8 Questions to Ask a Financial Advisor
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If you’re considering hiring a financial advisor, finding the best person starts with some preparation. Here are 8 crucial questions to ask a potential advisor about their background, how you’ll work together and what to know about their investment strategy.
1. Are you a fiduciary?
What you're listening for: A clear, yes-or-no answer.
A fiduciary is legally required to act in the client’s best interest. However, not every financial advisor is a fiduciary.
Registered investment advisers, or RIAs, have a fiduciary duty to their clients under the Investment Advisers Act of 1940 in two ways: a duty of care, which means their advice is provided for the client’s best interest, and a duty of loyalty, which means placing their client’s interests above their own.
Broker-dealers, on the other hand, aren't held to that same fiduciary standard. When making recommendations, they're subject to the SEC's Regulation Best Interest, which requires them to act in the customer's best interest at the time of the recommendation. That's a narrower obligation compared to fiduciary duty, which applies to the whole client-advisory relationship.
In general, most financial advisers who are RIAs are transparent about their fiduciary duty. If you receive a different answer, or want to verify yourself, you can check an adviser’s registration for free at the SEC's Investment Adviser Public Disclosure database and any broker registration at FINRA's BrokerCheck. (Keep in mind that registration is a requirement by these regulatory agencies, but not an endorsement.)
2. How are you paid, and what are my all-in costs?
What you're listening for: A detailed answer you understand, plus a written fee schedule.
Some advisors are fee-based, while others are fee-only.
A fee-based advisor charges client fees but may also earn commissions on products sold, which could be a potential conflict of interest.
Fee-only means that they’re compensated exclusively by fees that clients pay to them. This could look like a percentage of assets under management (AUM), a flat fee, or an hourly rate. They do not receive commissions or payments from third-parties for product sales.
A thorough answer regarding fees gives you an understanding of how much it might cost to work with the advisor, both now and in the long-term. Reputable financial advisors can provide a written fee disclosure and disclose exactly how they’re paid before you sign on to work with them. You can search specifically for fee-only advisers at NAPFA and the Garrett Planning Network.
It's important to stay on top of fees, as they can reduce your savings over time. "You can lose half your net worth without even knowing it," says Alice Finn, founder of PowerHouse Assets and author of "Smart Women Love Money," a guide to investing. "You want to be vigilant."
» What else to know: Fee-only vs fee-based financial advisors
3. Are you a registered representative of a broker-dealer, or a licensed insurance agent?
What you're listening for: Whether the advisor is paid or earns commissions to sell other products.
It’s possible for RIAs to also hold either a broker-dealer registration or insurance license (or both). If they do, their full fiduciary duty to their clients may be more complicated.
A good answer is a simple, clarifying one. If they do hold other registrations, ask what sorts of products or services they’ve sold under those licenses in the past year and how they were compensated (which you can also verify in the FINRA and SEC databases).
4. What are your qualifications or certifications?
What you're listening for: Credentials that you can independently verify and that, ideally, require additional work to earn.
There are over 200 different kinds of financial credentials, according to FINRA, but four generally carry the most weight:
Certified Financial Planner (CFP).
Chartered Financial Analyst (CFA).
Certified Public Account (CPA).
Chartered Financial Consultant (ChFC).
These certifications typically require a year or more of coursework, supervised professional experience and adherence to a written ethics standard. A CFP, in particular, is held to a fiduciary duty when providing financial planning services.
Although other credentials and certifications might indicate some area of specialty – the Certified Divorce Financial Analyst, for example – many reputable financial advisors seek these in addition to one of the main four above. You can verify these credentials with the issuing organization (for example, the CFP Board's professional search tool lets you confirm whether a specific adviser holds a current, active certification). If you come across a certification you’re unsure of, check FINRA’s Professional Designations database to review the certification requirements.
5. What services do you provide, and what’s outside your scope?
What you’re listening for: Clear indications that the advisor routinely does the type of work you need done or works with clients in situations similar to yours.
“Financial advisor” is a broad term, and the range of services is equally so. Some advisors only offer investment management; others will also manage taxes, estate planning strategy, retirement planning or equity compensation, for example.
Be wary of an advisor who promises they can do everything, especially if it crosses into other areas that may require additional licensing or certifications (for example, if they offer tax-prep services but they're not a CPA, or if they offer to prepare trusts and wills but they're not an attorney).
Luckily, the SEC requires RIAs to describe their services in Form ADV Part 2 and Form CRS. Both are available in the IAPD database and to clients when asked.
Nerdy insight: What to expect during your first meeting
The first meeting with a financial advisor can be casual, says NerdWallet senior writer Lauren Schwahn, who recently wrote about her experience searching for an advisor. “We didn’t need to come prepared with tax returns, account balances or anything like that,” she says.
Lauren Schwahn, senior writer
Schwahn met with a certified financial planner who discussed her educational background, experience and what she aims to help people accomplish. Schwahn and her husband talked about their main goals: saving for their kids’ education and buying a home.
“We explained that while we feel good about our finances, we’re curious about what we could be doing better,” Schwahn wrote. “The CFP told us what we could expect if we decided to keep working with her. … But there was no pressure to move forward with planning services.”
6. What’s your investment philosophy, and how does it change if the market declines?
What you're listening for: Philosophical alignment about what to do when the market is up and when it isn't. Some advisors may also share benchmarks they use to gauge how your portfolio is doing.
This question gets at an advisor's actual investment strategy. Market downturns are inevitable, and vague, generalized answers make it hard to judge whether an advisor will be a useful resource when things get difficult. Trusting your advisor is key: “You have to believe in what they’re doing to stick with it,” Finn says. “When financial advisors really do their job is when the market is down and they can convince you to stick to the same page."
Listen for concrete tactics, such as rebalancing accounts or doing Roth conversions. You can also ask for a specific example: what did they do for clients during March 2020, or in the years since? Advisors using benchmarks should be comparing your portfolio's performance to benchmarks that relate to what you're actually invested in, or be able to explain why they don't.
If certain investing preferences matter to you, such as impact investing, this is also a good place to ask how they'd personalize the portfolio to your values.
7. How will you advise on a 401(k) plan, HSA or pension that you can't access?
What you’re listening for: A clear answer about whether your advisor can directly manage the money in your 401(k), HSA or pension, and how those accounts factor into your overall asset allocation.
These accounts are often the largest accounts in many people’s financial portfolios, but many financial advisors can’t directly access them. The accounts may or may not be part of your assets under management, which matters if your fee is based on the size of those assets.
Listen for whether the advisor treats these accounts as part of the overall plan. That matters for asset allocation: if an advisor is building a diversified portfolio for you without accounting for what's already in your 401(k), the overall allocation may not reflect what you actually own.
Some advisors may charge a separate fee to provide advice on how to invest the money inside these accounts. The advisor's Form ADV should detail what they offer here.
8. Who is your custodian, and what happens to my account if you leave, retire or die?
What you’re listening for: Who actually holds your assets, and what happens if your advisor leaves.
Although your financial advisor manages the account, a separate custodian may physically hold the assets, as required by the SEC's Investment Advisers Act to protect consumers from fraud. Many advisors use large firms, such as Schwab and Fidelity, for example, as their custodian. As the account owner, you'll receive account statements detailing actions taken in your account.
When interviewing advisors, also ask what their plan is if they're no longer be able to manage your account. It’s especially crucial to ask this question if the advisor runs a solo practice or is thinking of retiring. According to a 2024 report from Cerulli Associates, around 38% of all advisors in the US – around 109,000 – will retire in the next decade .
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