Financial Advisor Selection: Finding the Right Fit
A guide to finding and vetting a financial advisor, understanding fee structures and fiduciary duties, preparing interview questions, and verifying credentials and background.
Ask directly if the advisor is a fiduciary at all times
A fiduciary is legally required to act in your best interest. Some advisors are fiduciaries only part of the time (when providing advice but not when selling products). Ask: "Will you sign a written fiduciary agreement?" Anyone who hesitates is a red flag.
Verify whether the advisor is a Registered Investment Advisor (RIA)
RIAs are registered with the SEC (if managing over $100 million) or their state regulator and are held to a fiduciary standard. Broker-dealers are held to a lower "suitability" standard. Check the advisor's registration on the SEC's Investment Adviser Public Disclosure (IAPD) website.
Request the advisor's Form ADV Part 2 (disclosure document)
Form ADV Part 2 details the advisor's services, fees, conflicts of interest, and disciplinary history. Advisors are legally required to provide this before or at the time of engagement. Read sections on fees and conflicts carefully. The document averages 20-30 pages.
Understand Fee Structures
Compare fee-only vs commission-based vs fee-based advisors
Fee-only advisors charge only you (no commissions from product sales). Commission-based advisors earn money from products they sell to you. Fee-based is a hybrid. Fee-only removes the conflict of interest of advisors selling products that pay them more.
Calculate the total annual cost as a percentage of your assets
Assets under management (AUM) fees typically range from 0.50% to 1.50% of your portfolio. On a $500,000 portfolio at 1%, you're paying $5,000 per year. Some advisors offer a sliding scale with lower percentages for larger accounts.
Ask about flat-fee or hourly financial planning options
Flat-fee financial plans cost $1,000-$5,000 for a one-time plan or $2,000-$7,500 per year for ongoing advice. Hourly advisors charge $150-$400 per hour. These options work well if you prefer to manage your own investments but want professional guidance on strategy.
Confirm there are no hidden fees, trading costs, or platform charges
Ask for a complete fee schedule in writing. Some advisors charge additional fees for financial planning, account transfers, or account closing. Mutual fund expense ratios are a separate cost on top of the advisory fee. Total all-in costs should stay below 1.5%.
Verify Credentials
Check if the advisor holds the CFP (Certified Financial Planner) designation
The CFP credential requires completing a rigorous education program, passing a 170-question exam (about 60% pass rate), 6,000 hours of professional experience, and adhering to ethical standards. Verify CFP status at LetsMakeAPlan.org.
Look for the CFA (Chartered Financial Analyst) for investment-focused advice
The CFA charter requires passing 3 levels of exams over 2-5 years with a combined pass rate under 20%. It focuses on investment analysis, portfolio management, and economics. A CFA is ideal if your primary need is investment management rather than broad financial planning.
Avoid advisors with only sales-oriented designations
Some designations require just a weekend course and a fee. The CFP and CFA are the gold standards. Be cautious of designations you've never heard of. FINRA maintains a database of professional designations at finra.org/investors/professional-designations that explains the requirements for each.
Prepare Interview Questions
Ask about their typical client profile and minimum account size
Some advisors require $250,000-$1 million in investable assets. Others have no minimum. You want an advisor whose typical client looks like you. If they mostly serve retirees and you're 30, your needs may not be their strength.
Ask how they develop investment recommendations
Look for an evidence-based approach that matches your risk tolerance and time horizon. Ask: "What is your investment philosophy?" and "How much of client money goes into index funds vs actively managed funds?" A strong answer references diversification, low costs, and long-term strategy.
Ask how often you will meet and how they communicate
Most advisors offer quarterly or semi-annual meetings plus access via phone or email. Ask about response times for urgent questions. Some charge extra for additional meetings. Clarify whether you'll work with the advisor directly or be handed off to a junior associate.
Ask what happens to your account if the advisor retires or leaves
Advisor transitions are common. Ask if there is a succession plan. RIA firms typically have continuity agreements. If the advisor is a sole practitioner, ask what happens to your accounts and who takes over. Your assets should transfer smoothly without liquidating positions.
Run a Background Check
Search the advisor on FINRA BrokerCheck (brokercheck.finra.org)
BrokerCheck shows employment history, licenses, disciplinary actions, customer complaints, and regulatory events. Any advisor with more than one customer complaint deserves scrutiny. Zero complaints after 10+ years in the industry is a strong positive signal.
Check the SEC Investment Adviser Public Disclosure database
The IAPD database (adviserinfo.sec.gov) shows registration status and Form ADV filings for RIAs. Cross-reference what the advisor told you about their firm size, assets managed, and fee structure with what's filed. Discrepancies are a warning sign.
Verify state registrations if the advisor manages under $100 million
Advisors managing under $100 million register with their state securities regulator rather than the SEC. Your state's securities office website lists registered advisors and any disciplinary history. Check the North American Securities Administrators Association (NASAA) for your state regulator link.
Evaluate Service Scope
Confirm whether the advisor provides full financial planning or investment-only
Full financial planning covers taxes, insurance, estate planning, retirement projections, and cash flow in addition to investments. Investment-only management handles your portfolio but nothing else. Full planning costs more but addresses your entire financial picture.
Ask about tax planning and tax-loss harvesting services
Tax-efficient investing can add 0.5-1.0% per year to after-tax returns through strategies like tax-loss harvesting, asset location, and Roth conversion planning. Ask if these services are included or cost extra. Not all advisors provide tax planning.
Determine if estate planning coordination is included
A good financial advisor reviews your beneficiary designations, coordinates with your estate attorney, and ensures your investment accounts are properly titled. They should flag when your estate plan needs updating. This does not replace an estate attorney but adds a valuable second review.
Frequently Asked Questions
How much does a financial advisor cost?
Fee-only advisors charge 0.50-1.50% of assets under management (AUM) annually, meaning $5,000-$15,000/year on a $1 million portfolio. Flat-fee advisors charge $2,000-$7,500/year regardless of portfolio size. Hourly advisors charge $150-$400/hour for project-based work. Commission-based advisors earn money from product sales, creating potential conflicts of interest. For most people, a fee-only fiduciary advisor provides the most aligned incentives.
What does fiduciary mean and why does it matter?
A fiduciary is legally required to act in your best interest, not merely recommend suitable products. Non-fiduciary advisors (operating under a suitability standard) can legally recommend products that pay them higher commissions as long as the product is generally appropriate. Only about 15-20% of financial advisors operate as full-time fiduciaries. Ask explicitly whether they will act as a fiduciary at all times and put it in writing.
What credentials should I look for in a financial advisor?
The CFP (Certified Financial Planner) designation is the gold standard, requiring 6,000 hours of experience, a rigorous exam, ethics requirements, and ongoing education. A CPA/PFS (Personal Financial Specialist) combines tax and financial planning expertise. CFA (Chartered Financial Analyst) is investment-focused. Avoid advisors whose only credentials are insurance licenses or proprietary company designations. Verify credentials at cfp.net, finra.org/brokercheck, and adviserinfo.sec.gov.
How do I know if my financial advisor is doing a good job?
Evaluate against four criteria: your portfolio's risk-adjusted returns compared to an appropriate benchmark (not raw returns alone), whether they proactively contact you for tax planning and rebalancing, transparency about fees and willingness to explain every charge, and progress toward your stated financial goals. If you feel ignored or cannot reach your advisor within 48 hours, that is a red flag worth addressing.