Takeaways
- Financial advisors are professionals who provide money advice and guidance.
- Financial advisors create financial plans, manage assets, and recommend products.
- Financial advisors are certified professionals with CPAs, CFPs, or RIAs.
- Financial advisors charge clients a commission on AUM or fee-based models.
- Financial advisors can act as independent agents or work for larger financial firms.
When managing your personal finances, planning for retirement, or investing for the long term, the right financial advisor can make all the difference. But how do you choose the best financial advisor for your needs? Here, we take a look at what you should consider.
What Is a Financial Advisor?
A financial advisor is a professional who provides personalized advice to help you manage your finances. They can assist with investment advice, retirement planning, tax strategies, insurance recommendations, and estate planning. Their objectives are to help you meet your financial goals, minimize risks, and maximize your wealth.
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What Financial Advisors Help With
- Paying Off Debt: Whether you are trying to pay off credit cards, student loans, mortgages, or medical bills, controlling your debt is critical to financial success. You might already be adopting the 30% rule, but if your debt is out of hand or you are considering debt consolidation, find a financial advisor who specializes in debt management.
- Saving: Building a cash safety net distances you from financial anxiety. You might wonder where to park your cash for an emergency or slush fund. Financial advisors typically have a suite of the best savings accounts they recommend to clients.
- Investing: Once you decide to invest in stocks, bonds, real estate, or cryptocurrency, it makes sense to meet with a financial advisor. Whether you are a beginner investor or a seasoned pro, they can help you balance your risk tolerance with your long-term investing objectives.
- Retirement planning: Saving for retirement is a smart money move. However, what accounts you should invest in, like a Roth IRA or 401(k) plan, matters. Financial advisors can show you where you stand relative to the average 401(k) balance by age. They can also advise you on what percentage of your discretionary income should go toward retirement savings, especially if you want to retire early.
- Tax Strategies: Tax situations can spiral into extreme complexity. You might reach this point if you are selling a house, stock options, or RSUs. Knowing how much taxes to pay and when is critical to your personal cash flow management. Advisors might be able to tell you when you should implement tax-loss harvesting.
- Estate Planning: You might have family members who rely on you financially. That is when estate planning, inheritances, and trusts come into the picture. The best financial advisors can also guide you on what type of life insurance products to buy.
- Personal Finances: The best financial advisors can navigate your finances holistically. Look for shops that offer full-service support. This might mean looking for a financial advisor who works for a more prominent financial firm or has access to the right investment tools, supporting tax professionals, and retirement planning guides.
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7 Steps to Choose Your Financial Advisor
Selecting the right financial advisor involves careful deliberation and proper due diligence. Here are seven steps you can take to find the best financial advisor:
1. Review Your Finances
Before seeking financial advice, you need to understand your financial situation. List your assets, liabilities, income, expenses, and financial goals. Whether you are saving for retirement, trying to purchase a home, or paying for your child's education, clearly defined goals will guide your discussions with potential advisors and help you find someone whose expertise aligns with your needs.
2. Look for the Right Credentials
Credentials matter when choosing a financial advisor. Here are three significant certifications to look for:
- CFP® (Certified Financial Planner): A CFP® is skilled in comprehensive financial planning, including investments, taxes, estate planning, and insurance. They must meet rigorous educational and ethical standards to maintain this certification.[1]
- CPA (Certified Public Accountant): CPAs are tax preparation, financial statement, and planning experts. They are invaluable if you have complex tax situations or need assistance with tax-efficient investing. CPAs must pass a test issued by the National Association of State Board of Accountancy and become licensed in their state.[2]
- RIA (Registered Investment Advisor): RIAs have a fiduciary duty, meaning they are legally obligated to put your interests ahead of their own. They typically provide personalized investment advice and are registered with state securities authorities or the Securities and Exchange Commission (SEC).
When vetting potential financial planners, money coaches, or investment advisors, always verify their credentials through the issuing organizations to ensure authenticity.
