If there ever was a time that Americans needed the services of financial advisors, it is now.
Half of Americans don’t feel ready for retirement or prepared for unexpected expenses, according to a survey by Discover. Similarly, 66% of Americans face moderate to high financial anxiety, and 44% of them are in debt.
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Financial planning remains the best antidote to financial confusion, stress and anxiety. “Beyond portfolio returns, personalized advice delivers peace of mind and time back — helping investors feel more confident, supported and in control,” according to a separate survey by Vanguard.
But how do you choose a financial advisor that will best serve your needs? The most important factors to consider are below:
— Trustworthiness and reputation.
— Qualifications and expertise.
— Personalization.
— Personal connection.
— Alignment of values.
— Communication style.
— Fees.
— Takeaway.
Trustworthiness and Reputation
No one should put someone they do not trust in charge of their finances. It is no wonder, then, that trustworthiness is the most important factor Americans consider when choosing a financial advisor, according to a YouGov survey. Reputation, which is closely associated with trustworthiness, is the fourth most important factor.
You can gain insight into an advisor’s reputation by reading reviews about them on their websites and on independent sites (Wealthtender and ConsumerAffairs are examples). Reviews from customers are the preferred gauge of trustworthiness and reputation.
An even better option is to speak with someone who worked with or currently works with the advisor. Start by asking your family and friends if they have experience with the advisor or know someone who does. If you can’t find anyone, expand the search to your wider network (in the community or on social media).
Another great option is to look them up through the CFP Board’s Let’s Make a Plan website. The site provides details like previous disciplinary actions the advisor has faced and any personal or business bankruptcies they have filed.
Qualifications and Expertise
Financial advisors go through rigorous training to qualify for their roles. Thus, you can narrow down your search for a financial advisor by sorting for those with a CFP designation. You can confirm if a financial advisor has been certified by the CFP Board using its verification tool.
Some financial advisors have expertise in particular areas of financial planning (retirement planning, estate planning, tax planning, debt management, cash flow and budgeting, etc). If you are searching for advisors with specialties, then you should confirm if they have the requisite qualifications and expertise to operate in that niche area. Some professional designations in these specialties include chartered life underwriter (CLU), chartered financial analyst (CFA), chartered financial consultant (ChFC) and certified public accountant (CPA), among others.
Also, if a financial advisory firm offers comprehensive financial planning services, you should inquire about the expertise of the other professionals it works with.
Personalization
Individuals differ by financial goals, time horizon, financial situation, risk tolerance and risk capacity. Therefore, good financial advisors will find a way to provide personalized advice that is appropriate to individuals’ unique situations.
Furthermore, as Vanguard noted, personalized advice brings peace of mind and removes financial anxiety. Thus, it should be a top priority when choosing a financial advisor. Of course, every advisor will say they offer personalized advice. But don’t settle for such generic platitudes — ask for specific strategies they implement to guarantee it.
The search for personalization has led many clients to stick with niche-based advisors (those who focus on a specific type of client — doctors, lawyers, women, LGBTQ+, Christians, divorcees, etc.).
Even if you go with niche-based advisors, you should still ask how they will offer services that align with your financial goals, time horizon, risk capacity and risk tolerance.
Personal Connection
There is an emotional side to personalization. In the process of discussing your plan with a financial advisor, you should get that “they get me” feeling.
This personal connection can be the result of the advisor’s listening skills, attention to detail and empathy. Since the client-advisor relationship is, ideally, a long-term one, it is always preferable to choose someone you can connect with. However, this personal connection should not be taken to an extreme where the advisor cannot tell you the truth because they don’t want to hurt your feelings.
A good advisor will tell hard truths. But even the way those truths are said can make clients more amenable to listening and acting. In other words, look out for a good combination of empathy and truth-telling.
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Alignment of Values
Even when an advisor possesses the requisite expertise and experience, they may not be the right one for you due to values misalignment.
For example, an advisor may see impact or ESG investing as mere virtue signaling and a burden that only reduces investors’ returns. On the other hand, you may consider it a necessary part of the shift from shareholder capitalism to stakeholder capitalism.
Similarly, the advisor may uphold the superiority of passive investing over active investing, while you believe that active investing is the only game professionals should be playing.
In these two cases, there is a misalignment of values. This can cause problems down the line, especially if both parties are convinced about their viewpoints.
Communication Style
We have already seen how attention to detail, empathy and good listening skills can result in a personal connection with an advisor. But these do not exhaust what you should look for in terms of communication. A good advisor should be proactive when it comes to communication. If there are economic, legal, political or regulatory developments that will affect a client’s financial goals, an advisor should be at the forefront of explaining the impacts of such developments.
Also, when financial experts are engaged in debates that have an impact on investment management best practices, the advisor should send out communications explaining their point of view.
Good advisors should also not wait for clients to ask before sending regular updates about their portfolios. The frequency of such updates will depend on the time horizon of such customers. The most important thing is that the communication line should remain open.
So, when choosing a financial advisor, prioritize those who care enough to take initiative.
Fees
Financial advisors have different fee structures. Fee-only advisors, for example, do not receive commissions on any product they suggest, but other advisors (such as commission-based advisors) do earn commissions from financial products.
A fiduciary advisor is obligated legally and ethically to act in the best interest of their clients. Any service or product they recommend must be directed toward the clients’ benefit rather than their own. They have both a duty of care, which obliges them to make informed decisions, and loyalty, which requires them to avoid conflicts of interest, to their clients.
Since receiving commissions can skew an advisor’s recommendations, being fee-only has been considered a shorthand for being a fiduciary advisor.
CFP and RIA (registered investment advisor) certifications for financial advisors also separate fiduciary from non-fiduciary advisors.
Though fee-only advisors all eschew commissions, their fee structures vary. Some of the popular ones include:
— Percentage of assets under management (AUM). This is usually an annual payment.
— Flat or fixed fee. There is a set amount charged for every service. Unlike other structures, there is no ongoing cost.
— Retainer fee. This can be a monthly or annual fee that covers ongoing access to the advisor.
— Hourly fee. Some advisors also charge based on the hours they spend with the client.
There is no right fee structure; it all depends on what you want. If you want a one-off service, flat-fee or hourly fee advisors are appropriate. For an ongoing relationship, however, the retainer or percentage of AUM model is better.
When evaluating multiple advisors, include their fees as a consideration. However, it is better to use fees only as a deciding factor. That is, if two advisors have checked all the boxes above, and there is no way to differentiate them, the one with the cheaper fee should be selected.
This is a better approach than just sorting a list of advisors by fees and choosing the one with the lowest fee. Low fees can mean average service quality.
Takeaway
If financial advisors can be the difference between financial anxiety and well-being, then it is worth taking the time to choose one. After pruning down your list, you should schedule meetings (online or offline) with those who remain. This allows you to ask all relevant questions; it also provides the opportunity for advisors to sell themselves to you.
At the end of the process, you can be confident that you have made the best choice.
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How to Choose a Financial Advisor originally appeared on usnews.com
Update 08/14/25: This story was published at an earlier date and has been updated with new information.
