Lifestyle
It can be nerve-wracking to find and hire a financial advisor. Knowing which questions to ask and the specific kind of advisor you need for your assets is the key to finding one that will help you build wealth and prepare for the future.
C.E Larusso
Published March 16th, 2023
C.E Larusso
•
Published March 16th, 2023
Table of Contents
Key Takeaways
Some advisors focus on one particular area—such as taxes or estate planning—while others can help with a broad picture of your assets and how to better invest and save.
Determining the type of financial advisor that is best for your situation comes down to your particular financial goals and the size of your assets-under-management (AUM).
Understand which core services you need from a financial advisor and how to find the right advisor for you.
It can be nerve-wracking to find and hire a financial advisor—you want to be sure you’re picking someone who has the right experience, education, and knows what to do with your money, paying close attention to special needs and requests. Knowing which questions to ask and the specific kind of advisor you need for your assets is the key to finding one that will help you build wealth and prepare for the future.
Determine Which Kind of Financial Advice You Need
Some advisors focus on one particular area—such as taxes or estate planning—while others can help with a broad picture of your assets and how to better invest and save. It’s important, before you begin your search, to identify what kind of advice you need help with so you look for the right kind of advisor for the task.
If you only have a small amount of savings, and are simply looking to start investing to build wealth, a robo-advisor may be all you need.
Those looking for a holistic understanding of their finances and where they wish to go might be best off with a financial planner. Planners can assist with creating a roadmap for managing your finances and planning for retirement and other major milestones.
Brokers and investment advisors are more focused on investments.
More examples of advice you might seek include:
- Retirement planning specialists focusing on creating reliable retirement income
- Estate planners to determine how best to divvy your estate amongst beneficiaries
- Wealth planners to assist with managing assets that exceed $1 million
There are also planners that focus on major life events, such as divorce, buying or selling a business, or the death of a spouse. You’ll want to be upfront with the advisors you speak to about what your goals and expectations are, so everyone is on the same page.
Figure Out Which Type of Financial Advisor Works for You
Determining the type of financial advisor that is best for your situation comes down to your particular financial goals and the size of your assets-under-management (AUM).
Fee-Only Financial Advisors
Fee-only financial advisors do not receive commission. They act with fiduciary responsibility; in other words, they must act in your best interest. Fee-only advisors can get paid hourly, off a percentage based on your assets-under-management, or via a flat fee.
Financial Advisors Who Earn Commissions
Some advisors make money via kickbacks or commissions from the products they sell you, but you aren’t responsible for paying these; brokers and dealers compensate advisors whenever they sell certain mutual funds or other securities. These advisors do not have a fiduciary responsibility, and this can create a conflict of interest in that they may be inclined to sell you products that earn them money, whether or not these products are right for you.
Registered Investment Advisers
Registered investment advisors are clued into the market and can craft an investment plan for you. Typically, they get paid a fee in exchange for their advice about specific securities. An RIA, Registered Investment Adviser denotes someone who is legally registered to do this kind of work, through the Securities and Exchange Commission.
Robo-Advisors
As their name suggests, robo-advisors are computer-based advisors, often investing your money with the help of an algorithm. You won’t meet with a person face-to-face when you enlist the service of a robo-advisor; instead, you enter your data (and money) through a website or app, which then invests on your behalf.
Choose Which Services You Want
As mentioned, advisors offer a range of services, depending on their specialities. While some advisors can offer help across a range of services, others may specialize in certain areas. In general, look for an advisor that can handle these key areas:
- General budgeting: Advisors can look at your take-home pay and figure out how much you should spend and where.
- Investment advice: Learn which investments would be wise for you, given the level of risk you are comfortable with.
- Debt: Between credit cards, student loans, car loans, and home mortgages, advisors can help you figure out how to get out of debt faster.
- Insurance: Advisors can advise on different insurance products (disability, long-term care, etc.) to ensure you’re completely covered.
- Taxes: Advice on taxes should help you maximize your deductions.
- Estate planning: If you have beneficiaries, an advisor can help you set up your estate so they are the proper heirs.
- Saving for specific goals: Whether you wish to save up to pay for your child’s college tuition or for a new home, an advisor can guide you on the path to get there.
Be upfront with any advisors you interview about your goals and the services you’re after; you should learn whether or not they have experience in that area, and how they think they can help you. 4. Determine Which Type of Advisor You Can Afford Because different advisors have different fee plans, you’ll need to find an advisor that both works for your current financial situation and your goals, and in addition, is changing a fee you can afford.
