How to choose a financial advisor in 2023

Step 1: Assess your financial needs and goals

Before you hire a financial advisor, take inventory of your financial situation. Calculate your average monthly spending and figure out the total amount of combined debt that you owe. Take note of all your investment balances and other financial assets. Having this information prepared will help give you and your advisor a complete picture of your finances.

After that, put together a list of goals and questions you have. This exercise will help clarify exactly where you stand financially and allow you to identify areas where you need the most help.

“Deciding whether working with a financial advisor/financial planner is the right choice and determining the right advisor to work with comes down to clearly understanding the areas where you may need help and the services that you need,” said David Edmisten, a certified financial planner (CFP) and the founder of Next Phase Financial Planning.

“Do you just need help with financial principles and basic budgeting techniques? A financial coach may be the best fit. Do you simply want someone to help you manage your investments? An investment advisor may make sense.”

» MORE: Financial goals and knowledge gaps

Step 2: Decide on your preferred type of advisor

There are many ways to obtain financial advice. Today, you can choose from automated robo-advisors to in-person financial planners and everything in between, so you’ll want to give some careful thought to which type of advisor you prefer.

Here are a few questions to mull over when considering what type of financial advisor you need.

Step 3: Research potential advisors

Once you’ve determined the type of advice and advisor you want, you’ll need to research potential advisors and look into their professional reputations. Google may offer simple reviews of an advisor, but the sources for those reviews may not be vetted. Instead, ask your trusted personal and professional contacts for someone they recommend.

You can also use third-party review sites to check for any client complaints. Websites like ConsumerAffairs offer independent reviews of financial advisors to help you find a quality advisor to work with.

Step 4: Review the services offered

Financial advisors offer different services to help clients meet different financial goals. It’s important to find an advisor who specializes in the specific services you need.

Here are a few ways a financial advisor can help you:

• Budgeting: If you need help putting together a budget, financial advisors can work with you to create a customized spending plan based on your financial situation and goals.
• Investment advice: Financial advisors can help educate you about the different investment options out there and which of them might be a good fit for you. The advisor can also create a plan for your investments.
• Retirement planning: Most financial advisors can help you properly allocate assets, estimate expenses and minimize your tax burden in anticipation of your retirement.
• Debt payoff: Some financial advisors offer debt payoff plans and may guide you through paying off your debts in the most efficient way possible. This may include helping you negotiate lower interest rates from your creditors or consolidate your debt to reduce your monthly payments.
• Insurance: Protecting your assets is important, and many financial advisors can check to make sure you have the proper insurance coverage in all areas of life.

Step 5: Check fees and pay structure

Financial advisors can charge fees in several different ways, including flat fees, assets under management (AUM) fees or commission-based fees. Here’s what to consider for each type of pay structure and how much you can expect to pay:

Step 6: Evaluate credentials, experience and ethics

While most advisors will proudly display their credentials on their office walls and websites, it’s up to you to do your due diligence. Ask them direct questions about their experience and qualifications, and look up their licensing and associations online.

The CFP Board of Standards offers online verification of CFP credentials, and the Securities and Exchange Commission (SEC) allows you to look up your advisor and see if they have been in trouble with the SEC.

You can also check a financial advisor’s status as a broker through the Financial Industry Regulatory Authority’s BrokerCheck tool to ensure they can handle your investments for you.

Finally, simply ask a financial advisor, “Are you a fiduciary?” A fiduciary is required by law to act in their client’s best interest. An easy way to ensure you are working with a fiduciary is to hire a CFP or CFA, as they must follow the fiduciary standard as part of their professional designation.

» MORE: What is a good investment?

Step 7: Set up an interview or consultation

Before paying for a financial advisor, you should set up an interview to ensure they’re a good fit for you. Many advisors offer a free consultation that helps them learn about your financial situation, but you can use the opportunity to simultaneously interview them and get a better understanding of how they can help you.

During the consultation, you’ll want to ask some forthright questions, including:

• What qualifications do you have?
• Are you a fiduciary?
• What fees do you charge?
• What’s my total expected cost?
• What’s included with your service?
• What’s your investment approach?
• How often will we meet?

One of the biggest deciding factors in choosing a financial advisor should be the frequency of their communication. Set expectations ahead of time.

“One of the most often-cited reasons people leave their advisors is that there is a lack of communication from the advisor,” said Edmisten. “You'll want to ask upfront what type of communication to expect and see if the advisor has a specific process for ensuring clients are contacted regularly with pertinent information to help them make informed decisions.”

Step 8: Make your decision

Once you’ve interviewed an advisor (or several), it’s time to make a decision. While you need to weigh several factors, trust your instincts and pick an advisor who aligns with your goals.

This means working with an advisor who’s transparent about how they get paid and has an investment philosophy that aligns with yours. You want someone you can see yourself working with for a long time. Pick someone you’ll respect so that you can benefit from their wisdom and listen to their advice.

» MORE: How to choose a financial advisor

Step 9: Monitor and reevaluate the relationship

After you hire an advisor, monitor how the relationship is helping you make the expected progress toward your financial goals. Keep tabs on how often you meet with your advisor and how well the communication is maintained.

If your advisor isn’t performing to your expectations, communicate this openly and honestly. You should both be on the same page to ensure your needs are met and you’re receiving service commensurate with what you’re paying.

And if things continue to go downhill, don’t hesitate to make changes if necessary. This may mean finding another financial advisor or managing your finances yourself.

Bottom line

Hiring a financial advisor can help you create crystal-clear financial goals, pay off your debt faster, invest smarter and retire early. But you need to know what you’re getting into, and doing the proper research ahead of time can save you future headaches.

A fiduciary who offers transparent pricing, communicates well and always keeps your best interests in mind is who you want to work with.