Start with what "financial advisor" actually means

The term financial advisor covers several different roles, and they have different legal duties depending on their type. An advisor who is a fiduciary is legally required to put your interests ahead of their own. An advisor who is not a fiduciary only has to recommend products that are "suitable" for you — a lower standard that can mean they recommend something that pays them more commission even if something else would serve you better. Before you meet with anyone, find out whether they are a fiduciary all the time, only when handling retirement accounts, or never.

The main types are registered investment advisors (RIAs), who typically charge fees based on assets they manage; broker-dealers, who often earn commissions on products they sell; and insurance agents, who sell insurance products and may also offer broader advice. Some advisors hold multiple licenses. Knowing which type you are talking to helps you understand how they make money and what conflicts of interest might exist.

Key Takeaways

  • Check whether an advisor is a fiduciary all the time, only for retirement accounts, or never — this determines whether their legal duty is to your interests or just to recommend "suitable" products.
  • Verify credentials through FINRA BrokerCheck and the SEC's Investment Adviser Public Disclosure database before your first meeting.
  • Understand how the advisor makes money: fees on assets under management, commissions on products sold, hourly rates, or flat fees — each creates different incentives.
  • Ask about past disciplinary actions, complaints, and how they handle conflicts of interest, and request their Form ADV Part 2 (the document that discloses how they operate).

Verify credentials and check disciplinary history

Every financial advisor should be registered with either the Financial Industry Regulatory Authority (FINRA) or the Securities and Exchange Commission (SEC), depending on the size and type of their firm. You can search FINRA BrokerCheck at brokercheck.finra.org to see whether an advisor has a license, what type of license they hold, and whether they have any disciplinary history. The SEC's Investment Adviser Public Disclosure database at adviserinfo.sec.gov shows registered investment advisors and their Form ADV filings.

When you search, look for any history of complaints, settlements, or regulatory actions. A single old complaint that was resolved may not be disqualifying, but a pattern of complaints or recent disciplinary action is a red flag. If an advisor is not registered in either database, they may be operating illegally or may hold a different type of license (such as insurance-only). Ask them directly which database they appear in and why.

Understand how they make money

An advisor's compensation structure shapes what they recommend. Fee-only advisors charge you directly — either a percentage of assets under management (often 0.5% to 1.5% per year), an hourly rate, or a flat annual fee. Because they do not earn commissions on products, they have fewer built-in conflicts. Commission-based advisors earn money when you buy or sell investments or insurance products, which can create pressure to trade frequently or recommend products that pay higher commissions. Fee-based advisors charge both fees and commissions, combining both incentive structures.

Ask the advisor directly: "How do you make money from working with me?" and "Do you earn any commissions or referral fees?" A straightforward answer is a good sign. If they seem evasive or bundle the explanation into jargon, that is a reason to keep looking.

Request and read their Form ADV Part 2

Registered investment advisors are required to give you a document called Form ADV Part 2, which discloses how they operate, what they charge, what conflicts of interest exist, and what their investment philosophy is. This is not optional — if they will not provide it before you sign anything, do not work with them. The form is written in plain language (relative to other financial documents) and is designed for clients to read.

Pay attention to the sections on fees, conflicts of interest, and disciplinary history. If the advisor has had to settle complaints or regulatory actions, those appear here. If they manage money for themselves or their firm at the same time they manage money for clients, that is a conflict they must disclose. Form ADV Part 2 is also filed with the SEC, so you can cross-check what they give you against what appears in the Investment Adviser Public Disclosure database.

Ask about their investment approach and philosophy

A good advisor should be able to explain their investment philosophy in plain language — not in jargon, and not in a way that changes depending on market conditions. Do they believe in active management (frequently buying and selling to beat the market) or passive management (holding diversified, low-cost index funds)? Do they focus on individual stocks, mutual funds, exchange-traded funds, or a mix? What is their approach to risk, and how do they decide what is appropriate for you?

Ask them to walk you through how they would handle a market downturn or a period of poor performance. If they promise consistent returns or say they can time the market, that is a red flag — no one can do either reliably. If they say they will stick to a plan and rebalance periodically, that is more credible. You should also ask what their typical client looks like and whether they have experience with situations similar to yours.

Check whether they have a minimum account size and meet with multiple advisors

Many advisors require a minimum amount of money to manage, often $100,000 to $1 million or more. Some have no minimum. If you have less than their minimum, they may refer you to a robo-advisor (an automated investment service), a different advisor, or turn you away. Knowing this upfront saves you time. If you are just starting out or have a smaller amount to invest, look for advisors who explicitly work with smaller accounts or consider a robo-advisor or low-cost brokerage firm instead.

Most advisors offer an initial consultation at no charge. Use this to get a feel for how they communicate, whether they listen to your situation, and whether you trust them. Pay attention to whether they ask questions about your goals, your timeline, your risk tolerance, and your other financial obligations — or whether they jump straight to selling you something. A good advisor spends time understanding your situation before recommending anything. After meeting with two or three advisors, you should have a sense of whether their approaches differ significantly and which one seems to understand your needs best. Trust your instinct about whether you feel comfortable working with them over the long term.

Frequently Asked Questions

What is the difference between a fiduciary and a non-fiduciary advisor?

A fiduciary is legally required to put your interests first, even if it costs them money. A non-fiduciary only has to recommend products that are "suitable" for you, which is a weaker standard. Many advisors are fiduciaries only when managing retirement accounts (like IRAs) but not when selling other investments. Ask directly what their fiduciary status is in writing.

How much should I expect to pay a financial advisor?

Fee-only advisors typically charge 0.5% to 1.5% of assets per year, hourly rates of $150 to $400, or flat annual fees of $1,000 to $5,000 depending on complexity. Commission-based advisors charge nothing upfront but earn a percentage when you buy or sell. Compare costs across advisors, but also consider their experience and approach — the cheapest option is not always the best value.

Can I fire an advisor if I am not happy with them?

Yes. You can end the relationship at any time. If they manage your money, ask how to transfer your accounts and whether there are any fees for closing. If you signed a contract, read it to see whether there are early termination fees. Most advisors do not charge to leave, but it is worth asking before you sign.

What should I do if I think an advisor is acting unethically?

File a complaint with FINRA (for broker-dealers) or the SEC (for registered investment advisors) through their websites. You can also file a complaint with your state's securities regulator. Keep records of what happened, when, and any communications. If you lost money, you may have grounds for arbitration or a lawsuit, and you can consult a lawyer who specializes in securities law.