How to Choose a Financial Advisor: A Step-by-Step Guide

young couple meeting with financial advisor

In the journey towards securing your financial future, one of the most critical decisions you'll make is selecting the right financial advisor. The process of how to choose a financial advisor can seem like navigating a complex maze.

Whether planning for retirement, buying a home, or just looking to grow wealth, a financial advisor can be your guiding light.

But with so many options, how do you choose the right one? Fear not; we've got you covered. In this blog, we'll dive into a step-by-step guide on how to choose a financial advisor for your needs.

Step 1: Define Your Financial Goals

Before you dive headfirst into the hunt for the perfect financial advisor, it's crucial to take a moment to get clear about what you're aiming for.

Essentially, you need a roadmap to your financial future, starting with defining your financial goals.


Why It Matters

Think of defining your financial goals as setting sail on a voyage. Without a destination, you might be adrift in a sea of financial uncertainty. 

Are you saving for a comfortable retirement where you can sip cocktails on a tropical beach? Or perhaps you're looking to buy your dream home nestled in the countryside? Maybe you want to build a college fund for your kids or launch your own business.

Whatever it is, your goals will serve as your North Star, guiding every financial decision you make.


How to Define Your Financial Goals

  1. Short-Term vs. Long-Term: Start by distinguishing between short-term and long-term goals. Short-term goals might include saving for a vacation, paying off credit card debt, or building an emergency fund. Long-term goals, however, encompass bigger milestones like buying a home, funding your children's education, or achieving financial independence in retirement.
  2. Be Specific: The more specific your goals, the better. Instead of saying, "I want to save for retirement," consider saying, "I want to retire at 65 with $1.5 million in savings."
  3. Quantify and Prioritize: Attach a dollar amount and a timeline to each goal. Prioritize them based on their importance and urgency. Not all goals are created equal, so focusing on what matters most to you is essential.
  4. Consider Life Events: Life can throw curveballs, so factor in significant life events like marriage, the birth of a child, or a career change. These events can impact your financial goals.
  5. Set Realistic Goals: While it's great to aim high, your goals should also be attainable. Setting unrealistic expectations can lead to frustration and disappointment.
  6. Review and Revise: Your goals aren't set in stone. As your life evolves, so may your financial aspirations. Periodically review and adjust your goals to stay aligned with your changing circumstances.


What Are the Benefits of Goal-setting?

Defining your financial goals is like plotting coordinates on a map before embarking on a journey. It helps you:

  • Stay Focused: When you have clear objectives, you're less likely to get sidetracked by impulse spending or unnecessary financial risks.
  • Measure Progress: You can track your progress and celebrate your achievements, which can be incredibly motivating.
  • Better Decisions: Knowing your goals will guide your financial decisions, helping you allocate resources where they matter most.
  • Adapt to Change: When life throws a curveball, you'll be better prepared to adjust your financial plan while staying on course.

Remember, your financial advisor's role is to help you achieve these goals, so the more clarity you have upfront, the more effectively they can tailor their advice to your unique needs and aspirations.

So, grab a pen and paper and start defining your financial future today!


Step 2: Understand the Different Types of Financial Advisors

Let's talk about something essential before you start scouting for your financial advisor: understanding the different types available in the market.

It's like shopping for shoes; you need to know if you want sneakers for running or polished oxfords for a formal event. Likewise, the type of financial advisor you choose will depend on your financial needs and preferences.

Here is a breakdown of the different types of financial advisors:


Robo-Advisors: The Tech-Savvy Option

First up, we have robo-advisors. Picture these as the "virtual" financial advisors of the modern era. They're powered by algorithms and computer programs designed to make investing easier and more accessible.

Robo-advisors are perfect if you're tech-savvy, cost-conscious, and prefer a hands-off approach to managing your investments.


  • Low Cost: Robo-advisors typically charge lower fees than human advisors because they don't require a physical office or personal interaction.
  • Convenience: You can manage your investments online, anytime, anywhere, which is perfect for busy individuals.
  • Diversification: Robo-advisors automatically spread your investments across a mix of assets to reduce risk.


  • Lack of Personal Touch: If you prefer a human to chat about your financial concerns, robo-advisors might feel impersonal.
  • Limited Customization: While they tailor investments to your risk tolerance, they may not provide the level of customization a human advisor can.


