Two common questions I get as a financial journalist are: 1) Do I need a financial advisor? and 2) How do I find a good financial advisor?
Although I’m not a financial advisor myself, I have friends and colleagues who rank among the best financial advisors in the U.S. In the past, I would just hand out their business cards. Today, this site gets far more inquiries than the financial advisors in my network could handle.
So, here’s my best advice on how to find the best financial advisor for you.
How do I find a good financial advisor near me?
The easiest way to find the right financial advisor is to use a financial advisor registry like Paladin Research and Registry.
A registry vets a financial advisor’s credentials ahead of time and then matches you according to your financial goals, location, and the financial advisor’s profile and specialties.
I’ve been worked with Paladin Research and Registry for over 15 years to help my readers choose a financial advisor. They only work with fee only advisors. These financial professionals only charge a fixed fee — whether hourly, annually, by the project, or as a percentage of the investment assets they manage for you. Fee only advisors do not earn a commission on any investments or insurance products.
Paladin Registry is a free directory of financial planners and registered investment advisors (RIAs). The registry has the highest standards for its advisors, and it works with your requirements to find the perfect match.
- Free to use
- Narrowed and vetted pool
- No obligation to move forward
- Requires at least $100,000 in investable assets
How do you know a financial advisor is good?
At the very minimum, your financial advisor should be registered with either the Securities and Exchange Commission (SEC) and/or the Financial Industry Regulatory Authority (FINRA). These registrations prove the advisor meets the minimum legal requirements to provide financial planning services. They also track complaints or disciplinary actions against the advisor.
But know this: It doesn’t take much to get registered with the SEC or FINRA. Yes, you have to pass a test and agree to follow certain rules. But that’s about it. Anybody can do this and hang a shingle as a “registered investment representative”. It doesn’t prove that they will give you good financial advice!
Most good financial advisors have also earned one or more professional certifications. These include, but are not limited to:
- Certified Financial Planner® (CFP®)
- Chartered Financial Analyst (CFA)
- Certified Public Accountant (CPA)
Whether you use a financial advisor registry like Paladin or get recommendations elsewhere, it’s important to know the right questions to ask a financial advisor before you hire them. At minimum, ask any prospective financial advisor:
- What are your fees, and how are they determined?
- What services do you offer? (E.g., comprehensive financial planning, investment management, tax strategy)
- What’s your investment philosophy?
Is it worth paying a financial advisor?
It’s worth paying a financial advisor if it will help you sleep better at night. That’s my opinion, anyway!
Some people feel that financial advisors charge too much for the services they offer. In my experience, though, the people holding that opinion know an awful lot about investing and are comfortable taking a DIY approach. Most people don’t know that much about investing and, more importantly, don’t want to know much about investing!
That’s where financial advisors come in. They help you with retirement planning and tax planning and then keep an eye on your investments so you can get on with your life.
That said, I would say it’s not worth hiring a financial advisor if you only have a few thousand dollars to invest. Most good financial advisors won’t work with clients who don’t have at least $100,000 in investments. I used to think that was unfair to young adults who haven’t saved much yet. But it’s actually a good thing. The advisors who will work with almost anybody tend to be the ones giving dubious advice and earning commissions on mediocre investments or life insurance products you don’t really need.
DIY vs. professional financial advice
Today, many online tools and resources can help you manage your finances. The best robo-advisors, for instance, offer automated investment management services at a fraction of the cost (typically around 0.25% of AUM). While these tools are beneficial, they might lack the personal touch and expertise a human advisor brings, especially in more complex financial situations.
The decision to use a robo-advisor or a financial advisor depends on how much you need a customized investment strategy and whether you need help with personal finance topics beyond investments. Robo-advisors will keep your investment portfolio on-track automatically, but that’s about it. A financial advisor can help with issues related to estate planning, taxes and budgeting.
When should you hire a financial advisor?
There are many factors to consider when deciding whether its the right time to hire a financial advisor.
While there isn’t a strict monetary threshold to meet, here are some situations when you might want to hire a financial advisor:
- Major Life Changes: Getting married, having children, buying a house, or transitioning into retirement are significant milestones that can benefit from professional financial guidance.
- Inheritance or Windfall: If you come into a large sum of money, an advisor can help you manage and invest it wisely.
- Complex Financial Situations: If you own multiple properties, have varied investment accounts, or run a business, your financial situation can benefit from expert oversight.
- Peace of Mind: If managing your finances causes stress or if you’re not sure you’re on the right track, it’s worth seeking professional advice.
What is the average cost of using a financial advisor?
The cost of using a financial advisor will depend on the services you require and the amount of money in investments you want the advisor to manage on your behalf. Expect to pay between $150 and $400 per hour for financial advice and/or around 1% per year of your investments managed by a financial advisor.
