Choosing a Financial Advisor
A financial advisor can help you work through a retirement decision, invest an inheritance, or plan for several competing goals. Start by deciding what you want help with. That will make it easier to compare services and costs.
Decide what help you need
You may want a one-time review of a plan you've already built. Or you may want someone to manage investments and review your progress regularly. Ask which services the advisor offers and whether there is a minimum account size or fee.
Find out what you will receive, who puts the recommendations into effect, and whether future reviews are included. A written plan does not necessarily include ongoing investment management or tax-return preparation. If the advice involves taxes or estate planning, clarify how the advisor will coordinate with your accountant or attorney.
Check the person and the firm
The term financial advisor covers people working in different roles. Ask whether the person and firm will be acting as an investment adviser, a broker, or both. Check their registration and disciplinary history, along with their experience and credentials. The SEC's investment-adviser guide explains how to check registration. A professional designation alone does not establish that someone is registered to provide investment advice.
Investment advisers must act in their clients' best interests. Brokers have a best-interest obligation when they make recommendations covered by Regulation Best Interest. The same professional may offer both brokerage and advisory accounts, so ask which relationship applies to you. Conflicts can exist under either arrangement.
Compare the total cost
Ask separately how the individual is paid and how the firm is paid. An employee's salary does not tell you the full cost of an account. Commissions, advisory fees, and investment expenses can apply together.
| Cost | What to ask |
|---|---|
| Hourly or flat planning fee | What work is included? Will updates cost extra? |
| Fee based on managed assets | Which assets count toward the fee? Is there a minimum charge? |
| Commissions or transaction charges | What will I pay when I buy or sell? Does the recommendation affect your compensation? |
| Fund and other investment expenses | What costs will I pay in addition to your firm's fee? |
Ask for an explanation of the expected total annual cost in dollars, including investment expenses. Also ask whether the advisor receives more for recommending certain products. The SEC's guide to investment fees explains common charges. No fee arrangement guarantees better results or that the advice will pay for itself.
Read the agreement
For firms required to provide it, Form CRS is a short relationship summary covering services, fees, conflicts, and reportable disciplinary history. SEC-registered investment advisers and brokers serving retail investors are generally subject to this requirement; it does not apply to every state-only adviser.
Read the summary alongside the agreement and fee schedule. Before hiring someone, get clear answers to these questions:
- How often will you review my account or plan, and what happens between reviews?
- Can you trade in my account without asking me first?
- Who will answer my questions, and how can I reach them?
- What happens if I end the relationship, including any fees or restrictions?