On many occasions, an hourly fee or flat rate/per plan fee can be a less expensive option if you just need advice on one particular topic, such as debt reduction. A robo-advisor is the least expensive option, usually only costing 0.25%-0.5% of the assets under management, however these tools are usually only good options if you’re just starting to build wealth and don’t need comprehensive advice.
The average fees, by type, look like this:
| Financial Advisor Fee Type | Average Cost |
|---|---|
| Assets under management (AUM) | 1.0% (0.25%-0.5% for robo-advisors) |
| Hourly fee | $250 |
| Per plan | $2,300 |
| Retainer | $5,500 |
Questions to Ask Financial Advisors
Once you have a short list of advisors to potentially hire, make sure to ask them these questions to get a better understanding of their background and plan for your assets.
What are your credentials?
There are many credentials available to financial advisors, such as Chartered Financial Advisor (CFA®) and Certified Financial Planner (CFP®). These examples, for instance, require the holders to act as fiduciaries. Typically earning these credentials means completing courses of study, passing comprehensive exams, and agreeing to stick to a code of ethics. You can confirm and verify an advisor’s credentials at the CFA Institute’s site or the CFP Board’s site.
Here is a list of some of the most common designations advisors can have:
- Certified Financial Planner (CFP®)
- Chartered Financial Analyst (CFA®)
- Certified Fund Specialist (CFS)
- Chartered Financial Consultant (ChFC)
- Certified Investment Management Analyst (CIMA)
Each of these designations require different sets of experience and exams. Some of these designations require the advisor to also commit to following a specific ethics protocol.
How do you get paid?
Advisors get paid in various ways: sometimes via a flat rate, sometimes from a commission after selling a product. You should always ask how an advisor gets paid so you can understand their incentives—someone who makes a bonus on selling investments might be overly eager to sell you investments, whether or not that is something you need or want.
- Hourly rate: You only pay for the time you spend working with your advisor. Rates range from $100 to $400, on average.
- Flat fee: Advisors who collect flat fees either charge by project (saving enough for a down payment, for instance, or helping to reduce debt) or based on a percentage of your assets under management (e.g. 1% of the $100,000 worth of assets would be $1,000).
- Commission-based: Some advisors are commission-based, meaning they each bonuses or kickbacks on some products they sell to you.
- Retainer: A few advisors work off of monthly, quarterly, or annual retainers.
Are you a fee-only advisor?
Remember that a fee-only advisor should carry designations such as registered investment advisor (RIA) or investment advisor representative (IAR). They are extremely knowledgeable in their field (the education and tests to earn these designations are no walk in the park) and will act with a fiduciary responsibility, putting your best interest above their own.
How will we communicate?
Set up communication expectations before you hire an advisor. You want to be sure they can be there when you need them, and that their availability will work for your schedule. You should determine if meetings will be in-person or virtual, how frequent the meetings will be, and who will be in charge whenever the advisor is on vacation or otherwise unable to work (such as due to sickness).
Is my situation similar to that of your other clients?
You want to ensure that the advisor has worked with clients like you. If the advisor mostly handles those who are just starting to build wealth, they might not be prepared to help you plan for retirement. In addition, some advisors may understand how to invest in real estate or other specific investments, and you should ask about these specialties.
How do you come to investment recommendations?
A trained advisor should need a fair amount of information before making investment recommendations to you—they need to understand your financial picture, your goals, and your risk profile. Asking this question allows you to see the ways in which they assess this information and make recommendations.
Frequently Asked Questions
How much should you pay in fees to a financial advisor?
Advisors who charge a percentage of the AUM (assets under management) should be charging about 1% annually. Sometimes, this percentage goes down if you have a certain amount of wealth to manage, but that amount is usually over $1 million. Hourly fees rarely surpass $300 per hour, and flat fees per project or plan can vary depending on the complexity, though the average is $2,300. Some advisors will charge in various ways for different services, so be sure to ask a lot of questions upfront about how they get paid and what they would charge for the services you’re asking for.
Do banks offer free financial advice?
Your bank may have some free resources and tools, such as apps for money management, automated bill pay options, and online educational hubs, but these tools are not replacements for the detailed work of a trained financial advisor. That said, some banks do have financial advisors available for hire, and may offer you a discount as a member.
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A professional content writer, C.E. Larusso has written about all things home, finance, family, and wellness for a variety of publications, including Angi, HomeLight, Noodle, and Mimi. She is based in Los Angeles.
Share this advice
A professional content writer, C.E. Larusso has written about all things home, finance, family, and wellness for a variety of publications, including Angi, HomeLight, Noodle, and Mimi. She is based in Los Angeles.
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