A financial advisor can provide valuable guidance to help you achieve your financial goals. Advisors offer a variety of services that include financial planning, investment management, retirement income planning and more. Finding a financial advisor will likely require some research, an understanding of your own financial situation and some general knowledge of the industry. Here are important steps you need to follow in order to find the right financial advisor for your situation.
Your search for a financial advisor (sometimes written as “financial adviser”) should start with a simple question: What do you need help with?
There are thousands of financial advisors out there, and they offer a wide variety of services. Some focus on holistic financial planning, while others specialize in investment management or retirement. And many specialize in meeting the needs of specific clientele, such as high-net-worth individuals or business owners. Identifying your needs is critical to finding a suitable advisor.
Here are some common areas of need that a financial advisor may help you with:
Kristin McKenna, managing director at Darrow Wealth Management in Boston, said consumers should put a higher priority on finding an advisor who meets their needs, rather than one who’s located nearby.
“Especially in today's Zoom world, investors should consider prioritizing the right overall fit with an advisor versus limiting their search to professionals in their immediate area,”
said McKenna, a certified financial planner (CFP). “This is especially true for investors with a nuanced or complex situation, as they may benefit a lot more by working with an advisor who specializes in that practice area.”
A financial advisor is a professional who helps guide and direct clients’ decision-making on various aspects of their financial lives. A financial advisor may offer guidance on managing investments, planning for taxes and making retirement projections.
Until relatively recently, the term “financial advisor” was used to describe various positions across the financial industry. But recent regulation from the U.S. Securities and Exchange Commission (SEC), called Regulation Best Interest (Reg BI), has limited who can use the title. Financial advisors generally are also registered investment advisors (RIAs) or investment advisor representatives.
Conversely, when broker-dealers use these terms in their names or titles in the context of providing investment advice to a retail customer, they will generally violate the capacity disclosure requirement under Reg BI. The disclosure requirement generally refers to rules requiring advisors to appropriately inform customers of the scope and terms of their relationship as well as material facts related to conflicts of interest when making a recommendation.
The term investment adviser, which is often spelled with an “e” by government agencies, is a legal designation that refers to an individual or company that is registered as such with either the SEC or a state securities regulator.
Any advisor registered with the SEC is legally required to abide by fiduciary duty, and as a result, must put clients’ interests ahead of their own. According to the SEC, fiduciaries are expected to exercise a duty of care and a duty of loyalty to clients, and as a result, are “held to the highest standard of conduct.”
On the other hand, the SEC's Reg BI under the Securities Exchange Act of 1934 establishes a "best interest" standard of conduct for broker-dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, including recommendations of types of accounts.
Working with an advisor who abides by fiduciary duty gives you the assurance of knowing they’re legally obligated to put your interests first. While a fiduciary can still have conflicts of interest, knowing that they have a duty of trust and loyalty with you, the consumer, can give you some peace of mind. That’s why most experts recommend asking an advisor whether they abide by fiduciary duty when you first meet with them. You can also use a service like SmartAdvisor, which matches would-be clients with fiduciary financial advisors.
Whether a financial advisor is a fiduciary or not is just one of the many ways advisors can differ from one another. Here’s a look at some of the most common types of financial advisors that may be able to offer you the services you need:
These advisors are primarily focused on giving investment advice and managing client portfolios. Investment managers often work for firms that are registered investment advisors (RIAs) or are RIAs themselves. Being an RIA means they’re registered with the SEC and abide by fiduciary duty.
If you’re looking for financial advice that goes beyond investing, you’ll likely want to work with a financial planner. Financial planning can involve examining your financial situation and building a specific plan that aims to reach your long- and short-term goals. Financial planners usually specialize in providing holistic advice that may touch on a person’s needs for retirement, budgeting and cash flow, estate planning, insurance, and more. They could also focus on just one or two specific areas as well.
While some investment managers also offer financial planning services, some advisors specifically provide wealth management, a more comprehensive service that combines investment management and financial planning under a single umbrella.
Don’t think you need the personal touch of a human advisor? Robo-advisors are platforms that digitally manage your investment portfolio through risk-based algorithms. They automatically create asset allocations according to your investor profile and rebalance your holdings over time. Unlike traditional advisors, robo-advisors don’t rely on human intervention, though some firms offer secondary human advisors as part of their package. These platforms often come with lower fees and may be an option for investors who don’t meet account minimums that human advisors often require.
Choosing the right type of financial professional can go a long way to setting your financial goals in motion. Once you’ve established the type you’re looking for, you can move on to determining how to find the right professional and how much you’re willing to pay for their services.
Research suggests people who work with a financial advisor feel more at ease about their finances and could end up with about 15% more money to spend in retirement.1
Journal of Retirement Study (Winter 2020)
The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of your future results. Please follow the link to see the methodologies employed in the Journal of Retirement study.