Types of financial advisors and their charges
Fee only advisors
These advisors charge a set fee for their services. This can be:
- Hourly: Typically ranges between $150 to $400 per hour. This is best suited for those looking for advice on specific questions.
- Fixed fee: A one-time fee, usually ranging from $1,000 to $3,000, depending on the complexity of your situation. This is often for creating a comprehensive financial plan.
- Asset under management (AUM) fee: Usually a percentage of the assets the advisor manages for you. The national average hovers around 1% per annum, though it might decrease as the size of your investment portfolio grows. For instance, you might be charged 1% on the first $1 million and 0.8% on assets above that.
Fee-based advisors
These advisors combine fees and commissions. They might charge you a fee for drawing up a financial plan and also earn a commission from selling you a specific financial product.
Commission only advisors
As the name suggests, they earn their money solely from commissions on the financial products they sell. This can sometimes lead to conflicts of interest as the advisor might be incentivized to sell you a product that benefits them more than it benefits you.
Additional costs
Beyond the primary advisory fee, there might be other costs like:
- Fund expenses: If you invest in mutual funds or ETFs, there are expense ratios which can range from 0.1% to over 1%.
- Transaction fees: Some advisors might charge you every time they buy or sell an asset in your portfolio.
- Account maintenance fees: Fees associated with keeping your account open, especially if it falls below a certain balance.
Value over cost
While the price tag of a financial advisor is an essential consideration, it’s equally vital to weigh the potential value they bring. A good financial advisor can:
- Help you navigate complex financial situations.
- Offer investment strategies that might outperform the market or protect your wealth during downturns.
- Provide peace of mind, knowing that a professional is watching over your finances.
What is the best type of financial advisor?
The best type of financial advisor is going to depend on your individual needs.
Certified Financial Planner (CFP)
Financial advisors who are Certified Financial Planners have passed a rigorous exam and have proven to have the required education and experience to deliver professional financial guidance.
In my opinion, CFPs are the most well-rounded financial advisors because they know at least a little about a lot of financial topics. In certain situations, however, a different type of financial advisor may meet your needs better.
Chartered financial analyst (CFA)
A chartered financial analyst is going to have a much deeper knowledge of analyzing investments and may be a better fit for clients wanting a sophisticated investment strategy.
Certified public accountant (CPA)
A certified public account is the tax expert you’ll want for advanced tax questions relating to investments or businesses.
How much money should you have to see a financial advisor?
One of the most common misconceptions in the world of finance is that financial advisors are only for the wealthy. Many individuals hold off seeking professional advice, believing they need to have a certain amount of assets or savings before they can approach an expert.
The myth of the magic number
First and foremost, let’s bust a prevalent myth: there is no strict “minimum” amount of money you must have to see a financial advisor. Yes, some financial advisors require clients to have minimum investment balances before they will work with them.
But if you are serious about financial planning (and willing to pay financial advisor fees), you can certainly find an advisor willing to work with you.
Why seek advice early?
The earlier you start, the better. It’s the concept of compound interest applied to financial wisdom. An advisor can help you set a solid foundation, develop good money habits, and make informed decisions right from the beginning. Even if you’re dealing with debt or have minimal savings, an advisor can provide guidance on managing and reducing that debt, budgeting, and laying the groundwork for future financial growth.
Different advisors for different needs
There are various types of financial advisors, each catering to different client needs:
- Roboadvisors: These are online platforms that provide automated, algorithm-driven financial planning services with minimal human intervention. They usually come with lower fees and lower account minimums, making them suitable for beginners or those with less capital.
- Traditional financial advisors: Commission-based financial advisors are professionals who offer personalized advice on investments and insurance. Some may have account minimums, but many work with clients from all financial backgrounds because they earn fees based on products they recommend.
- Fee only financial planners: Fee only advisors charge a flat fee for their services rather than commissions. This model is ideal for those looking for specific advice or a financial plan without the pressure of product sales.
There’s no one-size-fits-all answer to how much money you should have before seeing a financial advisor. The right time is more about your personal circumstances, your financial goals, and when you feel you need guidance. Remember, the goal of financial advice is not just to manage wealth but to build and protect it, no matter where you’re starting.
What are the top 5 financial planning companies?
Financial advisors may work independently, as part of a small, boutique financial planning agency, or in association with a large financial services company like Morgan Stanley, Ameriprise, or Edward Jones.
In my opinion, it’s more important to have a qualified financial advisor you like working with than what company they are associated with. That said, these are among the 5 largest and most well-known financial management companies that employ personal financial advisors.
- Vanguard
- Morgan Stanley
- Fidelity
- Ameriprise
- Edward Jones
Find a financial advisor now
To begin your financial advisor search, if you have at least $100,000 in investments or money to invest, I recommend starting with Paladin Research and Registry. The service is completely free to use, and there’s no obligation to work with the financial advisors they recommend.