A woman wearing glasses searches for a book on a shelf.
Investing strategies

How to choose a financial advisor

Explore different types of financial advice and learn how to choose a financial advisor for your situation.
8 minute read
June 30, 2023
Investing strategies
Choosing advice

So, you’ve decided you need help managing your financial life. Now what?

The good news: You have a lot of options for obtaining financial advice. The bad news: You have a lot of options for obtaining financial advice. With so many choices, it's important to make an informed decision when determining the financial advice that's right for you.

What's a financial advisor?

A financial advisor is a person or digital-based program that helps you manage—or in some cases, completely manages—your finances.

Financial advice can help you reach your goals by assisting with investment management, creating a budget, or offering tax help. With various services to choose from, selecting an advisor can feel overwhelming. But learning more can help you narrow your options and feel more confident about your selection.   

Assess your financial goals

Before you start your search, assess your goals and needs. Do you have a single goal, like retirement? Or are you balancing multiple goals like saving for a child's education, buying a home, or paying off student loan debt? Are you looking for a onetime conversation or ongoing advice and wealth management?

Figuring out the complexity of your financial situation will help determine the level and sophistication of the financial services you need. For example, if you need help investing an inheritance, a onetime meeting with an advisor might be sufficient. But if you're balancing multiple goals and don't have the time to manage your money, you could benefit from ongoing advice.

Start your search for a financial advisor

First, figure out what type of financial advisor fits your lifestyle. You may feel most comfortable talking things over with a human financial advisor. Or you might prefer doing everything online, in which case a robo-advisor could be a good fit. Maybe a combination of the 2 works best for you—handling most things online but talking to a financial advisor when you have a question. You need to be comfortable with your choice, so personal preference should play a role in your search and evaluation process.

Next, start searching for advice that meets your needs. Determine which of the following you need help with:

  • Investment advice.
  • Budget creation.
  • Savings goals.
  • Tax planning.
  • Estate planning.

Getting input from family, friends, and coworkers can help, but remember: They might not fully understand your situation or know the qualifications of the advisors they're recommending, so it's best to do some research on your own. 

Check the credentials of any financial professional

Visit websites and make phone calls to learn more about the qualifications of the advisors you're considering. The term "financial advisor" doesn't reflect any specific credentials, so learn what professional certifications and designations the advisors you're researching hold. Also, make sure they're fiduciaries, which means they're legally required to always act in their clients' best interests. Check out the tools of professional organizations like Certified Financial Planner Board of Standards, Inc., the Financial Planning Association, or the National Association of Personal Financial Advisors.

If you're looking at robo-advisors or hybrid services, make sure they're connected with a brokerage firm, bank, or insurance company. Some of the questions you might want answers to include:

  • How much does the firm manage?
  • Is it credible, stable, and trustworthy?
  • What's its ownership structure?

The Financial Industry Regulatory Authority (FINRA) lists professional and accredited designations on its website. Two of the most common are:

  • Certified Financial Planner™ (CFP®) professionals. CFPs are required to hold a college degree, complete coursework, pass an exam, and adhere to prescribed ethical standards.
  • Registered Investment Advisors (RIAs). RIAs are individuals (or companies) who serve in an advice capacity. RIAs who manage more than $110 million are regulated by the SEC; state regulators oversee advisors who manage up to $100 million. You can do a background check on both SEC- and state-registered investment advisors by using FINRA's BrokerCheck.

If you want your advisor to be able to buy and sell securities and execute transactions on your behalf, you'll need to give them discretionary control over your account. If you want to control trading decisions, then you'll want a nondiscretionary account.

Dig into the details of their financial products

Once you find a financial advisor who can provide what you're looking for, be sure to check the following:

Investment strategies
Learn about the investments the advisor recommends and ask for a sample portfolio. It should primarily include low-cost, broadly diversified funds and ETFs (exchange-traded funds) balanced between domestic and international stocks and bonds. Also, find out if you'll receive advice on outside assets, like a 401(k) plan or another employer-sponsored plan.

Look at past performance as well. See if the advisor's recommended portfolio has produced competitive results versus a relevant benchmark over the long term. You'll want to know how the advisor will show progress in reaching your identified goals. They should be able to explain the accompanying risks of the recommended portfolio and individual component funds. Be wary of advisors who claim to have market-beating returns or boast about their ability to pick winning stocks and bonds.

Cost and compensation
Make sure the fund and ETF expense ratios are reasonable. You'll also want to find out how the advisor is compensated. A reputable advisor will be transparent and candid when discussing fees and compensation. If your advisor's registered to provide both advice and brokerage services, they may charge you an asset-based fee in addition to the commissions and expense ratio. It's worth knowing if your advisor is being paid to sell you specific funds.

Fee-only advisors
are compensated directly by their clients for their services. Typically, fee-only advisors charge on an hourly basis, a flat fee per plan, or a retainer, but some offer subscription payment models.

Fee-based advisors
charge a fee based on the percentage of assets managed on behalf of the client. These fees generally range from 0.25% of assets (i.e., $250 on a $100,000 investment) to 1.5% or more (i.e., $1,500 on a $100,000 investment). Advisor compensation will vary. Some advisors are salaried, while others may be compensated as a percentage of the assets managed.

Knowledge is power

You've worked hard for your money, so it's important to do your research before choosing a financial advisor. The more you know, the better equipped you'll be to select advice to help you meet your goals and secure your financial future. Advice that's right for you.

Ready to start your search for a financial advisor with Vanguard?

Most Viewed

Ready to invest? See how to open an account
Start with this step-by-step guide to opening a personal investment account, such as a general investing brokerage account or an IRA.
Backdoor Roth IRA What it is and how to set it up
If you are a high-income earner, a Backdoor Roth IRA may be a good retirement investment option for you. Learn what it is and how to set up this type of retirement plan.
Who owns Vanguard?
Who owns Vanguard? Learn why we're proud to be the only investor-owned investment management company and how we focus on putting investor needs first.
Are bonds a good investment right now?
Learn how high-quality bonds can play a valuable role in your portfolio in a high-yield environment.
Top 6 tips: Your year-end financial checklist
Discover our new international fund

All investing is subject to risk, including the possible loss of the money you invest.

Diversification does not ensure a profit or protect against a loss.

You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free online) or through another broker (who may charge commissions). See the Vanguard Brokerage Services Commission and Fee Schedules for limits. Vanguard ETF Shares are not redeemable directly with the issuing Fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and Certified Financial Planner™ in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.