Human Financial Advisors: The Personal Touch

On the other side of the spectrum, we have human, financial advisors. These real, living, breathing professionals can offer personalized financial advice.

Human advisors come in various flavors, like Certified Financial Planners (CFPs), Registered Investment Advisors (RIAs), and more, each with their areas of expertise.


  • Personalized Guidance: Human advisors can craft a financial plan tailored to your goals, risk tolerance, and life circumstances.
  • Emotional Support: In times of financial turmoil, having a real person to talk to can be reassuring and valuable.
  • Comprehensive Services: They can offer various financial services, from retirement to estate planning.


  • Higher Costs: Expect to pay more for the personal touch. Human advisors often charge fees based on a percentage of assets under management or hourly rates.
  • Potential for Conflicts of Interest: Some advisors may earn commissions from financial products they recommend, which could influence their advice.


Hybrid Advisors: The Best of Both Worlds

Now, what if you want the best of both worlds? That's where hybrid advisors come in. These are a blend of robo-advisors and human advisors.

You get the algorithm-driven benefits of robo-advisors and the human touch for those moments when you need more guidance or reassurance.


  • Customization: You can tailor the level of human interaction to your liking.
  • Cost-Efficiency: Hybrid advisors often charge lower fees than full-service human advisors while providing some degree of personalization.
  • Accessibility: You can usually access your hybrid advisor online, making it convenient for most people.


  • Costs May Vary: Depending on the hybrid model, costs can vary, so understand the fee structure.
  • Level of Human Interaction: Depending on the provider, human interaction may vary.


Step 3: Check Qualifications and Credentials

Now that you've got a roadmap for your financial goals and we've explored the various types of financial advisors let's roll up our sleeves and get down to the nitty-gritty: checking out their qualifications and credentials.

This is where you separate the financial planning gurus from the "fly-by-night" operators.


Why Qualifications Matter

Think of qualifications as the educational badges on a scout's sash. They indicate that your financial advisor has invested time and effort to earn the necessary knowledge and skills to guide you through the financial wilderness.

So, when you're entrusting someone with your hard-earned cash, you want to know they've got the expertise to lead the way.

Look for the following key credentials:

  1. Certified Financial Planner (CFP): The CFP designation is the gold financial planning standard. Advisors with this title have completed rigorous education and experience requirements and passed a comprehensive exam. They also adhere to a strict code of ethics.
  2. Chartered Financial Analyst (CFA): CFAs are experts in investment management. They've gone through a grueling program that covers everything from portfolio management to ethics.
  3. Certified Public Accountant (CPA): CPAs are tax experts. They're ideal if you have complex tax issues or need assistance with tax planning.
  4. Personal Financial Specialist (PFS): This is a CPA with additional expertise in financial planning. They can provide a comprehensive approach to managing your money.
  5. Registered Investment Advisor (RIA): RIAs are registered with the Securities and Exchange Commission (SEC) or state authorities. They are held to a fiduciary standard, meaning they must always act in your best interest.
  6. Insurance Licenses: If your advisor sells insurance products, ensure they hold state insurance licenses. Confirming they're not pushing policies just to earn a commission is essential.


How to Verify Credentials

Don't just take your advisor's word for it. Verify their credentials independently. Here's how:

  1. Use Official Websites: Check the official websites of credentialing organizations like the CFP Board, CFA Institute, or your state's Board of Accountancy. They usually have a search feature to confirm an advisor's credentials.
  2. Ask for Documentation: Don't hesitate to request copies of your advisor's certifications or licenses. A reputable advisor should be happy to provide them.
  3. Look for Disciplinary History: Check if your advisor has any disciplinary actions or complaints on record with regulatory bodies. This information is usually found on the Financial Industry Regulatory Authority (FINRA) or SEC websites.


Why You Should Care About Their Credentials

Imagine you're hiring a tour guide to lead you through a dense jungle. You'd want someone who's been trained, knows the terrain, and has a track record of getting people out safely.

The same logic applies to financial advisors. Their qualifications and credentials are your assurance that they have the know-how to navigate the complexities of the financial world.

