Ratings Methodology for
Financial Advisors
Financial Advisors
NerdWallet rates financial advisors on a scale of 1 to 5 stars, with 5 being the best possible score. The ratings are incremented in tenths of a star — for example, 4.7, 4.8 and so on. Detailed information about how we rate advisors and the factors we consider in our assessments is below.
How our financial advisor ratings work: Our ratings formula calculates a base rating for each financial advisor overall, from 1.0 to 5.0 stars. The rating is based on core features of the advisor — the factors that matter most to the average investor and directly affect how investors choose an advisor and use their services. Those are:
• Advisor Expertise
• Scope of Advice
• Transparency
• Advisor Accessibility
• Costs and Minimums
• Portfolio Construction
How our financial advisor ratings work: Our ratings formula calculates a base rating for each financial advisor overall, from 1.0 to 5.0 stars. The rating is based on core features of the advisor — the factors that matter most to the average investor and directly affect how investors choose an advisor and use their services. Those are:
• Advisor Expertise
• Scope of Advice
• Transparency
• Advisor Accessibility
• Costs and Minimums
• Portfolio Construction
Data collection and review process
NerdWallet reviews over a dozen companies that provide financial advisory services. This category generally does not include robo-advisors.
We collect data from providers, regulators and personal interviews with the providers. Our process starts by sending detailed questionnaires to providers. The questionnaire answers, combined with regulatory data, direct interviews and hands-on research make up our proprietary assessment process that scores each provider’s performance across several factors. The final output produces overall star ratings. Ratings are rounded to the nearest tenth. These overall star ratings appear on roundup pages and the provider’s review.
We then undergo an additional evaluation process to create lists of the best online financial advisors for certain types of consumers. This evaluation may adjust the weighting of certain factors, and it may eliminate or add factors to emphasize those that matter most to the consumer. For example, our list of the best wealth advisors heavily weighs tax strategy and the number of financial planning services offered. Because of this, a provider’s overall star rating is not always the primary factor that determines inclusion in lists or NerdWallet’s awards program.
We collect data from providers, regulators and personal interviews with the providers. Our process starts by sending detailed questionnaires to providers. The questionnaire answers, combined with regulatory data, direct interviews and hands-on research make up our proprietary assessment process that scores each provider’s performance across several factors. The final output produces overall star ratings. Ratings are rounded to the nearest tenth. These overall star ratings appear on roundup pages and the provider’s review.
We then undergo an additional evaluation process to create lists of the best online financial advisors for certain types of consumers. This evaluation may adjust the weighting of certain factors, and it may eliminate or add factors to emphasize those that matter most to the consumer. For example, our list of the best wealth advisors heavily weighs tax strategy and the number of financial planning services offered. Because of this, a provider’s overall star rating is not always the primary factor that determines inclusion in lists or NerdWallet’s awards program.
Information updates
Our writers and editors conduct proactive information updates and research for reviews on an annual basis. Throughout the year, we maintain contact with providers and update any changes to their offerings. We also adjust our rubrics and ratings methodology as needed based on changes to the industry or to the scope of products we're reviewing.
Factor weightings
The weighting of each rating factor is based on our team’s assessment of which features are most important to consumers and which ones impact the consumer experience in the most meaningful way. Those factors vary depending on the category.
The review team
The review team comprises seasoned writers, researchers and editors who cover stocks, bonds, mutual funds, index funds, exchange-traded funds, alternative investments, socially responsible investing, financial advisors, retirement, and investment strategy. In addition to appearing on NerdWallet, the work of our team members has been published in The New York Times, The Washington Post, Forbes, USA Today, Bloomberg News, Nasdaq, MSN, MarketWatch, Yahoo Finance and other national and regional media outlets. Each writer and editor follows NerdWallet’s strict guidelines for editorial integrity.
