How to Choose a Financial Advisor

Choosing a financial advisor is one of the highest-stakes decisions you will make with your money. The right advisor can help you build wealth, minimize taxes, and navigate complex financial situations. The wrong one can drain your portfolio through excessive fees, steer you into inappropriate products, or simply provide mediocre advice that costs you tens of thousands in missed opportunities over a lifetime.

This guide is built to help you make that decision with confidence. We cover the single most important thing to look for (fiduciary duty), break down every fee structure so you know exactly what you are paying, compare advisor credentials side by side, and give you the specific tools to verify any advisor's background before you hand over a dollar. Whether you need full-service wealth management or just a one-time financial plan, this guide covers your situation.

Fiduciary vs Suitability Standard: The Most Important Distinction

Before you evaluate credentials, fees, or investment philosophies, you need to understand the legal standard your advisor operates under. This is the single most consequential factor in choosing an advisor, and most people have never heard of it.

Fiduciary standard: A fiduciary advisor is legally required to act in your best interest at all times. They must put your financial goals ahead of their own compensation, disclose all conflicts of interest, and avoid self-dealing. If a lower-cost index fund serves you better than a higher-commission actively managed fund, a fiduciary must recommend the index fund. Registered Investment Advisors (RIAs) registered with the SEC or state regulators are held to the fiduciary standard. CFPs acting in their planning capacity are also fiduciaries.

Suitability standard: A broker-dealer representative only needs to recommend products that are "suitable" for your general financial situation. A product can be suitable but not in your best interest. For example, two mutual funds may both be suitable for a moderate-risk investor — but one charges 1.2% in annual expenses and pays the broker a 5% upfront commission, while the other charges 0.03% with no commission. Under the suitability standard, the broker can legally recommend the expensive fund. Under the fiduciary standard, they cannot.

The SEC's Regulation Best Interest (Reg BI), implemented in 2020, raised the bar slightly for broker-dealers but still falls short of the full fiduciary standard. Reg BI requires brokers to act in the client's "best interest" at the time of a recommendation, but it does not impose an ongoing duty of loyalty and does not eliminate all conflicts of interest. The practical difference: a fiduciary must avoid conflicts; a broker under Reg BI must only disclose them.

Types of Financial Advisors and Their Credentials

The financial services industry uses dozens of titles and credentials, many of which are meaningless marketing designations. These are the credentials that actually matter and what each one tells you about the advisor's qualifications:

The gold standard combination is a CFP who operates as or within an RIA firm. This gives you both comprehensive planning expertise and the legal fiduciary duty. A CFA designation is more relevant if you need specialized investment management — it is the most rigorous credential in finance but is focused on investment analysis rather than holistic financial planning.

Be wary of credentials you have never heard of. The financial services industry has over 200 professional designations, and many require little more than a weekend course and an open-book exam. If an advisor leads with a credential other than CFP, CFA, CPA, ChFC, or RIA, research the designation at FINRA's professional designation database before being impressed by the letters after their name.

Fee Structures: How Financial Advisors Get Paid

How your advisor gets paid directly shapes the advice they give you. Understanding fee structures is not a minor detail — it is the lens through which you should evaluate every recommendation an advisor makes.

Fee-only advisors are compensated exclusively by their clients. They receive no commissions, referral fees, or revenue sharing from any product company. Fee-only advisors charge in one of three ways:

• Flat fee: $1,000-$3,000 for a comprehensive financial plan. Best for people who want a one-time plan they can implement themselves
• Hourly rate: $150-$400 per hour. Best for specific questions or situations — reviewing a retirement plan, analyzing a job offer, evaluating a real estate purchase
• Assets under management (AUM): 0.5%-1.5% of your portfolio value annually. On a $500,000 portfolio at 1%, you pay $5,000/year. Best for ongoing investment management and comprehensive wealth oversight

Fee-based advisors charge client fees (typically AUM) but also earn commissions from selling insurance products, annuities, or proprietary investment funds. The word "based" instead of "only" is the critical difference — and it is intentionally confusing. Fee-based advisors have an inherent conflict: they may recommend a product that pays them a commission over a product that is better for you.

Commission-only advisors are paid entirely by the companies whose products they sell. You pay no direct fee, which sounds appealing but means the advisor's income depends on which products they sell you and how often they make transactions. Commission-only advisors are incentivized to recommend products with the highest commissions — whole life insurance, loaded mutual funds, variable annuities — regardless of whether those products serve your goals.

