A Comprehensive Guide to Finding a Financial Advisor

A financial advisor can provide invaluable guidance to help you achieve your financial goals. Advisors offer a variety of services, including financial planning, investment management, retirement income planning, and more. Finding the right financial advisor requires research, understanding your financial situation, and knowledge of the industry. Follow these steps to find an advisor who can help you and your family.

Table of Contents

  1. Determine What Financial Services You Need
  2. Understand Different Types of Advisors
  3. Decide What You’re Willing to Pay
  4. Find and Research Potential Financial Advisors
  5. Vet the Financial Advisors You’re Interested In
  6. Finalizing Your Partnership
  7. Frequently Asked Questions (FAQs)

Step 1: Determine What Financial Services You Need

Your search for a financial advisor (sometimes written as “financial adviser”) should start with a simple question: What do you need help with?

The financial advisory industry features thousands of advisors offering a wide variety of services. Some focus on holistic financial planning, while others specialize in investment management or retirement. Many work to meet the needs of specific clientele, such as high-net-worth individuals or business owners. Identifying your needs is critical to finding a suitable advisor.

Here are some common areas where a financial advisor may help you:

  • Portfolio Management: Managing an investment portfolio or retirement account according to your time horizon, risk tolerance, and other factors.
  • Retirement Planning: Building a financial plan for retirement that covers taxes, investing, income, and more.
  • Financial Consulting: Answering questions about various areas of financial planning.
  • Estate Planning: Developing plans for estates, including trusts, wills, and philanthropic giving.
  • Tax Planning: Creating plans to minimize taxes over the short and long term.
  • Insurance Needs Analysis: Identifying areas where insurance could be beneficial.
  • Education Planning: Leveraging tools like 529 plans to save for education.
  • Business Succession Planning: Helping business owners plan for selling their business or passing it on to heirs.

Kristin McKenna, managing director at Darrow Wealth Management in Boston, emphasizes that finding an advisor who meets your needs is more important than finding one nearby. “Especially in today’s Zoom world, investors should consider prioritizing the right overall fit with an advisor versus limiting their search to professionals in their immediate area,” says McKenna, a Certified Financial Planner™ (CFP®). “This is especially true for investors with a nuanced or complex situation, as they may benefit more by working with an advisor who specializes in that practice area.”

Step 2: Understand What a Financial Advisor Is

A financial advisor is a professional who helps guide and direct clients’ decision-making on various aspects of their financial lives. Advisors may offer guidance on managing investments, planning for taxes, and making retirement projections.

Until relatively recently, the term “financial advisor” was used to describe various positions across the financial industry. However, a regulation from the U.S. Securities and Exchange Commission (SEC) called Regulation Best Interest (Reg BI) has limited who can use the title. Financial advisors generally are also registered investment advisors (RIAs) or investment advisor representatives.

What Is a Registered Investment Adviser (RIA)?

The term “investment advisor,” often spelled with an “e” by government agencies, refers to individuals or companies registered with either the SEC or a state securities regulator.

What Is a Fiduciary?

Advisors registered with the SEC are legally required to abide by fiduciary duty, putting clients’ interests ahead of their own. According to the SEC, fiduciaries must exercise a duty of care and a duty of loyalty to clients and are “held to the highest standard of conduct.”

Common Types of Financial Advisors

Whether a financial advisor is a fiduciary or not is just one of the many ways advisors can differ. Here are some common types of financial advisors:

  • Investment Managers: Focus on giving investment advice and managing client portfolios. They often work for firms registered as RIAs and must abide by fiduciary duty.
  • Financial Planners: Provide holistic advice on financial planning, retirement, budgeting, estate planning, insurance, and more.
  • Wealth Managers: Offer comprehensive services that combine investment management and financial planning.
  • Robo-Advisors: Digital platforms that manage investment portfolios using algorithms, often with lower fees and no human intervention, although some offer secondary human advisors.

Choosing the right type of financial professional can set your financial goals in motion. Once you’ve established the type of advisor you need, you can move on to determining how to find the right professional and how much you’re willing to pay for their services.

Step 3: Decide What You’re Willing to Pay for a Financial Advisor’s Services

The services of a financial advisor come with a cost, though the types of fees you’ll encounter depend on the services you receive. For example, financial consulting is typically charged on a per-hour basis, while investment management may feature a fee based on a percentage of the total amount of assets you’re investing with the advisor.

Here’s a closer look at common financial advisor fee structures:

  • AUM-Based Fees: A percentage of your assets under management (AUM). For example, a 1% annual fee on $500,000 would be $5,000. These fees usually have tiers, with rates dropping as you invest more.
  • Fixed Fees: A set price for specific services or projects.
  • Hourly Fees: Charges based on hours worked, typically between $223 and $300 per hour.
  • Retainer Fees: Annual, quarterly, or monthly fees for ongoing services. This structure is becoming more common but is less typical than others.

Fee-Only vs. Fee-Based Financial Advisors

  • Fee-Only: Earn money solely from client fees, avoiding commissions and third-party payments. This structure removes most incentives to sell certain products.
  • Fee-Based: Earn commissions in addition to client fees, potentially creating conflicts of interest. These advisors must disclose their role and any conflicts of interest.

Step 4: Find and Research Potential Financial Advisors

Use these methods to find an advisor:

  • Referrals: Ask friends, family, or colleagues for recommendations.
  • Online Tools: Use SmartAsset’s free tool to match with vetted advisors in your area.
  • Top Advisors Lists: Check curated lists of top advisors by city, state, or nationally.
  • Major Firms: Consider large firms like Vanguard, Fidelity, or Schwab.
  • Advisory Databases: Use databases like SmartAdvisor Match, Garrett Planning Network, NAPFA, and the CFP Board of Standards.

Step 5: Vet the Financial Advisors You’re Interested In

Interview at least three advisors to find the right fit. Look for:

  • Certifications: CFP®, CFA®, ChFC®, CPA, CLU®.
  • Disclosures: Check for legal, civil, or regulatory violations using SEC’s Investment Adviser Public Disclosure and FINRA’s BrokerCheck tools.
  • Pressure Tactics: Avoid advisors who use high-pressure sales techniques.
  • Incentives: Be wary of fee structures that might incentivize certain recommendations.

Step 6: Finalizing Your Partnership

Once you’ve chosen an advisor, follow these steps:

  1. Sign Agreements: Review and sign documents outlining your relationship and fees.
  2. Transfer Money: Move your funds to an account managed by your advisor.
  3. Choose Management Style: Decide between discretionary and non-discretionary management.
  4. Create a Financial Plan: Work with your advisor to develop a comprehensive financial plan.
  5. Set Up Meetings: Schedule regular meetings to review your portfolio and financial goals.

Frequently Asked Questions (FAQs)

  • Are You a Fiduciary?: Ensure your advisor is legally obligated to act in your best interest.
  • What Is Your Fee Structure?: Understand how your advisor charges for services.
  • Do You Have Minimum Investment Requirements?: Know if there are minimums for working with an advisor.
  • What Certifications Do You Hold?: Verify the advisor’s credentials and expertise.
  • What Investment Strategies Do You Use?: Learn about their approach to managing client portfolios.

Choosing the right financial advisor involves careful consideration and thorough research. By following these steps, you can find an advisor who will help you achieve your financial goals and secure your financial future.