7 Secrets Smart Professionals Use to Choose Financial Advisors (2024)

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Helping people make smart financial decisions

I N T H E P R E S S :

Choosing a financial advisor is a major life decision that can determine your financial trajectory for years to come.

A 2020 Northwestern Mutual study found that 71% of U.S. adults admit their financial planning needs improvement. However, only 29% of Americans work with a financial advisor.¹

The value of working with a financial advisor varies by person and advisors are legally prohibited from promising returns, but research suggests people who work with a financial advisor feel more at ease about their finances and could end up with about 15% more money to spend in retirement.²

Consider this example: A recent Vanguard study found that, on average, a hypothetical $500K investment would grow to over $3.4 million under the care of an advisor over 25 years, whereas the expected value from self-management would be $1.69 million, or 50% less. In other words, an advisor-managed portfolio would average 8% annualized growth over a 25-year period, compared to 5% from a self-managed portfolio.³

SmartAsset's no-cost toolsimplifies the time-consuming process of finding a financial advisor. A short questionnaire helps match you with up to three fiduciary financial advisors that serve your area, legally bound to work in your best interest. The whole process takes just a few minutes, and in many cases you can be connected instantly with a professional for a free retirement consultation.

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Advisors are rigorously screened through our proprietary due diligence process.

Being aware of these seven secrets when choosing an advisor can help you find peace of mind, and potentially avoid years of stress.

Always Hire an Advisor Who Is a Fiduciary

By definition, a fiduciary is an individual who is ethically bound to act in another person’s best interest. Fiduciary financial advisors must avoid conflicts of interest and disclose any potential conflicts of interest to clients.

All of the financial advisors on SmartAsset’s matching platform are registered fiduciaries. If your advisor is not a fiduciary and constantly pushes investment products on you,use this no-cost tool to find an advisorwho has your best interest in mind.

Don't Hire the First Advisor You Meet

While it’s tempting to hire the advisor closest to home or the first advisor in the yellow pages, this decision requires more time. Take the time to interview at least a few advisors before picking the best match for you.

Don't Choose an Advisor with the Wrong Specialty

Some financial advisorsspecialize in retirement planning, while others are best for business owners or those with a high net worth. Some might be best for young professionals starting a family. Be sure to understand an advisor’s strengths and weaknesses - before signing the dotted line.

Don't Pick an Advisor With an Incompatible Strategy

Each advisor has a unique strategy. Some advisors may suggest aggressive investments, while others are more conservative. If you prefer to go all in on stocks, an advisor that prefers bonds and index funds is not a great match for your style.

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Always Ask About Credentials

To give investment advice,financial advisorsare required to pass a test. Ask your advisor about their licenses, tests, and credentials. Financial advisors tests include the Series 7, and Series 66 or Series 65. Some advisors go a step further and become a Certified Financial Planner, or CFP.

Understand How They are Paid

Some advisors are "fee only" and charge you a flat rate no matter what. Others charge a percentage of your assets under management. Some advisors are paid commissions by mutual funds, a serious conflict of interest. If the advisor earns more by ignoring your best interests, do not hire them.

Hire a Vetted Advisor

Chances are, there are several highly qualified financial advisors in your town. However, it can seem daunting to choose one.

Our no-cost tool helps make it easy tofind qualified financial advisors who serve your area. Now you can get matched with up to three fiduciary investment advisors that are vetted and subject to our due diligence criteria. The entire matching process takes just a few minutes.

Click Your State to Get Matched With Financial Advisors Who Serve Your Area

After you choose your state and answer a few questions, you can compare up to three advisors that serve your area and decide which to work with.

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This is not an offer to buy or sell any security or interest. All investing involves risk, including loss of principal. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns). There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest.

SmartAsset Advisors, LLC (“SmartAsset”), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. Securities and Exchange Commission as an investment adviser. SmartAsset’s services are limited to referring users to third party registered investment advisers and/or investment adviser representatives (“RIA/IARs”) that have elected to participate in our matching platform based on information gathered from users through our online questionnaire. SmartAsset does not review the ongoing performance of any RIA/IAR, participate in the management of any user’s account by an RIA/IAR or provide advice regarding specific investments.

