To choose a financial advisor, first decide what help you need, then compare how each candidate is paid and what legal duty they owe you. Check their record on FINRA BrokerCheck and the SEC's adviser search, read their Form CRS, and interview at least two or three people before signing anything.
Maybe you inherited money, sold a business, or simply reached the point where a spreadsheet and a few index funds no longer feel like enough. Every bank, insurer and brokerage seems to offer "financial advice," and the titles blur together. The good news is that the public records and disclosure forms you need to compare advisors are free, and checking them takes less than an hour.
What kind of financial advisor do you need?
Start with the job, not the person. The right advisor for a one-time retirement plan is different from the right one for managing a seven-figure portfolio.
Ongoing portfolio management
An investment adviser who monitors your accounts and makes changes over time. This is usually paid as a percentage of assets.
A one-time or annual plan
A planner who builds a written financial plan (budget, retirement, insurance, taxes, estate) for a flat or hourly fee. You carry out the plan yourself.
Help buying specific products
A broker who executes trades or recommends particular investments, usually paid per transaction. Useful if you mostly buy and hold.
Automated investing
A robo-advisor that builds and rebalances a portfolio with software. Low cost, but limited help with complex situations such as business sales or estate questions.
Broker or investment adviser: what is the difference?
The two main types of firm differ in what they do and how they charge. The SEC's Form CRS guide on Investor.gov describes brokers as "generally more transactional and time-specific" and advisers as "more focused on your portfolio or account over time." Many firms are dual registrants and offer both, so ask which role a person is acting in when they make a recommendation.
| Broker-dealer | Registered investment adviser | |
|---|---|---|
| Typical service | Executes trades, recommends specific investments | Ongoing advice and monitoring, may manage accounts |
| Typical pay | Commission or markup per transaction | Ongoing fee based on account value, or flat fee |
| Where to check | FINRA BrokerCheck | SEC Investment Adviser Public Disclosure (IAPD) |
| Key disclosure document | Form CRS | Form CRS and Form ADV Part 2 brochure |
How are financial advisors paid?
Pay structure shapes incentives, so ask about it directly. A worked example shows why it matters.
Suppose you have $500,000 to invest and plan to hold it for years:
- Asset-based fee of 1% a year: about $5,000 a year, rising as the account grows. You get ongoing management.
- Flat-fee planner at $3,000 a year: the same cost whether you have $500,000 or $2 million, but you may do the trading yourself.
- Commissions: you pay when you buy or sell. Investor.gov notes that a transaction-based fee may cost less "if you do not trade often," but watch for frequent recommendations to switch products.
None of these is automatically better. What matters is that you can name every fee you will pay, including fund expenses and any product commissions, in dollars per year.
How do you check a financial advisor's background?
Two free databases cover almost every licensed professional.
FINRA BrokerCheck
BrokerCheck shows employment history, licenses held, and disclosures such as customer complaints, regulatory actions and arbitrations. According to FINRA, reports are free and the advisor is not told that you searched. FINRA also notes what BrokerCheck leaves out, including customer complaints that do not allege sales practice violations, fraud or theft, and some misdemeanors.
SEC investment adviser search
Investor.gov's "Check Out Your Investment Professional" tool searches the SEC's adviser records. If you see the words "Disclosure Reported," the person or firm has disciplinary history worth reading in full. For advisory firms, the Form ADV Part 2 brochure lists fees, conflicts and disciplinary information in plain language.
Also call your state securities regulator. Smaller advisers register with the state rather than the SEC.
What questions should you ask before hiring an advisor?
Bring the same list to every interview so the answers are comparable.
- Are you acting as a broker, an investment adviser or both when you work with me?
- Are you a fiduciary at all times on all of my accounts?
- How exactly are you paid, and what will I pay in total, in dollars, in the first year?
- Do you earn anything extra if I buy a particular product?
- Who holds my money? (It should be an independent custodian, not the advisor.)
- What does your Form CRS say about conflicts of interest and disciplinary history?
- How often will we meet, and what reports will I get?
What are the red flags when choosing a financial advisor?
Walk away, or slow down a lot, if you see any of these.
- Pressure to decide quickly or to move all your money at once.
- Promises of high returns with little or no risk. Our guide on how to spot investment fraud explains why that pairing is the classic warning sign.
- Reluctance to put fees in writing.
- Checks made out to the advisor personally instead of a custodian.
- A clean story in person but a long list of disclosures on BrokerCheck.
If an advisor recommends private investments, ask how they verify the issuer and whether you meet the accredited investor tests that most private offerings require.
Frequently asked questions
Is a fee-only financial advisor better than one paid by commission?
Not automatically. Fee-only advisors avoid product commissions, which removes one conflict, but an ongoing asset-based fee can cost more if you rarely need changes. Compare total yearly cost and the legal standard each one owes you.
Will a financial advisor know if I look them up on BrokerCheck?
No. FINRA says neither individuals nor firms are told when someone searches for them or requests a BrokerCheck report.
What is Form CRS?
Form CRS is a short relationship summary that brokers and investment advisers must give retail investors. It covers services, fees, conflicts of interest, the standard of conduct and any legal or disciplinary history, using the same headings at every firm so you can compare them.
How many financial advisors should I interview?
Interviewing two or three gives you a sense of typical fees and service. Use the same questions with each so you can compare answers side by side.
Related: What is an accredited investor? · How to spot investment fraud · What is a private placement?