The services of a financial advisor come with a cost, though the types of fees you’ll encounter will likely depend on what services they are providing. For example, financial consulting is typically charged on a per-hour basis, while investment management may feature a fee based on a percentage of the total amount of assets you’re investing with the advisor.
Here’s a closer look at the most common financial advisor fee structures that you’re most likely to come across:
Fees that are based on a percentage of your assets under management, or AUM, are a common way advisors are compensated for investment management. For example, if your advisor charges an annual fee of 1% and you have $500,000 invested, you might pay $5,000 in fees, depending on how often you’re billed and how your account grows throughout the year. These fee structures also usually have tiers, with rates dropping as you invest more. However, some firms and individual advisors may offer comprehensive wealth management services that include both asset management and ongoing financial planning. Your wealth management fee may also be based on a percentage of your AUM.
Many advisors offer standalone or project-based financial planning services, allowing clients to receive specific, targeted services for a set price. Costs for standalone financial planning often come in the form of flat fees, and are usually quoted upfront.
Many advisors offer financial planning services on an hourly basis, which is similar to standalone financial planning that’s provided for a fixed fee. Again, a rate like this will be laid out in your advisory agreement beforehand.
Some advisory firms work on annual or quarterly retainers, as well as monthly subscription fees. This fee structure is becoming increasingly common, but is still seen less often than the three variations above.
| Median Financial Advisor Fees by Type | |
|---|---|
| Fee Type | Median Fee |
| AUM | 0.59% - 1.18%* |
| Standalone Fixed | $2500** |
| Hourly | $250** |
| Retainer | $4000** |
* According to Advisory HQ, July 2021 ** According to The Kitces Report “How Actual Financial Planners Do Financial Planning (2020)” | |
So how much can you expect to pay for each kind of fee? While advisors charge a wide range, here’s a rough guide:
These fees are likely to not be all that you’re charged, though. Some financial advisors will also pass on fees from third parties who are helping your advisor to invest your money. You’ll also likely be responsible for any trading fees that your advisor encounters when moving your money between investments. It’s important to make sure you understand all of the fees involved with your investments and the services you’re receiving before moving forward.
The figures above are examples only and used to illustrate what typical fees for financial advisors and their structure looks like. Advisors on the SmartAdvisor Match Platform that you may be matched with may charge higher fees than those shown above. Please carefully review fee structures with your investment advisor and review your advisor's form ADV and CRS.
When discussing fee structures, you might hear another distinction: fee-only advisors vs. fee-based advisors. Understanding the important differences between these fee structures is paramount for your search for an advisor. Here are the major differences:
A fee-only advisor makes money solely from the fees that clients pay. This means that they do not receive commissions or other forms of compensation when an advisory client selects a particular investment or buys a specific financial product. This removes most incentives for an advisor to sell certain products, helping to ensure the advisor is singularly focused on providing the best possible advice to their clients.
A fee-based advisor, on the other hand, can earn third-party commissions on top of advisory fees that clients pay, if the fee-based advisor is a dual registrant and fully discloses their role to the consumer. These commissions often come from selling or recommending financial products, investments, annuities or insurance products to clients. As a result, fee-based advisors are often also registered broker-dealers and/or insurance agents, giving them a relationship through which to earn this additional compensation. Sales commissions and other third-party compensation can create a potential conflict of interest (though any such conflict would need to be disclosed). Fee-based advisors have an obligation to serve their client's best interest.
That’s a major distinction, and many people limit their search to fee-only advisors. However, this may not matter as much as you think, depending on what services you’re receiving.
“Commissioned advisors are not inherently a bad thing, as long as they are acting as a fiduciary and disclose potential conflicts of interest,”
said Michael McDaid, a CFP at RetirementDNA in Escondido, California.
No matter what type of advisor you choose, keep in mind that a fiduciary advisor has a fiduciary duty. But if you’re working with a dual registrant fee-based advisor, it’s best to establish what role the advisor is acting in when making a particular recommendation.
Before finalizing your choice of a financial advisor, be cognizant of any minimum investment requirements that a firm may impose. Some firms have no minimum whatsoever, while others have minimum investment requirements that range from as little as a few thousand dollars to as much as tens of millions. Some firms may also require clients to keep a certain amount of money under management to retain their services.
Again, plenty of firms don’t have minimum investment requirements and are open to working with individual clients above and below the high-net-worth threshold. You can learn whether a firm requires a minimum initial investment or account size by directly asking an advisor or reviewing their Form ADV. Some firms with minimum requirements will also, at times, waive those requirements for some clients at their sole discretion.
