If you’re seeking professional help to manage your finances, you have a variety of advisors to choose from. Financial advisors offer various services, may carry a variety of certifications and operate under several different fee structures.
Here’s how to choose a financial advisor that’s appropriate for your situation.
Before you seek out a financial advisor, ask yourself what your financial goals are. If you want a financial advisor to build you a holistic financial plan that addresses every aspect of your financial life including debt management and retirement planning, you may want to seek out a certified financial planner (CFP) who can design a financial roadmap and guide you every step of the way. If you only want investment advice and portfolio management, a registered investment advisor (RIA) may be a good option. RIAs can include both human and robo-advisors.
No matter what kind of advice you need, you can typically find a financial advisor specializing in one or more of these services:
Financial advisor is an umbrella term covering many professionals that provide financial advice. CFPs, financial coaches and RIAs are different types of financial advisors. But always ask a financial advisor if they’re a fiduciary before hiring them.
Fiduciary advisors are legally required to put their client’s best interests above their own. Whether an advisor operates under the fiduciary standard often depends on their official designations.
Here are two types of financial advisors that are legally fiduciaries:
Here are two types of financial advisors that may not be fiduciaries:
Financial advice is available in many ways these days. You can get advice from an individual, a digital platform or a combination of both.
Some firms offer suites of digital financial services alongside financial advice. For example, in addition to virtual meetings with an advisor, the financial services firm Empower offers digital tools like a dashboard to track all your financial accounts and an interactive retirement planner, as well as access to a self-directed brokerage account and portfolio management services. Meanwhile, SoFi Invest® provides a no-advisory-fee robo-advisor and digital financial management tools, plus complimentary access to a CFP. Members of Facet get access to CFPs as well as financial management tools and a retirement portfolio.
Those who want face-to-face advice can always go with a traditional financial advisor. Various financial advisor marketplaces like Zoe Financial and Wealthramp can connect you to in-person financial advisors in your area based on your specific needs. The National Association of Personal Financial Advisors is also available to match you with fee-only financial advisors in your area.
A robo-advisor is a digital platform that uses an algorithm to build and/or manage an investment portfolio on your behalf based on your financial goals, risk tolerance and time horizon. Advisory fees for robo-advisors tend to be less than a traditional financial advisor, but you also don’t get as comprehensive of advice.
Robo-advisors aren’t financial advisors in the traditional sense. Unless there’s a human component to the service, the “advice” is limited. You typically complete a questionnaire and the robo-advisor recommends a portfolio. It then applies an algorithm to keep your portfolio allocation on track. That’s about the extent of it.
Examples of robo-advisors include Wealthfront, Acorns and Frec. Wealthfront and Acorns are typical robo-advisors, in that they recommend and manage a portfolio of ETFs on your behalf. Meanwhile, Frec is an automated direct indexing platform — you build a portfolio of individual stocks to match a target index and then Frec automatically manages and rebalances your portfolio, harvesting tax losses to try to save you money.
Depending on their fee structures and the scope of your financial needs, financial advisor costs can vary widely. Advisors with hourly fees typically charge in the range of $120 to $300 per hour. Those charging an assets under management (AUM) fee may charge 0.5% to 2% of the assets they manage on your behalf.(3) So, an annual 0.5% AUM fee on a $20,000 portfolio would translate to a $100 fee per year.
Here’s a look at different financial advisor costs:
| Fee type | Typical cost |
|---|---|
| AUM | 0.5%–2% |
| Hourly fee | $120–$300 |
| Per-plan fee | $1,000–$3,000 |
| Commissions | 3%–6%(4) |
| Performance-based fees | 20% of the returns above benchmark |
When planning your financial future or handing off your money to be invested, it’s crucial to do your homework. Not all financial advisors are created equal, so here are a few things to consider as you search.
Before you shake on it, ask your would-be financial advisors some key questions.
Compare financial advisors by available asset types and minimum deposits. Select Go to site to sign up for an account or More Info for a comprehensive review.
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If you think you need a financial advisor, choosing the right one takes an understanding of what these different financial professionals offer, how they’re paid and whether they’re legally obligated to act in your best interest.
One effective way is to use an online marketplace that connects you to fiduciary financial advisors.
Knowing which financial advisor to use depends on the kinds of services you need. So, ask if they specialize in those areas and verify their credentials.
Look for the following seven things in a financial advisor:
Anyone with a need for financial guidance can consider a financial advisor. Some wealth management firms have investment minimums of $1 million, and some robo-advisors have no investment minimums. Compare minimum asset requirements across advisor.
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