Depending on your needs, you may look for one credential over another. If, for example, you want someone to manage your net worth or retirement savings, you should choose someone who has a fiduciary duty. Choosing the best financial advisor with a fiduciary duty means they must legally act in your best interest first, not their own.
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3. Choose the Type of Advisor
Financial advisors come in all shapes and sizes to fit your individual needs. You can find financial advisors ranging from traditional in-person professionals to complete algorithmic advisors to something in between. Here are the three main types:
Traditional Advisors offer face-to-face interactions, customized financial planning, and comprehensive advice. This could be the best route for you if you prefer getting to know your advisor and prefer a hands-on approach.
- Best for: More complex finances, established net worths, and developing a long-term relationship
- Costs: Fees hover around 1% of assets under management
Hybrid Advisors combine personalized financial advice with automated digital platforms. They balance human interaction and digital convenience, which is suitable if you want occasional personal advice in alliance with modern digital tools.
- Best for: Increasing your net worth, less complicated taxes, but still want the option for a hands-on approach
- Costs: Fees are less than traditional advisors and more than robo-advisors. For example, Empower charges 0.49% to 0.89% on a staggered AUM. [3]
Robo-advisors are completely automated online platforms that use algorithms to manage your investments based on your risk tolerance and goals. Robo-advisors typically charge lower fees and are perfect for tech-savvy individuals comfortable with minimal human interaction or less personalized advice. Read how to sign up for robo-advisors.
- Best for: Beginner investors and straightforward tax scenarios
- Costs: Fees range from 0.25% to 0.5% of AUM
Choosing the right advisor type depends on your personal preferences, financial complexity, and comfort with technology.
4. Review Financial Advisor Fee Structures
Financial advisor fees can vary widely, but here are the standard structures:
- Fee-only: Advisors charge a fixed fee, hourly rate, or percentage of assets under management. They do not earn commissions from selling products, minimizing potential conflicts of interest.
- Commission-based: Advisors earn a commission on financial products they sell. While this may lead to lower upfront fees, it can create conflicts of interest.
- Fee-based: A hybrid model where advisors charge fees for advice and may also earn commissions.
Always clarify fee structures upfront and consider the motivation behind recommended products. Just because your advisor receives a commission does not mean the product is terrible or not right for you. Instead, it means you need to be aware of the value you are receiving relative to the costs incurred.
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5. Examine the Financial Advisor's Background
Perform due diligence on any advisor you are considering. To research the advisor's history, you can use resources such as the Financial Industry Regulatory Authority's (FINRA) BrokerCheck, the SEC's investment advisor database, or state regulatory agencies.
Check for any disciplinary actions, complaints, or legal issues. Additionally, ask for references and recommendations from people you trust.
6. Interview Potential Advisors
Arrange interviews with a shortlist of advisors to evaluate their compatibility with your financial goals and personality. Here is a list of possible questions to ask your financial advisor candidates:
- What financial planning services do you offer?
- What is your investment philosophy?
- How often will we communicate, and through what means?
- What are your fees, and how are they structured?
- Can you provide references?
This step helps you gauge the advisor's transparency, communication style, and overall approach.
7. Hire Your Financial Advisor
Once you have reviewed credentials, evaluated types, fees, and backgrounds, and interviewed your candidates, you are ready to choose. After selecting your advisor, you should outline clear expectations about your financial goals and working relationship.
Ask as many questions as you need to ensure you thoroughly understand and are comfortable with their recommendations. Get the most out of your partnership by regularly reviewing your investments, insurance agreements, debt payment plans, or other goals. The more you engage in the process, the more confident you will be in asking the right questions.
Smart Summary
A financial advisor provides money advice, manages your money and investments, and creates long-term financial plans. Choosing the best financial advisor is one of your most important financial decisions. You want someone with the proper credentials, experience, and a breadth of skillsets to help you master your personal finance needs.
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(1) CFP Board. The CFP® Exam Requirements. Last Accessed April 3, 2025.
(2) National Association of State Boards of Accountancy. Boards of Accountancy. Last Accessed April 3, 2025.
(3) Empower. Wealth Management. Last Accessed April 3, 2025.