Now that you’ve identified your areas of need and even have an idea of how much you’re willing to pay for these services, it’s time to find an advisor. Luckily, there are a number of tools and strategies you can rely upon to find a financial professional, which include:
Despite all of the technology at our fingertips, sometimes old-fashioned word of mouth is just what you need to find the right advisor. If any friends, family members or colleagues work with a financial advisor, ask what they like or dislike about the advisor and see whether they would recommend their services. These recommendations can be particularly helpful if you ask people you trust and are in a similar financial situation to yours.
If you’re hoping to find an advisor in your local area, SmartAsset has plenty of resources to help. We have a wide range of curated lists of the top financial advisors in many cities and every state across the country, as well as a list of the top financial advisors nationally.
SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
You can also seek out large, national firms with name brands to find an advisor. Financial service giants like Fidelity, Schwab and Vanguard all offer advisory services through traditional human advisors, as well as robo-advisors.
There are many online databases that you can use to find advisors. Some examples include SmartAdvisor Match, the Garrett Planning Network, the National Association of Personal Financial Advisors (NAPFA) and the CFP Board of Standards.
Now comes the all-important phase of vetting and interviewing financial advisors. After you’ve found some potential matches, it’s best to speak with at least three choices and get a sense for what sets each apart. It’s a good idea to choose an advisor who you feel has the right qualifications and specializations to help with your specific needs. Sometimes you can even narrow down your search by vetting your chosen advisors via their certifications or red flags that may come up.
There are a range of financial certifications that advisors can acquire to display or improve their knowledge of a particular topic and the services they provide to clients. So if you’re looking for help with a specific topic or area of need, you’ll likely be able to find an advisor with a corresponding certification. Here’s a look at some common financial advisor professional designations and what you can assume for each:
CFPs are fiduciary advisors who are well-versed in topics across the financial spectrum. They assess their clients’ full financial portfolios and provide personalized financial plans. To become a CFP, a professional must complete certain coursework, gain professional experience, then pass an exam consisting of two three-hour sessions and 170 multiple-choice questions. The test is administered by the CFP Board and historically has a pass rate of around just 65%.
The CFA designation signals a mastery of financial analytics, trends and markets. Typically, CFA charterholders work in investment analysis roles at financial advisor firms, investment firms, insurance companies, banks or investment funds. The requirements to become a CFA are significant. A candidate must pass three difficult exams and have at least 4,000 hours of qualified professional experience. Historically, only about 45% of candidates end up passing the CFA exams, according to the CFA Institute.
The ChFC certification was created as an alternative to the CFP designation. Those who become a ChFC professional receive training in specialized, contemporary fields of financial planning. Some examples include planning for blended families, divorcees and other areas not included in the standard CFP course. The course is run by the American College of Financial Services and requires considerable study and testing.
A CPA license typically recognizes accountants, tax preparers and financial analysts. It is one of the more common financial certifications in the industry. A CPA can be helpful for those looking for financial advice regarding reducing taxes, business financial planning and organizing investments.
The CLU designation is the top choice certification for insurance agents. There is no comprehensive exam, but candidates have to take five courses administered by the American College of Financial Services. Chartered life underwriters are typically experts in life insurance, estate planning and risk management.
While understanding what these certifications mean is important, no final decision should be made solely on the letters that come after your advisor’s name.
“Keep in mind, no matter how outstanding someone's credentials may appear, the key for any consumer is to find a financial advisor who listens to them and is willing to answer their questions,”
said Niv Persaud, managing director at Transition Planning + Guidance, LLC in Atlanta.
Remember that some of these credentials alone do not designate someone as a financial advisor. For example, a CPA may not be qualified to advise you on investment or retirement planning. But these credentials, in addition to appropriate regulatory status and experience, may help round out an advisor’s qualifications.
As you’re considering different firms and advisors to potentially work with, it’s important to be on the lookout for red flags and past indiscretions. Here are some factors to keep in mind that may make you wary of moving forward with a particular advisor:
You can use the SEC’s Investment Adviser Public Disclosure website and FINRA’s BrokerCheck tool to check an advisor’s record for any legal, civil or regulatory violations. If the advisor and/or their firm have been cited or had disciplinary actions against them in the past, you’ll be able to read about the alleged infractions and see if (and how) the violations were resolved.
Tess Zigo, a certified financial planner and certified public accountant in Palm Harbor, Florida, cautions against working with advisors who use pressure tactics or offer a discount for immediately signing up as a client. “These are old-school sales techniques, and to me, the person using these wouldn't be someone I'd trust with my finances,”
Zigo said.
You’ll also want to keep an eye out for fee structures that might incentivize advisors toward certain actions or recommendations. For instance, is the advisor fee-only or fee-based? If the fee-based advisor is a dual registrant and fully discloses their role to the consumer, what kinds of commissions can the advisor receive and how might it incentivize the advisor to make certain recommendations? You should also check to see if they charge additional performance-based fees. These kinds of fees can incentivize the use of riskier investments in client portfolios to generate higher returns and larger fees. Any potential conflict of interest that arises, will need to be disclosed. While fee-based advisors have an obligation to serve their client’s best interest - you may prefer not to work with an advisor whose incentives affect their advice in this way.
