How much do financial advisors charge?

When considering fees, know that costs can vary significantly based on the type of advisor and services offered. While opting for a robo-advisor (which often charges between 0.25% and 0.75% of your annual account balance) can save you money if your financial situation is straightforward, those whose finances are more complicated or people craving more guidance might be charged 1% to 1.50% of their account balance for an in-person advisor.

Is there a difference between a financial “advisor” and “adviser”?

The term “adviser” is considered an older and more traditional spelling of the same word; the U.S. Investment Advisers Act of 1940 in fact used it to refer to anyone earning a fee for making investment recommendations or conducting securities analyses (and was thus required to register with the SEC or his/her state). These two terms are used interchangeably today and refer to the same type of financial professionals.

How are financial advisors paid?

Financial advisors utilize various fee structures, either charging a flat fee regardless of services provided, a percentage of investment assets managed, or by the hour. Other advisors are paid high commissions for selling products, which naturally results in a conflict of interest. Want to feel confident that your financial advisor isn’t offering biased advice so he/she can receive product commissions? Team up with a professional who has CFP® credentials and is thus held to a fiduciary standard.

How to Find and Choose a Financial Advisor in 7 Steps

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Many seemingly simple decisions in life can radically impact your future happiness, choosing a financial advisor one such example. How should you go about finding “the one”? This article is a great place to start.

1. Pinpoint your financial needs.

Know what you’re looking for before embarking on your search. For example, do you need help managing debt or simply some guidance when it comes to investing? Perhaps you’re looking to develop an estate plan or want to make sure your entire financial team is in sync. Understanding your pain points can save you time and help narrow your search as different advisors don’t always offer or focus on the same services.

2. Familiarize yourself with different types of financial advisors.

Financial advisors will help you manage your money and reach your financial goals in diverse ways, making it instrumental to know how these professionals differ. Let’s explore some of these differences…

Brokers

Only looking to buy and sell securities such as stocks and bonds? You’ll need a broker, essentially an intermediary between investors and a securities exchange. In doing so, you can choose between full-service outfits (e.g., Morgan Stanley, Stifel, or Merrill Lynch) and their discount counterparts such as E-Trade or TD Ameritrade. While the latter charge lower fees and commissions, they require you make investment decisions on your own whereas full-service brokers provide personalized investment advice.

Robo-advisors

Also known as “automated investment advisors,” these online platforms offer computer-generated financial planning and investment services. Betterment and Wealthfront are two of the more popular examples, with robo-advisors best suited for novice investors who don’t have a lot to lose, people with basic investment-management needs, and investors looking to pay as little as possible (since they’re relatively inexpensive). Some of these platforms also provide access to a human financial advisor.

Investment advisors

Simply put, these advisors provide clients with investment advice while managing their investment portfolios for a fee. While this option is more expensive than a robo-advisor, it offers more personalized service and access to additional types of investments.

Financial planners

Financial planners offer much broader services than investments alone, integrating numerous financial components—spanning savings, insurance, and taxes—to fulfill both short- and long-term aspirations.

Wealth managers

Representing a hybrid of investment advisors and financial planners, wealth managers primarily serve high-net-worth and ultra-high-net-worth clients.

While some very clear distinctions exist between the types of professionals discussed herein, keep in mind that roles often overlap as well (e.g., many financial planners also offer investment advice and management services). Either which way, you should have a clearer picture of what to look for now that

3. Know the difference between getting advice vs. being sold to.

One of the most important finance acronyms to know is “RIA.” An RIA (registered investment advisor) is a firm or individual licensed by the SEC or a comparable state authority to provide investment advice. Since RIAs are fiduciaries, they’re legally obligated to prioritize your interests above their own throughout the relationship.

Not all financial advisors are fiduciaries

Non-RIA “financial advisors” are typically salespeople operating within the broker-dealer category who adhere to a less stringent “best interest” (BI) standard—meaning they’ll act in your best interest only at the moment of recommendation, rather than throughout the relationship. Regulation BI also permits commission-based compensation from employers or third parties, which RIAs are not allowed to accept. Choosing an RIA firm is your best bet if you want to ensure you’re paying for advice and services tailored to your needs, rather than for products that earn high commissions for your advisor. It’s critical to understand the specific standards your chosen firm is required to follow in this regard.

4. Research a financial advisor’s credentials.

When selecting a financial advisor, prioritize credentials since not all designations carry the same weight. Choosing an advisor with a CFP® designation—the industry’s most recognized and respected credential—is recommended since CFPs® are regulated by the Certified Financial Planner Board of Standards. To earn this designation, advisors must pass a comprehensive exam and meet strict education and experience requirements. CFPs® are also legally required to uphold a fiduciary standard, putting your best interests first.

Comparing professional designations

When searching for a CFP®—either through Google or the CFP® Board’s online database—you may see other credentials as well. Take time to understand how these differ from a CFP® (click here to explore professional designations). For example, a chartered financial consultant (ChFC) completes a curriculum similar to a CFP® but with additional electives; this designation is less rigorous, however, since it doesn’t require an exam. A chartered retirement planning counselor (CRPC), meanwhile, focuses on retirement planning whereas a CFP® provides comprehensive financial guidance across all aspects of an individual’s finances (including retirement). Both ChFCs and CRPCs aren’t held to a fiduciary standard.