The combined expertise of our investing team is infused into our review process to ensure thoughtful evaluation of products and services from the customer perspective. Our writers and editors together have more than 50 years of experience in writing about finance
The combined expertise of our investing team is infused into our review process to ensure thoughtful evaluation of products and services from the customer perspective. Our writers and editors together have more than 50 years of experience in writing about finance
Advisor expertise
This category analyzes the following:
• Credentials and planning competence: If 100% of client-facing advisors hold CFP or equivalent planning-focused credentials (e.g., ChFC, CPA/PFS), the provider earns the highest rating. If fewer than 50% of advisors are CFPs (or equivalent), it earns the lowest rating.
• Advanced credentials: If the firm has advisors with advanced and/or specialized planning credentials, it earns the highest rating. If it does not, it earns the lowest rating.
• Advisor continuity and knowledge of client: If the client gets a single dedicated advisor who coordinates other work on client's behalf, the advisor earns the highest rating. If no single person or team is responsible for relationship, it earns the lowest rating.
• Credentials and planning competence: If 100% of client-facing advisors hold CFP or equivalent planning-focused credentials (e.g., ChFC, CPA/PFS), the provider earns the highest rating. If fewer than 50% of advisors are CFPs (or equivalent), it earns the lowest rating.
• Advanced credentials: If the firm has advisors with advanced and/or specialized planning credentials, it earns the highest rating. If it does not, it earns the lowest rating.
• Advisor continuity and knowledge of client: If the client gets a single dedicated advisor who coordinates other work on client's behalf, the advisor earns the highest rating. If no single person or team is responsible for relationship, it earns the lowest rating.
Scope of advice
For this category, we consider the following from each provider:
• Comprehensiveness of financial planning: If the advisor offers portfolio management, complete and documented financial plans, tax strategy, retirement planning, estate planning, insurance review and help with life events, it earns the highest rating. If a financial advisor offers none or only one of those items, it earns the lowest rating.
• Tax planning integration: If the advisor provides multi-year tax planning, Roth conversion and RMD modeling, tax-loss harvesting, direct indexing and CPA-level coordination in-house or through a facilitated relationship, it earns the highest rating. If it offers none of these things, it earns the lowest rating.
• Estate and legacy planning: If a provider offers estate planning integrated into financial plans, estate attorney coordination (in-house or through established referral relationships), beneficiary reviews and trust and legacy planning, it earns the highest rating. If it none of those things, it earns the lowest rating.
• Comprehensiveness of financial planning: If the advisor offers portfolio management, complete and documented financial plans, tax strategy, retirement planning, estate planning, insurance review and help with life events, it earns the highest rating. If a financial advisor offers none or only one of those items, it earns the lowest rating.
• Tax planning integration: If the advisor provides multi-year tax planning, Roth conversion and RMD modeling, tax-loss harvesting, direct indexing and CPA-level coordination in-house or through a facilitated relationship, it earns the highest rating. If it offers none of these things, it earns the lowest rating.
• Estate and legacy planning: If a provider offers estate planning integrated into financial plans, estate attorney coordination (in-house or through established referral relationships), beneficiary reviews and trust and legacy planning, it earns the highest rating. If it none of those things, it earns the lowest rating.
Transparency
This category takes into account an advisor's account management, planning or subscription fees:
• Legal and structural commitment to acting in the client's interest: If a provider is a fee-only RIA, it earns the highest rating. If it is not, it earns the lowest rating.
• Fee transparency: If the provider's AUM fee, flat-rate fee and hourly fees are available on firm's website and ADV, it earns the highest rating. If AUM fee, flat-rate fee and hourly fees are not available on firm's ADV or website, it earns the lowest rating.
• Legal and structural commitment to acting in the client's interest: If a provider is a fee-only RIA, it earns the highest rating. If it is not, it earns the lowest rating.
• Fee transparency: If the provider's AUM fee, flat-rate fee and hourly fees are available on firm's website and ADV, it earns the highest rating. If AUM fee, flat-rate fee and hourly fees are not available on firm's ADV or website, it earns the lowest rating.
Advisor Accessibility
This category takes into account how easy it is for clients to reach advisors:
• Contact limits. If a provider offers unlimited contact at no additional charge and no caps on meetings or time, it earns the highest rating. If access is severely restricted, it earns the lowest rating.
