A financial advisor helps you make decisions about money, but what they do depends on what type of advisor they are and what you pay them to do
A financial advisor is someone who gives you guidance on how to manage your money. That can mean helping you save for retirement, invest money you have, plan for major expenses, or figure out whether you need insurance. But not all advisors do the same thing, not all of them are required to put your interests first, and not all of them charge the same way. Understanding what an advisor actually does — and what they're legally required to do — matters before you hand over your financial information or money.
The work breaks down into a few main categories. Some advisors focus on investment management: they help you choose stocks, bonds, mutual funds, or other investments, and they may manage your portfolio for you. Others focus on financial planning: they look at your whole financial picture — income, debt, goals, insurance needs — and create a plan. Many do both. Some specialize in specific areas like tax planning, estate planning, or retirement planning. What matters is knowing which one you're talking to and what they're actually responsible for doing.
Key Takeaways
- Financial advisors can give investment advice, create financial plans, or manage your money, but the specific services depend on the type of advisor and what you hire them to do.
- A fiduciary advisor is legally required to put your interests ahead of their own; a non-fiduciary advisor only has to recommend products that are "suitable" for you, which is a weaker standard.
- Advisors charge in different ways: flat fees, hourly rates, a percentage of assets they manage, or commissions on products they sell — and the payment method affects what conflicts of interest exist.
- Financial advisors are not the same as accountants, tax preparers, or insurance agents, though some people hold multiple licenses and do all three.
- You can check whether an advisor is registered, what licenses they hold, and whether they have a history of complaints through the SEC or FINRA websites.
The difference between fiduciary and non-fiduciary advisors
The most important distinction is whether an advisor is a fiduciary. A fiduciary is legally required to put your interests ahead of their own when giving you advice. That means they cannot recommend an investment just because they make more money if you buy it. A non-fiduciary advisor only has to recommend products that are "suitable" for you — a much lower bar. They can recommend something that makes them more money as long as it's not completely wrong for your situation.
Registered Investment Advisors (RIAs) are fiduciaries by law. Brokers and broker-dealers are not, though they are required to follow suitability rules. Many people who call themselves financial advisors are actually brokers, not advisors, and the distinction matters. You can ask an advisor directly: "Are you a fiduciary 100 percent of the time, or only when you're giving investment advice?" If they hesitate or say "only when giving advice," they are not always required to put you first.
Some advisors are fiduciaries only for certain services. For example, someone might be a fiduciary when managing your portfolio but not when selling you insurance products. Always ask what services are covered by the fiduciary duty and what services are not.
How financial advisors charge for their work
The way an advisor charges you shapes what conflicts of interest exist. There are four main payment models, and they work very differently.
Fee-only advisors charge you directly: a flat annual fee, an hourly rate, or a percentage of the assets they manage (called AUM, or assets under management). You pay them, and they have no other income from your account. This model has the fewest conflicts of interest because the advisor makes the same amount whether you buy one investment or another.
Commission-based advisors make money when you buy or sell investments or insurance products. They earn a percentage of what you invest or a flat amount per transaction. The conflict is obvious: they have an incentive to get you to buy things, even if holding cash or doing nothing would be better for you. Commission-based advisors can still be fiduciaries, but the payment structure creates pressure.
Fee-based advisors charge both ways: they take a fee from you and also earn commissions on products they sell. This combines both payment models and creates multiple conflicts of interest.
Salary-based advisors work for a bank, insurance company, or investment firm and are paid a salary. They may also earn bonuses based on sales. Their incentives depend on what their employer rewards them for.
What financial advisors are licensed to do
A financial advisor's licenses determine what they can legally do. The main licenses are:
Series 7 (General Securities Representative) allows someone to sell stocks, bonds, mutual funds, and other securities. Series 65 (Uniform Investment Advisor Law Exam) allows someone to give investment advice and manage portfolios. Series 63 is a state-level license that allows someone to sell securities and give investment advice within a specific state. Someone with a Series 7 can sell investments but cannot give advice; someone with a Series 65 can give advice and manage money but cannot sell securities without also holding a Series 7.