These red flags may not necessarily be a hard “no” in your evaluation process. It’s important, however, to proceed with caution and make sure you understand everything involved with each before making a final decision.
As previously discussed, be sure to check whether the advisor is, in fact, legally bound by fiduciary duty. Remember, RIA firms registered with the SEC are held to a fiduciary standard. To be sure, check for the firm’s Form ADV and brochure to determine whether or not they reference their fiduciary duty to clients. You want an advisor who is held to a fiduciary standard.
You can also consider the investment strategies an advisor relies upon when managing client portfolios. Do they specialize in a particular style of investing, or do they incorporate a wide variety of assets in their clients’ portfolios? The advisor’s website should provide some indication of how they invest client assets and what their typical strategies are.
You can also read the firm’s Form ADV brochure and ask about their investment approach during a one-on-one interview. Many firms will tailor their investment strategy to the needs of their clients, but some take a more rigid approach.
When meeting with a financial advisor, you’ll want to ask about all of the things covered throughout this how-to guide, from certifications to fees to their overall investment strategy. Here are some specific questions you might ask during your consultation:
The right answers to these questions are going to depend on your personal needs and what you’re looking for in a financial advisor.
At this point in the process, you’ve hopefully found a financial advisor who fits your needs. Now let’s take a look at the final steps necessary for you to hire your financial advisor and to start reaping the benefits of their services.
Here are the five steps you’ll take once you’ve chosen a financial advisor:
When you’re ready to move forward with your financial advisor of choice, the advisor will want you to sign a handful of documents that solidify and spell out your relationship. If you’re not confident in the things discussed to this point, or aren’t sure about some of the things you’re signing, you can consider having the agreements looked at by an attorney. Lastly, make sure these documents clearly lay out your fees, and don’t be afraid to ask questions if you don’t understand something.
Assuming your advisor will be managing your investments, you’ll need to transfer your money to an account that your advisor can access. Investment advisors registered with the SEC must comply with the custody rule, a provision of the Investment Advisers Act of 1940 intended to bolster the safeguards of client assets.
The rule stipulates that client assets must be held by a qualified custodian, which can be a financial institution like a bank, certain foreign entities, futures commissions merchants, or a registered broker-dealer.
You may also have to choose how much control to give to your advisor. There are two primary types of portfolio management: discretionary and nondiscretionary.
Discretionary management means the advisor will have the authority to make trades and transactions within your account without your explicit consent every time. Non-discretionary management, on the other hand, means you’ll have to sign off on individual portfolio transactions beforehand. Some firms may only manage one of these two account types.
The more common of the two is discretionary, as needing to approve every trade could be time consuming. If it is important for your account to be non-discretionary, you should make that a major point of emphasis during the vetting process.
Now that you’re a new client, your financial advisor will work with you to create a plan for investing your money and managing your finances. Your advisor will likely talk with you about your financial goals, as well as assess your current financial situation, including your risk tolerance and other important factors. They may formalize this step with what’s called an investment policy statement (IPS), a written document that outlines your goals, risk tolerance, time horizon and asset allocation.
If you’ve hired an advisor solely for financial planning, they’ll begin to craft a comprehensive plan that may include retirement and estate planning, as well as insurance plans and other topics. If you know what you want your plan to include, you should communicate all of your needs as early in your client-advisor relationship as possible.
The final step is to meet with your advisor at least once a year, or as often as you both agree. During these recurring meetings, you’ll receive updates on your portfolio and have the opportunity to address any new developments in your financial life. There is no rule that states how often you can meet with your advisor.
If you have a change in your life that should dictate an alteration to your financial situation, you shouldn’t wait for an annual meeting to discuss it with your advisor. For example, if you get married, you may want to change your estate planning documents or your overall investment strategy. That shouldn’t wait for months until your next scheduled meeting.
Below, we’ve compiled a list of some of the most frequently asked questions and their corresponding answers regarding the services of financial advisors and how to find the right one:
If you want to get a sense of the top firms in your area, we’ve reviewed hundreds across the country. These reviews, compiled through extensive research, rank the top firms in the following cities according to assets under management (AUM). They include detailed information on each firm’s investment philosophy, account minimum, certifications and services, all of which can help you decide whether a firm is right for you. The criteria for the matching tool differs from the methodology for the list below and you may not be matched with the advisor firms mentioned in the linked reviews.
The individuals who provided quotes for this article have not been compensated for their participation and are not participants in the SmartAdvisor Match platform.
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