Plus, many financial advisors are legally bound to act in your best interest if they have certain credentials, like CFPs or RIAs. This is known as a fiduciary duty, meaning they must prioritize your financial well-being over their own interests.

So, when interviewing potential financial advisors, don't hesitate to ask about their qualifications. It's crucial to ensure you're in capable hands as you embark on your financial journey.


Step 4: Research Their Background

Before entrusting someone with your finances, do some detective work.

Your financial advisor is someone you'll trust with your financial future, so you want to know exactly who you're dealing with. Background research is your tool to ensure that the advisor you're considering has a clean track record and a reputation for professionalism and integrity.

Imagine you're hiring a babysitter for your kids. You wouldn't just rely on a resume, right? You'd want to know about their past experiences, whether they have any red flags, and what previous clients have to say.

The same principle applies when hiring a financial advisor. Researching their background helps you uncover any skeletons in the closet and gain confidence in their trustworthiness. 


Where to find this Information

  1. FINRA BrokerCheck: The Financial Industry Regulatory Authority (FINRA) offers a handy online tool called BrokerCheck. It provides information on a financial advisor's work history, qualifications, and any disciplinary actions or customer disputes.
  2. SEC's Investment Adviser Public Disclosure (IAPD): If your advisor is a registered investment adviser, you can find information about their background, business practices, and regulatory disclosures on the SEC's IAPD website.
  3. Form ADV: This is a document filed with the SEC by registered investment advisors. It provides essential information about their business operations, fees, and potential conflicts of interest. Make sure to review it carefully.
  4. Ask for References: Don't be shy about asking your potential advisor for references from other clients. Speaking to people who have worked with them can provide valuable insights into their performance and reliability.
  5. Online Reviews and Social Media: Scour the internet for online reviews or comments about the advisor. Check their LinkedIn profile and other social media platforms for professional connections and endorsements.


What Red Flags Should You Look For?

During your investigation, keep an eye out for these red flags:

  1. Past Regulatory Issues: Disciplinary actions, customer complaints, or legal troubles should raise alarm bells.
  2. Frequent Job Changes: A history of frequent job changes could indicate instability or dissatisfaction in their previous roles.
  3. Lack of Transparency: If your advisor hesitates to provide information or is evasive about their background, it's a sign to proceed with caution.
  4. Unsolicited Recommendations: Be wary of advisors who cold-call or pressure you into making quick decisions without proper explanations.


Step 5: Understand Their Compensation Structure

Alright, you've navigated the financial advisor landscape, checked their qualifications, and done some detective work on their background.

Now it's time to get down to brass tacks: understanding how your potential financial advisor gets paid. It's a bit like knowing the price tag before you buy that fancy new gadget; it helps you avoid surprises and ensures a transparent relationship.

How your advisor earns their paycheck can influence their recommendations and how aligned their interests are with yours.

You want to ensure they work in your best financial interests, not theirs. Different compensation structures have different implications, so let's break them down:

  1. Fee-Only: Advisors in this category charge fees for their services but don't earn commissions on financial products they sell. This structure is often seen as more transparent and less prone to conflicts of interest. You pay for their advice, not their product recommendations.
  2. Commission-Based: These advisors earn money by selling financial products like insurance policies or specific investments. While you might not pay them directly, they receive a commission from the product provider, which can lead to potential bias toward products with higher commissions.
  3. Fee-Based: Fee-based advisors combine elements of fee-only and commission-based compensation. They charge fees for their services but may also earn commissions from certain product sales. This structure can create conflicts of interest, so it's crucial to understand which products might lead to commissions.


Questions to Ask About Compensation

  1. How Do You Get Paid? Ask your advisor to explain their compensation structure in detail. Are there any hidden fees or charges you should be aware of?
  2. Do You Have a Fiduciary Duty? Determine if your advisor is legally bound to act in your best interest. Fee-only and Registered Investment Advisors (RIAs) typically have a fiduciary duty.
  3. Are There Any Potential Conflicts of Interest? If they earn commissions, ask how they manage potential conflicts of interest when recommending products.
  4. What's the Total Cost? Be clear on all costs, including management fees, trading costs, and any other fees associated with your investments or financial plan.


Why Transparency is Key

Imagine you're at a restaurant, and they bring you a bill with a bunch of mysterious charges.