5. Vet a financial advisor’s background.

In addition to checking credentials, thoroughly review an advisor’s professional background: investigating if he or she has left a previous firm due to disciplinary issues or is currently facing any regulatory actions. Uncovering any red flags should prompt you to look deeper or reconsider your relationship with the advisor. You can use BrokerCheck—a tool provided by FINRA, the regulatory agency overseeing advisors who manage investment transactions—and the U.S. Securities and Exchange Commission (SEC) website to do this, both resources allowing you to search for financial advisors and review potential disciplinary actions/complaints.

6. Learn more about the financial advisor’s employer.

With a list of potential financial advisors in hand, you’ll want to do some homework on their respective firms to avoid buyer’s remorse. Key details to consider include…

Firm disclosures

Firm disclosures outline critical operational details and other information to help you narrow your search. For registered investment advisors (RIAs), visit the SEC or applicable state website to obtain a free copy of their Form ADV: a document detailing the firm’s services, fees, and background. FINRA’s BrokerCheck tool offers comparable background information for broker-dealer firms. Focus on understanding the firm’s business model and identifying any potential conflicts of interest (e.g., the sale of proprietary products or services). No matter the fee structure—fee-based, commission-based, subscription, or otherwise—be sure to fully understand what you’re paying for and check for any disciplinary actions against the firm, looking elsewhere if you find any. Also note which custodian (a bank, brokerage or trust company that holds and safeguards a client’s assets) the firm uses, ideally a reputable and independent third party to ensure transparency and security.

Organizational structure

It’s also wise to confirm that other CFP® professionals work at the firm; should your advisor leave and you choose to stay, qualified professionals will still support you in that case.

Ease of doing business

When considering a firm, know that some have minimum investment or net-worth requirements for new clients: thresholds that can vary widely and limit your options if you fail to meet them. Also inquire whether the firm offers introductory services (beyond an initial consultation) so you can experience its approach before committing to a long-term relationship. This is a low-risk way to get to know the firm and feel out a good fit for your needs.

Transparency

Transparency goes beyond what’s disclosed in the firm’s ADV. Evaluate how open and clear the firm is about its costs, checking its website: Is it easy to find detailed pricing for various services? Are fee schedules, minimums, and other charges laid out in plain language? True transparency means charges should never surprise you and you should never feel unsure about what you’re receiving for your money.

7. Build rapport with a financial advisor.

One rule of thumb to never underestimate is your level of comfort with an advisor. Many firms and advisors offer free initial consultations for this same reason, so be sure to take advantage of this opportunity and shop around after narrowing your list to two or three options.

Questions to ask before hiring a financial advisor

Ask about communication frequency and how the advisor defines success in client relationships, also assessing how well he or she listens and will work to understand your financial goals. Ask related questions such as…

“What services do you provide?”
“Do you offer any introductory services so I can work with you on a temporary basis before fully committing?”

Understanding the range of services and any trial offerings can help you assess whether the advisor’s expertise matches your needs as you look to test out the relationship.

“How are you compensated?”

Knowing how an advisor is paid can help you identify any potential conflicts of interest and ensure you’re comfortable with the fee structure.

“Will you consider assets you aren’t directly managing?”

It’s important to know whether your advisor will take a holistic approach to your finances or instead focus only on the assets he/she manages, as this can impact your overall financial plan.

“Do you work with CPAs or estate attorneys?”

Advisors who collaborate with other professionals can provide more comprehensive advice, especially when it comes to complex financial situations involving taxes or estate planning.

“How will you determine which investments are right for me?”

This question will help you understand whether the advisor tailors investment recommendations to clients’ personal goals and risk tolerance instead of offering one-size-fits-all solutions.

“Who is your custodian?”

Knowing who exactly holds your assets adds a layer of security and transparency, protecting your investments and ensuring they’re not handled directly by the advisor.

Building rapport during the initial meeting is only the first step; choosing the right firm can impact your financial future to a significant degree, so consider your options carefully.

Additional tips for finding a financial advisor near you

You can begin by using an online financial advisor-matching service or checking with professional organizations (e.g., the Financial Planning Association), though your options may be limited in that case since advisors pay to join such networks. We instead recommend kicking off your search by asking your social network for recommendations or using online tools such as the CFP Board website, which allows you to search by location, client focus, and/or preferred language.

In sum: how to find and choose a financial advisor

Whether you’re primarily seeking investment advice or need help with retirement planning, choosing the right financial advisor calls for a holistic approach that not only considers the advisor’s track record but also your client-advisor rapport. After all, when you find “the one,” you want that relationship to last a lifetime and give you a fruitful experience.

Vision Retirement offers FREE discovery calls with CFP® professionals. Schedule an appointment to learn if our expertise is a good fit for your needs.

FAQs

When considering fees, know that costs can vary significantly based on the type of advisor and services offered. While opting for a robo-advisor (which often charges between 0.25% and 0.75% of your annual account balance) can save you money if your financial situation is straightforward, those whose finances are more complicated or people craving more guidance might be charged 1% to 1.50% of their account balance for an in-person advisor.
The term “adviser” is considered an older and more traditional spelling of the same word; the U.S. Investment Advisers Act of 1940 in fact used it to refer to anyone earning a fee for making investment recommendations or conducting securities analyses (and was thus required to register with the SEC or his/her state). These two terms are used interchangeably today and refer to the same type of financial professionals.
Financial advisors utilize various fee structures, either charging a flat fee regardless of services provided, a percentage of investment assets managed, or by the hour. Other advisors are paid high commissions for selling products, which naturally results in a conflict of interest. Want to feel confident that your financial advisor isn’t offering biased advice so he/she can receive product commissions? Team up with a professional who has CFP® credentials and is thus held to a fiduciary standard.