What to Know Before Hiring A Financial Advisor

If you’re tired of feeling overwhelmed by money decisions, hiring a financial advisor to cut through the chaos might be the best decision you can make. However, not all advisors are the same. Below, we’ll walk you through the key questions, red flags, and what to do before choosing someone to work with.

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Should You Hire a Financial Advisor?

You don’t need to be wealthy to work with a financial advisor. Big life changes, such as getting married, having kids, buying a home, or preparing for retirement, are good times to get help. You may also want assistance if you’re unsure about investing, taxes, or managing debt.

So, when should you consider hiring one? If your finances are getting more involved or your goals are starting to seem impossible, it could be time to hire a professional.

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What’s the Difference Between a Financial Advisor and a Financial Planner?

The terms often overlap, but they’re not always the same. A financial advisor is a broad term for anyone who gives financial advice. A financial planner typically focuses on long-term planning and may have specialized training or certifications. Here’s a quick comparison:

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Types of Financial Advisors

Not all financial advisors work the same way. Depending on your needs, you may choose a fully digital service, an independent professional, or someone at a bigger firm. Here’s a closer look at the most common types and what to expect from each.

Robo-Advisors

Robo-advisors are online platforms that use algorithms to create and manage your investment portfolio. You usually fill out a questionnaire about your goals and risk level, and the platform handles the rest. These services are usually low-cost, and some have no account minimums. This may be a good fit for beginners. However, they might not offer personalized advice for complex financial situations.

Independent Advisors

Independent advisors run their own practices or work with similar firms. They often take a more personalized approach and may offer a broad range of services. This typically includes everything from investment management to tax planning. Many are fee-only fiduciaries, which can be appealing if you want advice that’s not tied to commissions. Because they work independently, the quality and style of service varies, so it’s essential to vet them carefully.

Advisors at Large Firms (like Fidelity, Schwab, etc.)

These advisors work at more well-known financial institutions and usually follow firm-wide practices and standards. They can offer access to a wide range of resources, including research tools, investment options, and customer service support. Some work on fees, others are salaried, and some follow a hybrid model. If you like working with a brand you know, this can be a reassuring option. However, it’s still important to ask how your advisor gets paid and how they make their recommendations.

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Factors to Consider Before Hiring a Financial Advisor

Different advisors offer different services, follow different standards, and get paid in different ways. The points below can help determine if someone is a good fit for you and your needs.

Fiduciary Duty

A fiduciary is legally required to put your best interests first. Not all advisors follow this standard, so it’s good to ask. You can simply say, “Are you a fiduciary at all times?” and ask them to explain what that means for their advice.

Compensation Structure

Some advisors are fee-only, meaning they charge a flat rate or percentage on assets under management. Others may be brokers and can earn commissions from products they sell. Some do both. Make sure you know how they get paid so you know where their advice is coming from and if there might be a conflict of interest. 

Qualifications and Certifications

Designations like CFP® (Certified Financial Planner), CFA (Chartered Financial Analyst), or CPA (Certified Public Accountant) show that an advisor has specific training. These letters aren’t everything, but they can give you some assurance of their background and potential expertise.

Services Offered

Not all advisors offer the same services. Some focus mainly on investments. Others provide help with taxes, retirement, budgeting, and estate planning. Ask what they specialize in so you’re clear about what kind of help you’ll receive. 

Track Record and Disclosures

It’s wise to check an advisor’s background before getting involved. Tools like FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure (IAPD) website let you see any past transgressions, such as complaints or disciplinary actions.

Investment Philosophy

Every advisor has their own way of thinking about investing. Some take an active approach and make frequent changes. Others prefer a long-term, hands-off strategy. Ask how they make decisions and if their approach aligns with how you think about risk and growth. 

• Active Management: Let’s say your advisor regularly buys and sells stocks in your portfolio based on market trends, company news, and economic shifts. For example, they might move your money out of tech stocks. 
• Passive Strategy: In this approach, your advisor may invest in a low-cost index fund that tracks something like the S&P 500. Instead of trying to pick individual stocks or time the market, the goal is to try and match market performance over time. 

Client Compatibility

A good advisor should listen to your wants and explain things in a way that makes sense to you. If you don’t feel heard, or if their style feels forced or confusing, it probably isn’t the best fit. You should feel comfortable asking questions at any time.

Here’s a quick checklist to help evaluate the fit:

You’re a good match if…

• They listen more than they talk.
• They explain their approach in a way that makes sense to you.
• They ask about your goals, not just your money.

You might want to keep looking if…

• You feel rushed or talked over during meetings.
• Their advice feels one-size-fits-all.
• You’re unclear on what they actually offer or how they’ll help you.

Communication and Accessibility

Ask how often you’ll meet and how you can reach them in between. Some advisors are hands-on with regular check-ins, while others might only reach out once a year. Think about how involved you want to be and how fast they respond. 

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Red Flags to Watch For

Even if someone sounds impressive on paper, there are signs that might suggest they’re not the right advisor for you. Here are a few red flags to watch out for, and what they may look like in a conversation.

Vague Answers

If an advisor avoids direct questions or speaks in general terms without giving transparent details, that’s a concern. You should never feel like you’re being left in the dark.

Example:

You ask, “How do you decide which investments are right for me” and they reply, “Oh, don’t worry. We’ve got a strategy that works well for everyone.” This kind of answer necessarily doesn’t offer you anything specific..

High-Pressure Tactics

A trustworthy advisor should give you time to think things over and never pressure you into making quick decisions. If they’re pushing you to sign paperwork or invest right away, that’s a concern.

Example:

They say, “This opportunity won’t last, and you really need to act today if you want good results.” You shouldn’t feel rushed or guilted into making a financial decision.

Unwillingness to Explain Fees

If an advisor evades questions about how they get compensated or makes their fee structure sound too complicated, that’s an issue. You have every right to know how much their services cost and why.

Questions to Ask a Financial Advisor 

Before hiring a financial advisor, asking a few essential questions is a good idea. These will give you a better idea of how they work, what they offer, and if they’re the best fit for you.

Questions About Their Practice

Here are a few questions that can help you understand how the advisor runs their practice:

• How do you get paid?
• How many clients do you currently manage?
• Do you work with clients like me?
• Are you a fiduciary at all times?
• What’s your background and experience?

Questions About Their Advice Process

These questions focus on how they make recommendations and build financial plans:

• What’s your approach to building a financial plan?
• How do you choose investments?
• How do you stay up to date on financial trends and strategies?
• Do you offer ongoing advice or one-time plans?
• What’s your process for reviewing and updating plans?

Questions About Your Situation

This is where you ask how they’d help you, specifically:

• How would you approach my current financial situation?
• How do you help clients who are starting a family, nearing retirement, or paying off debt, etc.?
• What would your advice be if my goals or income changed?
• How do you customize your guidance?
• What would you need from me to get started?

Finding the Best Fit

Not every advisor will be the best match, and that’s all right. Look for someone who listens, explains everything clearly, and understands your goals. Take your time, ask questions, and trust your gut if something doesn’t feel right. Never feel pressured to make an immediate decision

Next Steps:

• List your goals and concerns before meeting an advisor.
• Ask about their credentials, compensation, and services.
• Use online tools to check their background.
• Schedule a free consultation or introductory call.

Need help getting started? Work with an experienced financial advisor who understands your needs and puts you first.

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