How to Choose a Financial Advisor in 5 Steps

Finding a financial advisor is easy — but finding the right advisor for you can be a challenge. It's as much about making sure the advisor provides the services you need as it is about making sure there's a personality and overall philosophy fit. For the relationship to work, you need to feel comfortable.

Here's our five-step process for choosing a financial advisor, which includes the vetting process, credential checks and making sure you're getting the services you need — and not paying for the ones you don't.

A checklist for selecting an advisor

If you’re ready to jump into your search for a financial advisor, follow this list:

• Clarify what you want help with. Common needs include investing, retirement, tax strategy and estate planning.

• Understand what you’ll pay. Costs vary widely and advisors use a variety of fee models (AUM, annual fees, hourly rates). Avoid overpaying by pinpointing what level of service you want.

• Look for a fee-only advisor who is a fiduciary. That reduces the potential for conflicts of interest by ensuring the advisor is prioritizing your needs above what may benefit them, such as commissions. 

• Verify credentials and vet candidates using sites like BrokerCheck or the CFP Board, which keep records of any disciplinary history. Use the advisor’s Form ADV to gather information about fees, services and conflicts of interest. It's good practice to interview several advisors who check the right boxes to determine if they’re someone you’d like to work with.

• Go over all the fees you’d pay before you hire your top choice. Understand what is and isn’t included in any annual fees or management fees. Also look at investment fees, such as expense ratios and any custodial fees.

For more details on each step in the process, read our full guide below.

Step 1: Decide what you want the financial advisor to do

Before picking an advisor, you need to clarify what you’re looking for. What are your most pressing questions? What problem(s) do you hope to solve?

Many people seek out a financial advisor for the first time after a significant life change — buying a house, starting a higher-paying job, getting married or having a child. These life events can have major financial implications, and upfront financial planning can go a long way toward building a stable financial future. Similarly, changes to your financial situation can necessitate hiring an advisor — things like a large salary increase or an inheritance.

Financial advisors can help address all of the above. They primarily provide services in these main areas:

• Budget and goal management: This involves helping create budgets or financial plans, as well as set short- and long-term goals such as buying a house, paying for college or making a big purchase.

• Debt management and repayment: Financial advisors can help people who are trying to balance other goals alongside paying down credit card, medical, student loan or other debt.

• Investing: Many financial advisors are also investment advisors, which means they help decide where to invest your money and help create an asset allocation strategy. They can work with you online or in person, or you could opt for a digital version, such as a robo-advisor.

• Tax strategy and planning: Some advisors have expertise in tax strategy or may hold a certified public accountant (CPA) credential.

• Retirement: A financial advisor can help you create a retirement planning strategy, including finding ways to save for retirement or helping you stay or get on track to save enough for your goals.

• Estate planning: A financial advisor might help you set up an estate plan or a trust to protect your assets and ensure your loved ones have everything they need after you're gone.

For some financial planning services, such as tax filing, setting up trusts or creating business entities, you may need to find a specialist. So if you know you need a particular service, keep that top of mind when you start your search.

Step 2: Decide what you want to pay

Financial advisor fees vary widely. Advisors typically charge a percentage of your assets under management (AUM), but some charge flat annual or monthly fees, an hourly rate, a one-time financial plan fee or even commissions. The table below gives an overview of common financial advisor fee structures, as well as average costs.

How to decide what to pay

You can influence how much you spend by exploring your options.

• Financial planning vs. investment management: Traditional financial advisors combine these two major services, but separating them — or even dropping one, if you don’t need it — could lower your costs and clarify what you’re paying for. For financial planning with no asset management, consider working with an advice-only financial advisor. For asset or investment management only, you might save by working with a robo-advisor. 

• Type or depth of relationship: The duration of your relationship with an advisor (temporary vs. ongoing), as well as the mode of communication (in-person vs. virtual) may influence the cost. Not everyone wants a deeply personal relationship with a dedicated advisor, and opting for something less in-depth may cost less.

• Level of financial guidance: Generally, as the complexity of your finances increase, so will the cost of financial advice. Similarly, the more you want an advisor to do for you (rather than doing it yourself), the more you’ll likely pay.

As you dig into these different dimensions, you’ll find that help exists for every budget and situation. For example, if you just want an advisor to create a plan you can then follow yourself, and you know you'll be able to hold yourself accountable, a one-time fee for a financial plan may be best.

