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Need a Financial Advisor? Here’s How to Choose One Based on Your Needs

Updated November 11, 2024

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Looking for help managing your money? It may be time to hire a financial advisor.

Figuring out how to choose a financial advisor can be tricky, especially because there are several different types of advisors out there with varying licenses and specialties.

Choosing the right financial advisor for you depends on your needs as well as the advisor’s reputation, certifications and fees.

Find out more about the different services offered by financial advisors, how to narrow down what you’re looking for and how to get the most out of the professional you choose to work with.

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Types of Financial Advisors: From Wealth Management to Budget Coaching

The term “financial advisor” is actually a very loose title and could mean a dozen different things. Depending on an individual’s certifications and registration, a financial advisor could fall into one of these categories:

1. Wealth Management

A wealth management advisor is someone who works with, you guessed it—wealthy clients. Typically, wealth advisors are members of the Financial Industry Regulatory Authority (FINRA), but may or may not be regulated by the U.S. Securities and Exchange Commission (SEC).

2. Brokers and Investment Advisors

Some financial advisors focus specifically on investing. These professionals should be registered with the SEC, as this allows them to legally buy and sell stocks and bonds. They have to pass licensing exams as well. Be sure to verify their credentials through BrokerCheck¹ before getting started.

3. Certified Financial Planners (CFP)

One common credential to look for is the CFP — Certified Financial Planner. CFPs take required educational courses and must pass the CFP Board exam. These advisors have fiduciary duty to their clients, which means they must legally do what’s in your best financial interest.

A CFP may or may not be registered with the SEC, depending on whether or not they also buy and sell stocks and bonds on your behalf. If they’re not registered, they can offer non-regulatory advice like how to budget, how to pay off your debts and how to plan for retirement.

4. Chartered Financial Consultants

Another type of financial advisor with fiduciary duty to clients is a Chartered Financial Consultant, or ChFC. These professionals receive certification through The American College of Financial Services. A ChCF must have several years of experience, complete required educational courses and pass exams. They’re also required to complete 30 hours of continued education every two years, including ethics courses.

You might choose to work with a ChFC if you’re interested in estate planning or insurance advice, but they can also provide general financial advice like a CFP.

5. Financial Coach

You’ve probably seen this title thrown around a lot lately. A financial coach is typically someone who can provide advice, but who is not legally qualified to invest your money. Financial coaches can be a great starting point if you’ve never worked with an advisor before and you don’t have pressing needs for investing or planning.

6. Robo-Advisors

Another, somewhat unconventional option, is the robo-advisor. Online investment firms like So-Fi and Charles Schwab use algorithms to automatically invest your money. Robo-advisor fees vary from $0 to 0.30% annually.

Pay Attention to Fees and Commission

Along with choosing what type of financial advisor you want to work with, it’s also important to find out how much they charge. Typically, there are “fee-only” advisors and “fee-based” advisors.

Fee-Only

A fee-only financial advisor charges a fee for their services and doesn’t make money off of their clients in any other respect. Fee-only advisors act under fiduciary duty—that legal responsibility we mentioned earlier in which they have to do what’s in your best financial interest.

Depending on how much money and assets you have, your advisor’s fee might be a flat rate, an hourly rate or a percentage of your portfolio. For percentage fees, most financial planners charge 1%.

Fee-Based (Commission)

Fee-based financial advisors make money by charging a fee for their services and by collecting a commission from your investments. Brokers are a prime example of fee-based financial planners. If they work for a large firm, their boss may also get a cut of your investments.

Fee-based advisors should be registered with the SEC. You can check their Form ADV² document online to find out exactly how they make their commission.

Fee-Only vs. Fee-Based: Which Is Best?

A good rule of thumb is to seek out fee-only advisors over fee-based. They are bound by fiduciary duty, which means your success and preferences are their main motivation. Fee-based advisors can be motivated by risky, high-yield investments.

That being said, if you have a strong relationship with a fee-based advisor, you might choose to work with them instead. You ultimately have the final say in how your money is managed.

What Are Your Financial Goals?

The most important factor when determining how to choose a financial advisor is your individual needs and goals. You might know an amazing ChFC who specializes in wealth management, but they could be the completely wrong fit for you. Likewise, an unaccredited financial coach will be a poor choice for someone with a hefty portfolio.

Wealth Management

If you have over $2 million in assets, you should probably be working with a wealth management advisor.

Retirement

If you’re looking for help with retirement planning, you will need someone certified to handle your money like a CFP or ChFC.

Investing

If your goal is investing your money, and you’re not a millionaire, you should find a financial advisor who is a portfolio manager. You could also choose to work with a fee-based broker.

Basic Financial Advice

If you’re starting from scratch, you may want some basic financial advice from a financial coach or robo-advisor. These fees are typically lower, and they’ll be able to point you in the right direction.

Questions to Ask a Financial Advisor

Whoever you decide to work with, don’t hesitate to look into their credentials.

Do they have fiduciary duty?
Are they certified with the CFP Board or another financial ethics association?
Are they registered with the SEC?
Are they fee-only or fee-based?

How to Choose a Financial Advisor in a Nutshell

Once you know how to choose a financial advisor, you can begin your search. We recommend working with a fiduciary, fee-only advisor who is certified through a reputable board like the CFP. However, if you’re just looking for some basic guidance from a financial coach, or want to dabble in investing with a robo-advisor, these financial advisor options are also great and have lower fees.

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