You'd probably want an itemized receipt to understand what you're paying for, right? It's the same with your financial advisor. 

You want a clear breakdown of their compensation to ensure their advice is in your best interest, not driven by their paycheck.

Transparency builds trust, and trust is everything in the finance world. 

So, don't hesitate to ask questions about compensation. A reputable advisor will be open and forthcoming about how they make their money, helping you decide whether to proceed with their services.


Step 6: Interview Multiple Advisors

Don't settle for the first advisor you come across. Schedule interviews or consultations with several candidates. 

Just like you wouldn't buy a car without a test drive, you shouldn't hire a financial advisor without getting to know them better.

These interviews allow you to see if the advisor's style, expertise, and personality align with your needs and preferences. Think of it as a job interview – you're the employer, and they're the potential hire.


What to Look for During Interviews

  1. Expertise: Ask about their experience and areas of expertise. Do they have a track record of success in handling situations similar to yours? Are they up to date with the latest financial trends and strategies?
  2. Approach to Financial Planning: Inquire about their approach to financial planning. How do they create customized plans for clients? Do they take a holistic view of your financial life or focus on specific aspects?
  3. Communication: Find out how often you'll meet or communicate with them. Do they prefer in-person meetings, phone calls, or video conferences? Make sure their communication style aligns with your preferences.
  4. Fees: Get a clear understanding of their fees and how they charge for their services. Are there any hidden costs? Can they estimate the total cost based on your financial situation?
  5. Client References: Don't hesitate to ask for references from current or past clients. Speaking with people who have worked with the advisor can provide valuable insights into their performance and client satisfaction.
  6. Investment Philosophy: Discuss their investment philosophy if you're considering investment services. Do they favor active or passive investing? How do they tailor investments to match your risk tolerance and financial goals?
  7. Fiduciary Duty: Confirm whether they have a fiduciary duty to act in your best interest. This is a critical factor in ensuring they prioritize your financial well-being.
  8. Emergency Plans: Inquire about their contingency plans for unexpected events or if they're unavailable.


What to Keep in Mind

  • Trust Your Gut: The advisor-client relationship is a long-term one. Trust your instincts and choose someone you feel comfortable with and can build a rapport with.
  • Be Prepared: Come prepared with a list of questions and topics you want to cover during the interview. This will help you get the information you need.
  • Compare Notes: After interviewing multiple advisors, take some time to compare their responses, fees, and overall impressions. This will help you make an informed decision.
  • Seek Clarity: If anything is unclear or you have concerns, don't hesitate to ask for clarification. A good advisor should be willing to address your questions.

Remember, this isn't just an interview for them; it's also an interview for you. You're looking for a financial advisor who will be a trusted partner on your financial journey.

Take your time, ask tough questions, and don't rush decision-making. After all, your financial future is at stake, and you deserve the best advisor for your unique needs.


Step 7: Get Everything in Writing

Once you've made your choice, it's time to formalize the relationship by getting everything in writing.

Key Components of a Written Agreement:

  1. Scope of Services: Clearly define the services your advisor will provide. Are they assisting with retirement planning, investment management, tax optimization, or all of the above? Be specific about what you expect.
  2. Fees and Compensation: Outline the compensation structure, including all fees, charges, and expenses associated with the services. Ensure there are no hidden fees or surprises down the road.
  3. Fiduciary Duty: If applicable, state that your advisor has a fiduciary duty to act in your best interest. This legally binds them to prioritize your financial well-being.
  4. Conflicts of Interest: Address how conflicts of interest will be managed, especially if your advisor earns commissions or has any potential conflicts in recommending certain financial products.
  5. Client Responsibilities: Clearly outline your responsibilities as a client, such as providing accurate financial information, promptly informing the advisor of any changes, and adhering to agreed-upon investment strategies.
  6. Performance Metrics: Define how success will be measured and what benchmarks or goals you're working towards. This could include investment returns, portfolio growth, or specific financial milestones.
  7. Communication Expectations: Reiterate the frequency and preferred methods of communication as discussed in Step 7. Ensure both parties are comfortable with the communication plan.
  8. Termination Clause: Specify the conditions under which either party can terminate the agreement. This provides an exit strategy if the relationship no longer serves your needs.
  9. Dispute Resolution: Outline how disputes or disagreements will be resolved, whether through mediation, arbitration, or other means.
  10. Confidentiality: Include provisions for maintaining the confidentiality of your financial information and any disclosures made during the advisory relationship.