But if you have multiple, competing goals, want ongoing advice from a dedicated advisor or need a more customized approach to investment management, a financial plan you follow independently may not provide what you need. You may spend more by having an ongoing relationship with a financial advisor, but it’s worth it if it helps you meet your goals and gives you peace of mind about your money.

» Learn more: How much does a financial advisor cost?

Step 3: Find financial advisors you may want to work with

As you start your search, your goal should be to compile a short list of possible advisors who provide the services you’re looking for and fit your budget. We also recommend you look for:

• Fee-only advisors who are paid directly by you and not through commissions for selling certain investment or insurance products. (Someone who is fee-based may be paid by clients as well as other sources, such as commissions.)

• Advisors with a fiduciary duty because they are required to work in the client’s best interests rather than their own or their firm’s.

• Advisors with verifiable credentials that help you understand their training and experience, feel confident they have relevant expertise and know the ethical standards they’re meant to uphold. For example, a certified financial planner (CFP) has completed financial coursework and gained enough experience to achieve one of the most rigorous certifications for financial planning. They also are fiduciaries and sign an ethics agreement when they’re accredited by the CFP Board of Standards.

» Learn more: Types of financial advisors

How to find financial advisors

There are several ways to kick off your search.. An easy starting point is your personal network. Often, people have long-term relationships with their financial advisors. Check with family and friends — or even your tax preparer — to see if they can point you in the right direction. If your colleague has worked with an advisor for 10 years and loves them, it's probably a good sign.

Here are a few other ways to find a good financial advisor.

Use a financial advisor matching service

These services match you with a financial advisor for free. The advisors typically pay to be part of the service or to receive a client match, and they have to meet certain criteria to participate. That means the matching service is doing some of the work of vetting the advisor for you.

Check with professional organizations or networks

These associations have directories that allow you to search for professionals based on several criteria.

» Look locally: Use our tool to search for a financial advisor near you

Step 4: Vet the financial advisors on your list

With your list in hand, it’s time to take a deeper look at your potential advisors. Remember, you’re planning to entrust this person with sensitive financial information and give them weight in your decision-making. Don’t skip this step!

Check for red flags

Your process for verifying potential advisors’ credentials and checking their background will depend on each advisor’s certifications and how they’re regulated. You can review any registered investment advisor's employment record (and look for red flags, such as disciplinary actions) on FINRA's BrokerCheck website. If the advisor is a CFP, review any disciplinary history via the CFP Board’s website.

Evaluate other key details

It’s also critical to research an advisor’s background by looking at their Form ADV on the SEC website. That form can provide an abundance of information that could help you assess if the advisor or firm is a good fit. Here’s what to look for:

• Assets under management: The total amount of assets managed by the financial advisor firm. A high AUM typically indicates advisor experience and stability. 

• Total clients and age of firm: A large client base and lengthy firm history can be another indicator of advisor experience and firm stability. 

• The client-to-advisor ratio: Generally speaking, the fewer clients per advisor at the firm, the more individualized attention you can expect to receive. Financial advisor firms that have a high client-to-advisor ratio may be stretched too thin or struggle to provide timely responses compared with firms with lower client-to-advisor ratios. 

• The percentage of clients that are high net worth: For someone who is not a high net worth client (net worth of $2.2 million or assets under management of $1.1 million), we recommend looking for accessible, well-rounded firms that can handle a variety of financial situations.

• Fee transparency: Typically, fee information is in Form ADV. But it may lack specifics. A financial advisor should carefully go over fees with you before you sign up for his or her services. That includes any fees you’ll have to pay in addition to paying the advisor. On an ongoing basis, you should be able to see how much you’re paying in management fees on your account statements.

Book a consultation

It’s normal to meet with a few financial advisors before you decide who to hire. It’s really the only way to determine if you’ll like working with someone; if an advisor doesn’t offer a free consultation, it may be worth skipping to the next option. Be sure to also use this time to ask about anything you can’t find in official documentation, such as the Form ADV or the advisor’s website.

» MORE: 10 questions you should ask a financial advisor

Step 5: Hire the financial advisor

Once you decide who to hire, you’ll typically follow these steps:

1. The advisor provides an engagement letter that outlines their ethical principles and any potential conflicts of interest.

2. The advisor provides you with legal documents to sign.

3. The advisor gathers information on your financial situation and starts managing your finances.

One last tip: Some advisors may be willing to negotiate their fees, asset minimums or both. It never hurts to ask.