When it comes to managing your money, the decisions you make today can have a lasting impact on your future. Whether you’re planning for retirement, navigating a major life event or simply looking to grow your wealth, hiring a financial advisor can be a smart move. However, not all advisors are created equal, and choosing the wrong one could cost you more than just fees.
Before committing, know what financial advisors do and what qualities to seek. This guide will cover all you need to know. It will help you find an advisor who matches your specific financial goals.
What Does a Financial Advisor Do?
Money is a significant part of our lives, and yet, many households struggle to manage it effectively. According to a report by the World Economic Forum, approximately 50% of Americans lack financial literacy. Unfortunately, many basic financial concepts (such as taxes) aren’t taught properly in schools, resulting in an education gap.
If you’re struggling to understand your finances, a financial advisor can offer assistance. Put simply, these professionals help individuals and families make informed financial decisions. While specific services can vary, many provide guidance in the following areas:
- Investment management
- Retirement planning
- Budgeting and cash flow management
- Tax planning
- Insurance and risk management
- Estate planning
Ultimately, the purpose of a financial advisor is to help you make smart, strategic decisions that align with your personal, long-term goals.
Top Five Factors to Consider When Hiring a Financial Advisor
From budgeting to investments, the world of finance can be complex and difficult to understand. Fortunately, you don’t have to navigate it alone. Financial advisors bring in-depth expertise and knowledge about the field, helping you make decisions that support your long-term financial well-being.
Of course, as with any service, it’s essential to select the right person. Here are five factors to consider when hiring a financial advisor.
1) Define Your Financial Goals
Before you start researching financial advisors, take some time to consider what your personal financial goals are. Do you need help planning for retirement? Do you want to improve your business’s tax strategy? Are you trying to reduce your debt? Or, are there multiple financial goals that you’re trying to achieve? By carefully identifying your needs, you can find an advisor who is trained to meet them.
2) Select a Type of Financial Advisor
When you think of a “financial advisor,” most people’s minds jump to a suited Wall Street professional. In reality, there are different types of financial advisory services:
- Robo-advisors: As the name suggests, robo-advisors are digital advisors that use artificial intelligence to provide advice. They’re more affordable than hiring an actual human but offer less extensive services. They’re best if you’re looking for minor assistance with things like investments.
- Online financial advisors: This service provides virtual access to human financial advisors. It’s more expensive than robo-advisors but less expensive than in-person services.
- Traditional financial advisors: Traditional advisors can meet with you in person or communicate online. Although they’re the most costly option, they also offer the most advanced services.
Consider which option works best for your budget and needs. Keep in mind that online and traditional financial advisors may require you to have a minimum amount of money in assets.
3) Look for Reputable Credentials
Just because someone calls themselves a financial advisor doesn’t mean they’re actually a professional in the field. To ensure an advisor is knowledgeable, check for one of the following credentials:
- Certified financial planner (CFP): Professionals who hold the CFP credential have completed rigorous coursework, passed a comprehensive exam and agreed to follow a fiduciary standard. This means that they have a legal obligation to put your needs and interests before their own.
- Registered investment advisor (RIA): An RIA is known as an individual or organization that provides personalized financial services. Like CFPs, they’re legally bound by fiduciary duty. They must also register with either the U.S. Securities and Exchange Commission (SEC) or state regulatory agencies.
Most financial advisors will have their credentials available on their websites.
4) Consider the Payment Method
In terms of payment, most financial advisors make money through one of the following means:
- Fee-only: Fee-only advisors are paid by either a pre-determined flat fee, an hourly rate or a percentage of your assets.
- Commission-based: Commission-based advisors earn money by selling certain financial products. While this offers lower upfront costs, there’s a possibility that the advisor may push certain products to earn money.
- Fee-based: This model combines elements of the fee-only and commission-based models.
Generally, it’s best to avoid commission-based advisors due to potential conflicts of interest and bias.
5) Hire Your Advisor
Now that you’ve identified your needs and done your research, the last step is actually hiring a financial advisor. For most advisors, the hiring process begins with a free consultation. This gives you the opportunity to get to know the advisor and ask any remaining questions you may have.
If you’re satisfied with the advisor and wish to proceed, they may request that you sign certain legal documents. Once you’re done, you can begin working together to build a stronger, healthier financial future.
You might also be interested in: Your Financial Guide for Every Month in 2025