We do not manage client funds or hold custody of assets, we help users connect with relevant financial advisors.

Other than application and licensing fees, SmartAsset did not provide compensation for the aforementioned awards.

Sources:
1.“Planning and Progress”, Northwestern Mutual (April 2020)
2.Journal of Retirement Study Winter (2020) . The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of your future results. Please follow the link to see the methodologies employed in theJournal of Retirement study.
3. Vanguard (Feb. 2019), Putting a Value on Your Value The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of your future results. Please follow the link to see the methodologies employed in theVanguard whitepaper.

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7 Secrets Smart Professionals Use to Choose Financial Advisors (2024)

FAQs

What to look out for when choosing a financial advisor? ›

Choosing the right advisor depends on what help you need. If you need specialized advice, look for an advisor with expertise in that area. Meet with several potential advisors. Choose one that you're confident has the experience, expertise and credentials to help you reach your financial goals.

Read On ›

What is the best type of financial advisor to have? ›

Certified financial planner

Financial advisors who are CFPs have met the rigorous training and experience requirements of the CFP Board, have passed the certification exam and are held to high ethical standards. CFPs have a fiduciary duty to their clients.

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How do you know if a financial advisor is good? ›

An advisor who believes in having a long-term relationship with you—and not merely a series of commission-generating transactions—can be considered trustworthy. Ask for referrals and then run a background check on the advisors that you narrow down such as from FINRA's free BrokerCheck service.

What is the most important attribute when selecting a financial advisor? ›

In one of the articles I've read in the finance strategists website, the key qualities of a financial advisor include trustworthiness, expertise, effective communication, adaptability, and a client-centric approach.

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At what net worth should I get a financial advisor? ›

Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.

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How much money should you have before seeing a financial advisor? ›

Some traditional financial advisors have minimum investment amounts they require to work with clients. These can range from $20,000 to $500,000 or even more.

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What is better than a financial advisor? ›

What is a financial planner? A financial planner generally takes a more comprehensive, long-term approach to money management. While they often hold the same licenses and carry out the same functions as financial advisors, financial planners tend to focus on creating personalized and holistic plans for clients.

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How to know if a financial advisor is fiduciary? ›

1 – Ask them directly: A genuine fiduciary will straightforwardly affirm their role and commitment to act in your best interests. 2 – Review the advisor's credentials: Certifications such as CFP® (Certified Financial Planner) or AIF® (Accredited Investment Fiduciary) often indicate a fiduciary standard.

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At what point is it worth getting a financial advisor? ›

Consider hiring an advisor if your finances are complex or you experience a major life event. Choose an advisor you feel comfortable with and whose expertise aligns with your needs.

Should you put all your money with one financial advisor? ›

Each individual has unique financial needs and goals and even if you belong to the same income and age group, it does not mean you have to copy them and hire multiple advisors. If you want more people to handle your finances, first assess if your portfolio size warrants that or not.

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Which is the most important thing to look for when searching for a financial advisor? ›

“The certified financial planner designation is really the gold standard in the financial planning industry,” says Van Voorhis. A CFP designation indicates a financial advisor has passed rigorous industry exams covering real estate, investment and insurance planning, and has years of experience in their field.

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Who is the ideal candidate for a financial advisor? ›

Meanwhile, you must have a deep understanding of the markets, analytical skills and training, and a passion for finance. Soft skills are as critical as hard skills, like investing skills and market timing. Successful advisors are more than good with numbers.

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What personality type is best for a financial advisor? ›

INTJs are introverted intuitives who prefer roles that require them to think theoretically, making financial advisor, economist, and financial executive the best roles for this type. INTJs are creative perfectionists and enjoy doing things their ways.

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What percentage should a financial advisor get? ›

Percentage of Assets

Another common way financial advisors charge clients is based on a percentage of the assets they manage for you. These percentages average around 1% per year (or 0.25% to 0.5% for robo-advisors).

What is the difference between a financial planner and a financial advisor? ›

Generally speaking, financial planners address and keep tabs on multiple areas of their clients' finances. They develop long-term, strategic plans in these areas and update them on a regular basis over the years. Financial advisors tend to focus on specific transactions and short-term situations.