If an advisor wants to sell insurance products like life insurance or annuities, they need separate insurance licenses. If they want to prepare taxes or give tax advice, they may need additional credentials (though not always — some advisors give tax planning advice without being CPAs or Enrolled Agents). The licenses you see matter because they tell you what the person is actually may have access to to do.
What financial advisors do not do
Financial advisors are not accountants. An accountant prepares your tax return and can represent you to the IRS. A financial advisor can help you plan for taxes, but they cannot file your return or represent you in a dispute. Some people hold both credentials, but they are different roles.
Financial advisors are not insurance agents, though some hold insurance licenses too. An insurance agent sells insurance products; a financial advisor may recommend insurance as part of a plan, but they are not the same thing.
Financial advisors do not may provide returns. Anyone who promises you a specific return or says an investment is "risk-free" is either lying or not actually a financial advisor. Markets move, and past performance does not predict future results. A good advisor will tell you what the risks are and what you might reasonably expect over time, but not what will happen.
How to check an advisor's background and credentials
Before you work with a financial advisor, you can look up their registration and history. The SEC (Securities and Exchange Commission) maintains a database called IAPD (Investment Adviser Public Disclosure) where you can search for registered investment advisors. The FINRA (Financial Industry Regulatory Authority) maintains BrokerCheck, where you can search for brokers and broker-dealers. Both databases show you what licenses someone holds, whether they are currently registered, and whether there are any disciplinary actions or complaints against them.
You can also ask the advisor directly for their Form ADV Part 2, which is a document they are required to give you that explains their services, fees, conflicts of interest, and background. If they will not give it to you or seem reluctant, that is a red flag. A legitimate advisor should be transparent about how they make money and what their track record is.
What happens when you work with a financial advisor
The first step is usually a consultation where the advisor learns about your situation: your income, debts, goals, timeline, and risk tolerance. They may ask for documents like tax returns, bank statements, or investment statements. Based on that information, they create a plan or recommend investments.
If you hire them to manage your money, you sign an agreement that gives them authority to buy and sell investments in your account. They may check in with you regularly, rebalance your portfolio, or make changes based on market conditions. If you hire them for planning only, they give you recommendations and you decide whether to follow them.
The relationship can end at any time. You can fire an advisor, and they can fire you. If you are unhappy with the service or feel you were treated unfairly, you can file a complaint with the SEC or FINRA, or you can pursue arbitration or legal action, depending on what your agreement says.
Frequently Asked Questions
Do I need a financial advisor?
That depends on your situation. If you have a simple financial life — a job, a savings account, and no investments — you may not need one. If you have investments, are planning for retirement, have significant debt, or are trying to reach a complex goal, an advisor can help you think through options. Some people use advisors for a one-time plan and then manage on their own; others work with one long-term.
What is the difference between a financial advisor and a financial planner?
A financial planner typically creates a comprehensive plan for your whole financial life. A financial advisor may focus on investments or a specific area. In practice, the terms overlap — many people use them interchangeably. What matters is what services the person actually offers, not what title they use.
How much does a financial advisor cost?
Costs vary widely. Fee-only advisors might charge $1,000 to $5,000 for a plan, or 0.5 to 1.5 percent of assets under management per year. Commission-based advisors charge nothing upfront but earn a percentage when you buy investments. Fee-based advisors charge both ways. Ask for a written fee schedule before you hire someone.
Can a financial advisor lose my money?
An advisor does not have access to your money unless you give them power of attorney to manage your account. Even then, they cannot take it for themselves — that would be theft. But investments can lose value due to market conditions, and a bad recommendation can cost you money. That is why checking their background and understanding their conflicts of interest matters.
What should I ask a financial advisor before hiring them?
Ask whether they are a fiduciary 100 percent of the time, how they are paid, what licenses they hold, whether they have any disciplinary history, and what services they offer. Ask for their Form ADV Part 2 and references from other clients. A good advisor will answer all of these questions clearly and without defensiveness.