors and compensation, so pay attention to how the advisor is paid and whether it aligns with your goals.

What Is a Financial Advisor?

A financial advisor is someone who helps you figure out what to do with your money. There are different types of financial advisors, so understanding what each does can help you figure out how to choose a financial advisor that aligns with your goals and can help you in your specific situation.

Here are some of the main types of financial advisors you’re likely to see when searching for the right fit for you:

• Traditional financial advisor: This is someone you usually meet with in person. They will likely help you manage your assets and provide you with planning help. Depending on the situation, you’ll likely pay a percentage of the assets they manage on your behalf. Many of them specialize in certain types of financial services.
• Online financial planning services: You might work with a financial advisor online or via video in this scenario. Often, you receive guidance on planning for various goals, such as saving for college or retirement, and you might get some investment advice. Depending on the situation, you might pay a flat fee for specific services, such as a financial plan, or you might pay a percentage of assets under management.
• Robo-advisor: Get low-cost help managing your investment account. Robo-advisors tend to charge low management fees, rarely have high account minimums and will automatically invest and rebalance your portfolio. Robo-advisors typically use algorithms based on your goals to determine your asset allocation.

Note that some financial advisors have areas of specialization. Understanding your financial needs and goals can help you if you hope to gravitate toward someone with a particular field of knowledge.

Financial Advisor Certifications

Don’t forget to review various certifications. Look for someone who has a fiduciary duty to their clients. A fiduciary is someone beholden to your best interest and required to recommend products, services and courses of action that are more likely to benefit you—not their bottom line.

Some designations, such as certified financial planner (CFP) and registered investment advisor (RIA) must meet specific criteria. Other designations that you might come across include accredited financial counselor (AFC) and chartered financial consultant (ChFC). There are other alphabet-soup designations, so consider what might work best for you.

For example, a CFP usually focuses on the nitty-gritty of financial planning, while an AFC might be more useful if you have a specific problem to overcome, such as getting out of debt. An RIA must be registered with the Securities and Exchange Commission (SEC) and meet certain requirements designed around investment planning and management.

Reviewing a certification and making sure your advisor is up-to-date and properly registered can provide you with peace of mind, knowing that they have completed certain education and work requirements related to helping others make financial decisions.

How Much Do Financial Advisors Cost?

There’s a wide range of costs associated with financial advisors. One of the main things to look at, though, is how your financial advisor gets paid. In general, you’re likely to benefit when you choose a fee-only advisor who gets paid by providing you with services rather than someone who’s paid on commission from products they recommend.

While some insurance agents use terms like financial planner or financial advisor to describe themselves, it’s important to find out how they get paid. They might not be charging you upfront, but they could be receiving commissions by steering you toward more expensive funds or other financial products that might come with hefty fees.

There are different structures for financial advisor fees:

• Flat rate: You might pay a flat rate per month or per year for access to certain services and advice. Others charge a flat hourly rate based on how much time you spend in consultation with them.
• Assets under management: This common arrangement involves a percentage of the assets that you keep with a financial advisor. These fees can range from as little as 0.25% for robo-advisors up to 1% or 2% for a more traditional advisor.
• Per-service fee: Some financial advisors offer specific packages for a fee. For example, you might pay a specific price for an overall financial plan or for a tax consultation.

As you choose a financial advisor, pay attention to the pay structure and your budget. Look for someone who fits your budget and is paid by you in some fashion—not through product commissions.

How to Find a Financial Advisor

As you look for a financial advisor, here are some of the steps to take:

Understand Your Financial Goals and Needs

Start with your personal finance goals and needs. What are your priorities? Some examples of priorities might include:

• Long-term financial planning
• Help getting out of debt
• Building a saving and investing plan
• Estate planning (potentially including trust management)
• Tax planning
• Managing multiple goals

Think about your immediate financial needs as well as what you might need in the future. In some cases, the financial advisor you need today might be different from the advisor you need 20 years from now. Consider how your needs might change over time and how that impacts your current situation.

Consider the complexity of your situation and what you hope to accomplish. If you’re simply looking for a place to start setting money aside for retirement, a robo-advisor might work well. If you have a complicated financial life that includes succession planning for a business, you might need to consider hiring a more traditional advisor who specializes in estate planning and business issues.

Review the Available Options for a Financial Advisor

Now that you know what you need from a financial advisor, it’s time to review the available options. Consider asking people in your network for recommendations and look online for financial planning services.

A referral can help you narrow down your choices and provide a starting point. As you review the options, make sure to:

• Meet with the advisor for a consultation. While you can’t usually meet with a robo-advisor, if you’re looking for someone in-person or online, you can typically schedule an exploratory meeting. Pay attention to whether they ask questions about your values and priorities and listen to you.
• Verify how the advisor is paid. Make sure you understand the fee structure and what you’re paying for. If it’s assets under management or a flat fee, verify how much access you get to the advisor and how often they’re willing to tweak your plan or update your strategy.
• Check their credentials. Don’t forget to make sure their certifications and designations (if they have them) are current. Use FINRA’s BrokerCheck to see if the RIA you’re considering has any violations or other problems. Others that offer certifications, such as the CFP designation, maintain a database of current holders so you can verify their status.

Review Your Budget

Finally, make sure the financial advisor is in your budget. If you’re using a robo-advisor or someone who’s paid based on assets under management, you likely won’t need to come up with money upfront—but you might have to meet a minimum.

Depending on the situation, you might need anywhere from $100 (or less) to open an account with a robo-advisor or up to $250,000 in assets to work with a traditional financial advisor. Before you make your choice, make sure you meet any minimums.

If you’re considering a financial advisor that charges a flat rate, make sure you’re getting good value for your payment. For example, if you’re just looking for someone to create a comprehensive financial plan but aren’t interested in ongoing financial guidance, it might be worth it to pay $250 to $500 for the plan instead of paying $30 a month on an ongoing basis. It really depends on your needs and goals.