How to Choose a Financial Advisor

How advisors are paid, what fiduciary actually means, the free tools for checking anyone's record, and the questions to ask before you hand over your money.

By CreditCardDebt Staff3 min read

A good financial advisor can help you build a plan and stick to it. A bad one can cost you a fortune in fees or products you don’t need. Before choosing anyone, understand three things: what kind of help you need, how the advisor gets paid, and whether they have a clean record. You can check that last one yourself, for free, in about five minutes.

Decide what kind of help you need

“Financial advisor” isn’t a protected title; almost anyone can use it. The help on offer varies widely:

A one-time plan or second opinion. Some planners charge a flat fee or hourly rate to review your situation and give you a written plan you carry out yourself.
Ongoing investment management. An advisor manages your portfolio, usually for an annual fee based on the amount invested.
Help with a specific product, like insurance or an annuity. This person is often a salesperson paid by commission.
Debt and budgeting help. A nonprofit credit counselor is usually a better fit than an investment advisor. See Understanding Debt Relief Options.

If you have high-interest debt and no emergency fund, you may not need an advisor yet. Mastering Your Money covers the foundations.

Understand how they’re paid

How someone is paid shapes the advice they give. Ask directly, and get the answer in writing.

Fee-only: paid only by you, through an hourly rate, a flat fee, or a percentage of assets managed. No commissions, which removes a big conflict of interest.
Commission: paid by the companies whose products they sell. The advice may be free to you up front, but the cost is built into the products.
Fee-based: a mix of fees and commissions. Despite the similar name, it isn’t the same as fee-only.

A percentage-of-assets fee sounds small, but it’s charged every year on your whole balance. On a $300,000 portfolio, a 1% fee is $3,000 a year, before any fund costs. Ask for the total you’d pay in dollars, including the expense ratios of the funds they’d use.

Fiduciary vs. best interest

A registered investment adviser owes you a fiduciary duty: they must put your interests first and disclose conflicts. A broker must act in your best interest when recommending a transaction, under the SEC’s Regulation Best Interest, but the obligation works differently and generally covers the recommendation, not ongoing monitoring.

Many professionals are both, depending on the account. Ask: “Will you act as a fiduciary at all times, for all of my accounts?” and ask for the answer in writing.

Every broker and advisory firm must also give you a short relationship summary (Form CRS) that explains its services, fees and conflicts in plain English. Ask for it, or find it on Investor.gov.

Check their record

Before you meet anyone:

Search the person and firm on Investor.gov’s “Check Out Your Investment Professional” tool. It shows registration, employment history, and any disciplinary actions or customer complaints. “Disclosure Reported” next to a name means there’s something to read. The searches are free, and the advisor isn’t notified.
Check FINRA BrokerCheck for brokers.
If they say they’re a Certified Financial Planner, confirm it on the CFP Board’s verification page.

Questions for the first meeting

What services do you provide, and what don’t you do?
How exactly are you paid, and what will I pay in total each year?
Are you a fiduciary for all my accounts at all times?
Who holds my money? (It should be an independent custodian, not the advisor personally.)
What’s your typical client like? Do you work with people in my situation?
How often will we talk, and what happens if I want to leave?

A good advisor will answer clearly and won’t rush you. If you hear guaranteed returns, pressure to decide today, or vague answers about fees, walk away. Signs of Questionable Financial Advice lists more red flags.

Sources

This article is for educational purposes and is not financial advice.