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How To Choose The Right Financial Advisor

How to choose the right financial advisor

New technologies have made it possible for almost everyone to manage their own investment accounts, but not everyone has the time to devote to the process. Also, if you don’t manage your investments optimally, you can get lower returns than usual.

These are just a few reasons many people choose to work with a financial advisor. Professionals working in this niche are trained to help you invest in ways that have the potential to increase returns with the risk that is right for you.

The problem with financial advisors is that there are so many and that financial planners have gotten a bad rap for putting their own interests before those of their clients. Fortunately, you can find a consultant who will put your needs first – if They know what to look for.

Statistics even show that hiring professional help can make you better off. According to Vanguard Advisor’s alpha study, clients who work with a highly skilled financial advisor could see more value in their portfolios.

Fortunately, you can find a consultant who will put your needs first – if They know what to look for.

The decision to work with a financial advisor is a personal one, but it is also a decision so much Is at stake. Use the following tool to find a financial advisor who can help you grow your wealth and avoid common investment mistakes:

Take into account your needs and budget

Define your individual needs

When looking for a financial advisor, you should first evaluate your own needs. This can very much depend on where you are in your retirement planning journey – whether this is your first time creating wealth or if you are nearing retirement and hoping to take the right steps at the last minute.

Consider whether you want a full-service financial planning service and continuous access to a professional who is available to answer your questions and plan your future. You may not need that much manual labor. In that case, you could be paying less overall by signing up for an online financial planning platform that uses technology to manage your portfolio and optimize returns.

Understand the compensation structure

Whatever you do, make sure you understand that you are going to be paying for this type of help. Many financial advisors charge a flat fee of 1% or more of your portfolio per year in exchange for managing your money. Some also earn commissions on investments they sell to you, and they may even choose investments that come with fees that devour the amount of money actually invested on your behalf.

Online financial planning services tend to cost less overall, but you should still expect to pay between 0.25% and 0.80% of your portfolio in fees each year. When looking for a financial advisor, you want to find out how the advisors you are considering are paid and whether they earn commissions on the investments they sell.

The most common way financial advisors are paid is called an AUM, or “assets under management”. With this payment structure, your financial advisor would deduct the management fee from your investment accounts instead of paying the fee out of your pocket. This might sound practical, but it also means you may not know how much you are paying in account management fees over the months and years that you pay for professional advice.

Find out what kind of financial advisors there are

The term “financial advisor” can apply to a wide variety of professionals. Note, however, that many people who shouldn’t be using this title will be doing so anyway. As an example, you are likely to come across “financial agents” who focus most of their work on selling life insurance. You will also encounter financial advisors who use high pressure sales tactics to sell overpriced, underperforming annuities and other investments that add to their bottom line at your expense.

Before choosing a financial advisor, you should know what types of financial advisors there are.


Robo-advisors use technology and algorithms to invest your money in ways that suit your risk appetite. Some of the companies you might have heard of in this niche include Betterment and Wealthfront, but there are plenty of others.

Robo-advisors typically calculate a percentage of your portfolio amount each year as you invest your money to achieve optimal returns and keep taxes to a minimum. With Betterment, for example, you pay 0.25% to 0.40% of your portfolio amount every year when you use this service.

Online financial advisor

Online financial advisors can come in several forms. For starters, there are financial advisors who only see clients online and may be willing to ask for lower prices or one-time flat fees in exchange for investment advice.

In other scenarios, an online financial advisor can also be a robo-advisor that you can connect to with a single financial planner that they assign to your case. The fees are usually higher if you want professional advice in addition to technology-based investment planning. However, online financial advisors can be a great alternative if you want personalized planning but don’t need a full-service financial advisor.

A good example in this niche is Personal Capital. With this firm, clients with assets of $ 200,000 or more can opt for an asset management plan (or a retail client plan with assets of more than $ 1 million) and have access to two dedicated financial advisors who can offer personalized advice.

Vanguard is another investment firm that provides financial advice through its Vanguard Personal Advisor Services®. Vanguard financial advisors are paid a salary so they do not benefit from the investments they choose. The annual costs for this service are also only 0.30% and are thus well below the industry average of 1.01%.

Traditional financial planner

Next, find traditional financial advisors that most people think of and who might call themselves wealth planners or investment advisers. Also note that some financial advisors go the extra mile to earn the Certified Financial Planner (CFP) award, which is awarded by the Certified Financial Planner Board of Standards when an advisor completes the CFP exam and keeps up with ongoing training to keep going at the top of their industry.