• Access channels. If a client can contact an advisor in person, video, phone and async messaging, it gets the highest rating. If it offers none of these options, it gets the lowest rating.
• Proactive engagement. If the advisor offers semi-annual meetings plus annual comprehensive review as the default cadence, it earns the highest rating. If there is no default meeting cadence or the contact is entirely client-initiated or the advisor would not disclose this information, it receives the lowest rating.
• Contact limits. If a provider offers unlimited contact at no additional charge and no caps on meetings or time, it earns the highest rating. If access is severely restricted, it earns the lowest rating.
• Access channels. If a client can contact an advisor in person, video, phone and async messaging, it gets the highest rating. If it offers none of these options, it gets the lowest rating.
• Proactive engagement. If the advisor offers semi-annual meetings plus annual comprehensive review as the default cadence, it earns the highest rating. If there is no default meeting cadence or the contact is entirely client-initiated or the advisor would not disclose this information, it receives the lowest rating.
Costs and minimums
We consider the advisor's primary fees and the size of the minimum to open an account:
• AUM fee for $250,000. If the advisor's assets under management (AUM) fee is 0.75% or less for the first $250,000, it earns the highest rating. If this fee is over 1.5%, it earns the lowest rating.
• AUM fee for $1,000,000. If the advisor's assets under management (AUM) fee is 0.75% or less for the first $1 million, it earns the highest rating. If this fee is over 1.5%, it earns the lowest rating.
• Account minimum. If clients can open an account with $50,000 or less, the advisor earns the highest rating. If the account minimum is $750,000 or more, it earns the lowest rating.
• AUM fee for $250,000. If the advisor's assets under management (AUM) fee is 0.75% or less for the first $250,000, it earns the highest rating. If this fee is over 1.5%, it earns the lowest rating.
• AUM fee for $1,000,000. If the advisor's assets under management (AUM) fee is 0.75% or less for the first $1 million, it earns the highest rating. If this fee is over 1.5%, it earns the lowest rating.
• Account minimum. If clients can open an account with $50,000 or less, the advisor earns the highest rating. If the account minimum is $750,000 or more, it earns the lowest rating.
Portfolio construction
We consider and rate the following:
• Customization to client circumstances: If a provider offers fully individualized portfolios, including alternative assets integrated into financial plan where appropriate, direct indexing and consideration for the client's tax situation, existing holdings, concentrated positions, and values, it earns the highest rating. If it only offers pre-built model portfolios, it earns the lowest rating.
• Plan-driven investment: If the provider's investment strategy is explicitly derived from the financial plan and asset allocation reflects the client's specific income needs, tax situation, time horizon, and liquidity requirements, the provider earns the highest rating. If there is no meaningful connection between the financial plan and the advisor's investment strategy or the portfolio is a standard model applied based on risk score, the provider earns the lowest rating.
• Comprehensivness of account coverage: If the provider supports IRAs, brokerage accounts, workplace plans, education plans, HSAs, trust accounts, business accounts and certain specialty accounts, it earns the highest rating. If it only supports a limited subset of IRAs and/or taxable accounts, the provider earns the lowest rating.
Do you want to provide feedback? Contact us at [email protected].
• Customization to client circumstances: If a provider offers fully individualized portfolios, including alternative assets integrated into financial plan where appropriate, direct indexing and consideration for the client's tax situation, existing holdings, concentrated positions, and values, it earns the highest rating. If it only offers pre-built model portfolios, it earns the lowest rating.
• Plan-driven investment: If the provider's investment strategy is explicitly derived from the financial plan and asset allocation reflects the client's specific income needs, tax situation, time horizon, and liquidity requirements, the provider earns the highest rating. If there is no meaningful connection between the financial plan and the advisor's investment strategy or the portfolio is a standard model applied based on risk score, the provider earns the lowest rating.
• Comprehensivness of account coverage: If the provider supports IRAs, brokerage accounts, workplace plans, education plans, HSAs, trust accounts, business accounts and certain specialty accounts, it earns the highest rating. If it only supports a limited subset of IRAs and/or taxable accounts, the provider earns the lowest rating.
Do you want to provide feedback? Contact us at [email protected].