Why It's Worth the Effort

Think of the written agreement as the insurance policy for your financial partnership. It sets expectations, protects your interests, and provides a clear path forward. Having everything in writing ensures that there are no misunderstandings or disputes down the road.

Plus, it shows that your advisor is committed to transparency and professionalism. A reputable financial advisor should be willing to formalize the relationship in writing, and it's a positive sign if they proactively offer to do so.

Before signing on the dotted line:

  1. Take your time to read and understand the agreement fully.
  2. If there's anything you're unsure about, don't hesitate to seek legal or professional advice.
  3. Once you're satisfied, sign the agreement, and you'll be well on your way to a structured and secure financial partnership.


Step 8: Monitor Progress and Be Engaged

Hiring a financial advisor is not a "set it and forget it" endeavor. It's more like a partnership where you and your advisor play essential roles.

Your involvement ensures that your financial plan stays aligned with your goals, adjusts to life changes, and responds to market conditions. 

Monitoring progress is about staying engaged and actively working towards your financial aspirations.


How to Stay Engaged and Monitor Progress

  1. Regular Check-Ins: Continue with the communication plan you established with your advisor (as discussed in Step 7). Regularly scheduled meetings or updates will help you stay informed about your financial progress.
  2. Review Your Goals: Periodically revisit your financial goals. Life changes and your goals may evolve. Discuss any adjustments or new objectives with your advisor to keep your plan current.
  3. Ask Questions: Don't be afraid to ask questions or seek clarification about your financial plan or investment strategies. Your advisor is there to provide guidance and address your concerns.
  4. Review Statements: Examine your financial statements, investment portfolios, and reports provided by your advisor. Understand the performance of your investments and whether they align with your goals.
  5. Budget and Spending: Keep an eye on your budget and spending habits. Are you staying on track with your financial plan? If not, discuss potential adjustments with your advisor.
  6. Life Changes: Inform your advisor promptly of any significant life changes, such as marriage, the birth of a child, a job change, or an inheritance. These events can impact your financial plan.
  7. Tax Planning: Work with your advisor on strategies to optimize your tax situation. This can potentially save you money in the long run.
  8. Stay Informed: Continue to educate yourself about financial topics. While your advisor is an expert, having a basic understanding of financial principles empowers you to make informed decisions.


The Benefits of Active Engagement

Staying engaged in your financial journey offers several advantages:

  • Alignment with Goals: Regular check-ins ensure that your financial plan aligns with your evolving goals and circumstances.
  • Confidence and Peace of Mind: Active participation helps you understand and have confidence in your financial decisions, reducing anxiety about your financial future.
  • Risk Management: Monitoring progress allows you and your advisor to adjust strategies in response to market fluctuations and economic changes.
  • Proactive Problem-Solving: Early detection of potential issues enables proactive problem-solving, minimizing the impact of financial setbacks.

Remember, your financial advisor is your partner, not a solitary decision-maker. By actively participating and staying engaged, you can maximize the benefits of the advisory relationship and work together to achieve your financial aspirations.

Your financial journey is an ongoing one, and with your advisor's expertise and your commitment, you can navigate it successfully.


The Bottom Line

Choosing the right financial advisor is a significant decision that can profoundly impact your financial future. Following these eight steps, you'll be well-prepared to find an advisor who aligns with your goals, preferences, and values.

Remember, it's not just about finding an advisor; it's about building a trusting and collaborative partnership that sets you on the path to financial success.

So, take your time, ask questions, and stay actively engaged in your financial journey. With the right advisor by your side and your commitment to monitoring progress, you'll be better equipped to navigate the twists and turns of the financial road ahead. Happy financial planning!


Back to Blog

Related Articles

How to Avoid Bankruptcy In 6 Simple Steps

Debt is one of the most widespread issues today in the US. Many people owe money that they can’t...

7 Step Guide for Creating a Family Budget That Actually Works

Managing a household involves providing for every family member’s needs, paying for unexpected...

A 13-Step Guide on How to Automate Your Finances

Automating your finances says that you are willing to embrace leadership over your money and...