Traditional financial planners are typically paid in three ways:

  • Financial planners are often paid for, which can mean they are paid for their services using AUM or a flat fee
  • Some financial advisors are commission-based, meaning they make money selling you investments
  • Others earn a fee for their services and commissions on the investment products they sell

This is where it gets tough, and part of the reason traditional financial advisors have gotten a bad rap. In some cases, advisors who earn a commission have been known to turn their clients into complicated, expensive investments that also pay huge commissions to the “seller” of the investment.

Because of this, knowing how your investment professional is paid and choosing an advisor who is paid with a flat fee or AUM is wise. This payment structure enables them to give you the best advice for your situation without having to worry about commissions. In particular, an AUM structure rewards your financial advisor for increasing your portfolio balance over time. This is the whole reason you hired them in the first place.

Questions to any financial advisor

If you are planning on working with a robo-advisor, you can find all the information you need by researching all of the top robo-advisor and their offerings. However, if you are planning to hire a finance professional to work with you one on one, you need to make sure that you are asking the right questions.

Here’s everything you need to know about asking any financial advisor you are considering:

  1. How do you get paid You should know how your finance professional is paid and whether they make commissions on the investments they sell. If you want to work with a financial advisor who doesn’t earn commissions, you should seek out a paid financial advisor.
  2. Are you a trustee? A financial advisor who is a trustee is legally required to put your interests first when drawing up your financial plan. You should find out if every financial advisor you interviewed is a trustee and stay away from those who do not answer the question or decline.
  3. Are you a Registered Investment Advisor (RIA) or an Investment Advisor Representative (IAR)? These are the two main registrations that allow financial professionals to provide financial advice in return for compensation. Anyone who does not have one of these registrations should not offer financial advice. So be sure to ask.
  4. Do you have certifications? Does your consultant have a CFP designation or other professional certification such as a Certified Public Accountant (CPA)? Professional certifications can show that a financial advisor has gone the extra mile to stay educated and informed in their field.
  5. What services do you offer? Some financial planners focus on retirement planning while others may have experience working with high net worth individuals or minimizing taxes. Make sure you understand exactly what each financial advisor offers in terms of account management and advice, and find a professional who specializes in working with people like you.

Red flags to watch out for

When hiring a financial advisor, it’s important to make sure you’re asking the right questions. At the same time, there are some pretty obvious red flags to look for along the way. These can be:

  • Financial advisors who won’t tell you exactly how to get paid
  • Professionals who work for companies that focus on specific products such as life insurance or annuities
  • Every time a financial advisor starts suggesting products without knowing your full financial situation
  • Consultants who don’t take the time to ask you about your goals
  • Financial planners who do not act as trustees
  • Financial advisors with a shady or questionable past that you can find out with FINRA’s BrokerCheck

Ultimately, any financial advisor you trust should be someone who is completely open and honest about how they work and how they get paid. If you are concerned about using a financial planner who earns high commissions on the products it sells, look for financial advisors who only pay a fee and get a flat percentage or interest rate regardless of what investments they suggest.

Frequently asked questions (FAQs)

The following questions and answers can help you find the right financial advisor.

A financial trustee is a professional who is legally required to put the interests of his client first. If they are not acting in the best interests of their client, they can be held legally liable.

Choosing a financial advisor who is a trustee is crucial if you want quality, expert advice that is appropriate for your situation.

FINRA’s BrokerCheck tool allows you to research the background and experience of financial brokers and specific companies. This tool is free to use.

Financial advisers can be paid in different ways. Some paid financial advisors receive a flat fee or a percentage of your investments (known as an AUM), while others receive commissions on the investments they sell. Some financial advisors may also receive fees and commissions. So be sure to ask.

Robo-advisors are technology-based companies that manage your money and help you plan your investments at a lower cost than traditional financial advisors.

The bottom line

Finding the right financial advisor for your needs is an important task. After all, the advice this professional offers could mean the difference between never meeting your goals or retiring and in time.

Disclosure: Every investment is subject to risk, including the possible loss of the money you have invested.

The advisory services are provided by Vanguard Advisers, Inc. (VAI), a registered investment advisor, or Vanguard National Trust Company (VNTC), a government-licensed, limited-purpose trust company. VAI, VNTC or Vanguard’s Personal Advisor Services cannot guarantee profit or protect against loss.

There is no “right” or “wrong” way to choose a financial planner to manage your wealth, but there are many questions and red flags to look out for. Whatever you do, don’t work with the first financial planner you come across without asking how they’re paid and digging into their background. The best financial advisors have nothing to hide, but you shouldn’t take their word for it.

The services to clients who choose to receive ongoing advice depend on the amount of assets in a portfolio. The Vanguard Personal Advisor Services brochure provides key details about the service, including asset-based service levels and charge breakpoints.

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