Red Flags When Choosing a Financial Advisor

These are the warning signs that should disqualify an advisor immediately. Each one indicates either a conflict of interest, a lack of professionalism, or outright predatory behavior:

• Guaranteed returns: No legitimate advisor guarantees investment returns. If someone promises you 8%, 10%, or 12% guaranteed, they are either lying or selling you a product with hidden risks and fees. The only guaranteed returns in finance come from FDIC-insured bank accounts and US Treasury securities
• Pressure to buy whole life insurance or annuities: These products pay advisors commissions of 50-100% of the first-year premium. While appropriate in specific situations (estate liquidity, pension replacement), they are massively oversold to people who would be better served by term life insurance and low-cost index funds
• Proprietary funds with high expense ratios: If an advisor recommends only their firm's own mutual funds — especially funds with expense ratios above 0.50% — they are prioritizing their firm's revenue over your returns. Low-cost index funds from Vanguard, Fidelity, and Schwab consistently outperform most proprietary funds
• Reluctance to disclose fees: Any advisor who hesitates, deflects, or becomes vague when you ask about their total compensation is hiding something. A trustworthy advisor will clearly explain every dollar they earn from your relationship
• No written fiduciary oath: If an advisor claims to act in your best interest but will not sign a fiduciary oath or provide their Form ADV Part 2 (which discloses conflicts), they are not a true fiduciary
• Frequent trading recommendations: Excessive trading (churning) generates commissions for the advisor while costing you in transaction fees, bid-ask spreads, and short-term capital gains taxes. A well-constructed portfolio requires infrequent adjustments
• Disciplinary history: Any customer complaints, regulatory actions, or arbitration awards on FINRA BrokerCheck should be taken seriously. One complaint in a 30-year career may be explainable; multiple complaints are a pattern

Robo-Advisors: The Low-Cost Alternative

Robo-advisors use algorithms to build and manage diversified ETF portfolios based on your risk tolerance, time horizon, and financial goals. They have grown from a niche product to managing over $460 billion in assets as of 2024, and for good reason: they deliver solid portfolio management at a fraction of the cost of human advisors.

Schwab Intelligent Portfolios charges no advisory fee but allocates a significant portion (6-30%) of your portfolio to cash, which earns Schwab interest income instead of working for you. On a $100,000 portfolio, that cash drag could cost you more than a 0.25% advisory fee at Betterment or Wealthfront. Empower's 0.89% fee is higher than most robo-advisors but includes access to a dedicated human advisor and more sophisticated tax strategies — making it a hybrid between a robo-advisor and traditional wealth management.

For straightforward investing goals — retirement savings, general wealth building, saving for a house — a robo-advisor at 0.20-0.25% AUM is often the most cost-effective solution. For a comparison of DIY investing strategies, see our investing guides. Our Roth IRA guide covers tax-advantaged retirement accounts that pair well with robo-advisors.

When You Need a Financial Advisor (And When You Do Not)

Situations Where an Advisor Adds Clear Value

• Receiving an inheritance: A sudden $200,000-$1,000,000+ windfall requires careful tax planning, investment strategy, and estate coordination that can save tens of thousands in taxes
• Getting married or divorced: Combining or dividing finances involves beneficiary updates, tax filing strategy changes, asset titling, and insurance reviews
• Approaching retirement: Converting savings into income, Social Security optimization, Medicare planning, and required minimum distribution strategies require specialized knowledge
• Complex tax situations: Stock options, rental properties, business income, or multi-state tax obligations benefit from integrated tax and investment planning
• Estate planning coordination: Advisors work with estate attorneys to ensure your investments, insurance, and beneficiary designations align with your estate plan. See our estate planning guide for the fundamentals
• Selling a business: Exit planning, capital gains strategies, and reinvestment of proceeds are high-stakes decisions where professional guidance pays for itself

Situations Where You Probably Do Not Need an Advisor

• Simple investing with under $100,000: A target-date fund or robo-advisor handles this well at minimal cost
• Comfortable self-directing: If you understand asset allocation, tax-advantaged accounts, and rebalancing, you can replicate what most advisors do using low-cost index funds
• Basic budgeting and saving: Advisors are not budgeting coaches. Free tools and our personal finance resources cover this territory
• Single income, no dependents, standard deduction: Your financial situation may not be complex enough to justify advisory fees

10 Essential Questions to Ask Before Hiring an Advisor

1. Are you a fiduciary, and will you sign a fiduciary oath? — A "yes" to both is the minimum. If they hesitate, walk away
2. How are you compensated — every way you earn money from this relationship? — This includes AUM fees, commissions, referral fees, revenue sharing, and 12b-1 fees
3. What is your total all-in cost for a client with my portfolio size? — Get a specific dollar amount, not just a percentage
4. Can I see your Form ADV Part 2? — This SEC-required document discloses fees, conflicts of interest, and disciplinary history. Every RIA must provide it
5. What is your investment philosophy? — Listen for evidence-based approaches (diversification, low-cost funds, long-term horizon). Be cautious of anyone who claims to consistently beat the market
6. How do you measure and report performance? — You should receive quarterly statements showing time-weighted returns benchmarked against appropriate indices
7. What is your typical client profile? — An advisor who usually works with $5M clients may not be attentive to your $250K account
8. Who manages my money if something happens to you? — Succession planning matters. A solo advisor with no backup plan is a risk
9. Have you ever been disciplined by a regulator or had a customer complaint? — You will verify this independently, but their answer tells you about their honesty
10. Can you provide references from clients with similar financial situations? — A confident advisor with satisfied clients will not hesitate

How to Verify a Financial Advisor's Credentials

Never take an advisor's credentials at face value. Use these free verification tools before committing to any advisory relationship:

• FINRA BrokerCheck (brokercheck.finra.org) — Checks registration, licensing, employment history, customer complaints, regulatory actions, and arbitration awards for any broker or advisor. This is your most important single verification step
• SEC Investment Adviser Public Disclosure (IAPD) (adviserinfo.sec.gov) — Verifies Registered Investment Advisors and provides access to Form ADV filings, which detail the firm's services, fees, conflicts of interest, and disciplinary history
• CFP Board Verification (letsmakeaplan.org) — Confirms active CFP certification status and checks for any public disciplinary actions by the CFP Board
• State securities regulator — For advisors registered at the state level (typically firms managing under $100M), your state's securities division maintains registration and complaint records
• CFA Institute member directory — Verifies active CFA charterholder status and confirms the advisor has maintained their annual ethics requirements

Check all databases that apply — an advisor may appear clean in one database while having complaints in another. For broader guidance on protecting your financial information when sharing it with advisors, see our identity theft protection guide.

Step-by-Step Process for Choosing an Advisor

1. Define what you need — One-time financial plan, ongoing investment management, retirement planning, tax optimization, or comprehensive wealth management
2. Set your budget — Determine what you can afford: flat fee ($1,000-$3,000), hourly ($150-$400/hr), or AUM (0.5-1.5%)
3. Build a short list — Use the NAPFA advisor search (fee-only fiduciaries only), the Garrett Planning Network (hourly fee-only planners), or the CFP Board's advisor search
4. Verify credentials — Check FINRA BrokerCheck, SEC IAPD, and CFP Board for each advisor on your list
5. Interview 3 advisors — Use the 10 questions above. Compare answers side by side
6. Review Form ADV Part 2 — Read this document carefully for each finalist. Look for fee disclosures, conflict of interest statements, and disciplinary history
7. Check references — Speak with 2-3 current clients with similar financial situations to yours
8. Start with a limited engagement — Consider a one-time financial plan before committing to ongoing management. This lets you evaluate the advisor's quality with limited risk

Online Advisors vs Local Advisors: Pros and Cons

The rise of virtual advisory firms has expanded your options beyond local advisors. Online-first firms like Facet Wealth (flat fee $2,000-$4,000/year), Vanguard Personal Advisor Services (0.30% AUM), and Zoe Financial (marketplace matching) offer CFP-level advice via video calls at lower costs than traditional firms. The tradeoff: you lose in-person meetings and local market knowledge that matters for real estate, state tax planning, and estate law.

For most people, the quality of the advisor matters far more than whether you meet in person or via video. An excellent remote CFP fiduciary at 0.50% AUM is a better choice than a mediocre local broker at 1.5% plus commissions. Focus on credentials, fiduciary duty, and fee transparency — not geography.

Frequently Asked Questions About Choosing a Financial Advisor

What is a fiduciary financial advisor?

A fiduciary financial advisor is legally obligated to act in your best interest at all times. They must disclose conflicts of interest, avoid self-dealing, and put your financial goals ahead of their own compensation. Registered Investment Advisors (RIAs) and Certified Financial Planners (CFPs) acting in their advisory capacity are fiduciaries. Non-fiduciary advisors only need to meet the lower suitability standard.

How much does a financial advisor cost?

Fee-only advisors charge flat fees of $1,000-$3,000 for a comprehensive plan, hourly rates of $150-$400, or AUM fees of 0.5%-1.5% annually. On a $500,000 portfolio at 1%, that is $5,000/year. Robo-advisors charge 0.20%-0.89% AUM. Commission-only advisors charge no direct fee but earn commissions from the products they sell you.

Do I need a financial advisor?

You likely benefit from one if you are navigating a major transition (inheritance, divorce, retirement), have a complex tax situation, or have $250,000+ in investable assets. You probably do not need one if your finances are straightforward, you are comfortable self-directing investments, or you have under $100,000 — in which case a robo-advisor is more cost-effective.

What is the difference between fee-only and fee-based advisors?

Fee-only advisors are paid exclusively by client fees — no commissions or product revenue. Fee-based advisors charge fees but also earn commissions from selling insurance, annuities, or proprietary funds. The "based" vs "only" distinction is critical: fee-based advisors have inherent conflicts of interest because they may recommend products that pay them commissions.

How do I verify a financial advisor's credentials?

Use FINRA BrokerCheck (brokercheck.finra.org) for registration and complaint history, SEC IAPD (adviserinfo.sec.gov) for Registered Investment Advisor verification, and the CFP Board's tool (letsmakeaplan.org) to confirm CFP certification. Check all applicable databases — an advisor may have complaints in one but appear clean in another.

Are robo-advisors worth it?

For straightforward investing goals, yes. Robo-advisors charge 0.20%-0.25% AUM (vs 1% for human advisors) and provide automated rebalancing, tax-loss harvesting, and diversified portfolios. They are ideal for retirement savings and general wealth building. However, they cannot provide advice on estate planning, complex tax strategies, or major financial decisions where a human advisor adds significant value.