What to look for in a financial advisor

A good financial advisor is someone whose incentives align with yours — meaning they make money when you make money, not when they sell you a product. The simplest way to check this is to ask directly: "Are you a fiduciary?" A fiduciary is legally required to put your interests first. An advisor who is not a fiduciary only has to recommend products that are "suitable," which is a much lower bar.

Beyond that, look for someone who understands your actual situation, not someone who tries to fit you into a template. If you have a pension, rental property income, or a business, you need an advisor who has worked with people in similar circumstances. Ask how many clients they have with your type of income or assets. If they say "most of them," that's a sign they specialize. If they hesitate or give a vague answer, keep looking.

The advisor should also be able to explain their fee structure in plain language without you having to ask twice. If you don't understand how they're paid after they explain it once, that's a red flag — they should be able to make it simple.

Key Takeaways

  • Ask whether the advisor is a fiduciary; if they are not, they are only required to recommend products that are "suitable" rather than in your best interest.
  • Choose an advisor who has worked with people in your situation — someone with a pension, business income, or significant assets should not work with a generalist.
  • Understand how the advisor is paid before you hire them; common structures are flat fees, hourly rates, or a percentage of assets under management.
  • Check credentials through FINRA BrokerCheck or the SEC's Investment Adviser Public Disclosure database to see disciplinary history and registration status.
  • Interview at least two or three advisors before deciding; a good fit matters more than finding the "best" advisor.

How to verify credentials and check for problems

Before you meet with an advisor, spend 10 minutes checking their background. Go to FINRA BrokerCheck (brokercheck.finra.org) and search by name. This database shows whether they are registered, what licenses they hold, and whether they have any disciplinary history. If they are a registered investment adviser rather than a broker, search the SEC's Investment Adviser Public Disclosure database (adviserinfo.sec.gov) instead.

Look for red flags: multiple customer complaints, settlements, or license suspensions. One old complaint does not necessarily disqualify someone, but a pattern does. If you see something concerning, ask the advisor about it directly. They should be able to explain what happened and what they learned from it.

You can also ask which licenses they hold. A Series 7 or Series 65 means they have passed exams and are registered. A CFP (Certified Financial Planner) means they have met education, experience, and ethics requirements. These credentials matter, but they are not a substitute for checking their actual record.

Fee structures and what they mean for you

Financial advisors charge in three main ways. Understanding which one you are paying for matters because it changes how the advisor thinks about your money.

Fee-only advisors charge you directly — either a flat annual fee, an hourly rate, or a percentage of the assets they manage for you (called AUM, or assets under management). You pay them; they do not earn commissions from selling you products. This structure tends to align incentives most clearly.

Commission-based advisors earn money when they sell you an investment product — a mutual fund, annuity, or insurance policy. They do not charge you a separate fee. The risk here is that they may recommend products that pay them higher commissions rather than products that are best for you.

Fee-based advisors charge you a fee and also earn commissions. This is the most common structure and the one most likely to create conflicts of interest. Ask exactly what percentage of their income comes from fees versus commissions. If commissions are a large part, be cautious.

A percentage-of-assets fee (typically 0.5% to 1.5% per year) works well if you have a large portfolio, because the advisor's incentive is to grow your money. It works poorly if you have a small portfolio, because the fee eats into your returns. For smaller accounts, an hourly rate or flat fee usually makes more sense.

Questions to ask before you hire

Prepare a short list of questions and ask every advisor the same ones. This makes it easier to compare. Here are the ones that matter most:

  • Are you a fiduciary all the time, or only when you are managing my money? Some advisors are fiduciaries only for certain services. You want someone who is a fiduciary for everything they do for you.
  • How do you charge, and what does that include? Get the answer in writing. Ask whether there are any other fees — account minimums, transaction fees, or charges for specific services.
  • How often will we meet, and how do you stay in touch? A good advisor checks in at least once a year and is reachable when you have questions. If they only call when they want to sell you something, that's a problem.
  • What is your investment philosophy? Listen for whether they talk about your goals and time horizon, or whether they immediately start pitching specific products. A good advisor asks about you first.
  • Have you ever been disciplined by a regulator, or had a customer complaint? You already checked this, but asking directly gives you a sense of how honest they are.

Red flags that mean you should keep looking

Some warning signs are obvious. If an advisor promises specific returns, guarantees you will not lose money, or pressures you to decide quickly, walk away. No one can may provide investment returns, and pressure is a sales tactic, not a sign of good advice.

Other red flags are subtler. If an advisor does not ask much about your situation before recommending something, they are not tailoring advice to you. If they recommend putting most of your money into one product or one type of investment, they are not diversifying. If they are hard to reach or do not return calls within a day or two, you will be frustrated later.

If an advisor suggests moving money frequently or trading often, ask why. Frequent trading generates commissions for them and tax bills for you. There are legitimate reasons to rebalance a portfolio, but it should not happen every month.

When to walk away and find someone else

You do not need to stay with an advisor who is not working out. If you feel rushed, confused, or like they are not listening to you, that is enough reason to leave. You can move your accounts to a new advisor — it takes a few weeks but it is straightforward.

Before you switch, make sure the new advisor understands your full situation, including any accounts you are keeping elsewhere. Some advisors will only work with you if they manage all your money; others are fine being part of your team. Decide what works for you.

If you have already paid fees to an advisor and you want to leave, ask whether they will refund the portion of the fee you have not yet earned. Some will; some will not. It is worth asking.

Frequently Asked Questions

Do I need a financial advisor if I only have a 401(k) and savings account?

Probably not. If your finances are straightforward — you have a job, a 401(k), and a savings account — you can learn to manage them yourself using free resources. An advisor becomes more useful when you have multiple income sources, own property, have a business, or are approaching retirement and need to coordinate accounts and tax strategy.

What is the difference between a financial advisor and a financial planner?

The terms are often used interchangeably, but "financial planner" usually means someone who looks at your whole financial picture — income, expenses, debt, insurance, retirement, taxes, and estate planning. A "financial advisor" might focus only on investments. Ask what services each person you interview actually provides.

How much should I expect to pay?

Fee-only advisors typically charge 0.5% to 1.5% of assets per year, or $1,500 to $5,000 per year for flat fees, or $150 to $400 per hour. Commission-based advisors charge nothing upfront but earn a percentage when they sell you products. The right fee depends on your account size and the complexity of your situation.

Can I use a robo-advisor instead of a human advisor?

Robo-advisors are automated platforms that build and manage a portfolio based on your answers to a questionnaire. They are cheap (often 0.25% per year or less) and work well for straightforward situations. They are not a good fit if you need advice on taxes, insurance, or complex life changes, or if you want to talk to a person.

What should I do if I think my advisor is not acting in my best interest?

Document what happened and file a complaint with FINRA (if they are a broker) or the SEC (if they are an investment adviser). You can also consult a lawyer about whether you have grounds for a claim. Many advisors carry errors and omissions insurance, which can cover losses from bad advice.