How to Find a Financial Advisor You Can Trust

Finding a financial advisor you trust involves more than just choosing someone who makes a good first impression; it also helps to ask the right questions. Before handing over financial decisions, it’s a good idea to check how the advisor is registered, how they get paid, whether they have disciplinary disclosures and what standard applies when they give you advice. Public databases such as IAPD and FINRA BrokerCheck can help you verify much of that information independently.

SmartAsset’s free tool can help you match with and compare advisors based on their experience, incentives and approach to your financial goals.

What Is a Financial Advisor?

The term “financial advisor” covers different types of financial professionals. Generally speaking, a financial advisor helps you manage your financial life and pursue your goals.

A financial advisor can have one or more specific credentials, licenses or registrations that indicate the type of services they provide or specialized knowledge they have. For example, someone may hold the Certified Financial Planner™ (CFP®) certification and provide comprehensive financial planning. An investment adviser, meanwhile, is a firm or person that provides investment advice for compensation and generally must register with the SEC or applicable state securities regulators. Individuals providing advice on behalf of an investment adviser firm may be registered as investment adviser representatives (IARs).

Different Types of Financial Advisors

Deciding between a robo-advisor and a human advisor is one of the first choices you'll make when looking for the right fit.

The next step in locating an advisor is deciding which type of financial advisor is best. There are two ways to approach it. The first is determining whether you’d prefer to work with a robo-advisor or a human advisor.

You can look at financial advisors based on what they do. For example, many accountants, estate planning attorneys and stockbrokers have earned a CFP® designation.

Some of the other financial certifications you may encounter include:

Chartered Financial Analyst (CFA): Individuals typically specializing in stock analysis and money management.
Chartered Financial Consultant (ChFC): Similar to a Certified Financial Planner, they help people create workable plans for their financial goals.
Certified Public Accountant (CPA): These financial experts specialize primarily in tax planning for individuals and businesses.
Chartered Mutual Fund Counselor (CMFC): Individuals specializing in offering investment advice on mutual funds.
Chartered Investment Counselor (CIC): Professionals offering high-level investment advice for managing assets.

Many financial advisors also work for registered investment adviser firms. Investment advisers generally register with either the SEC or state securities regulators, depending on factors such as the firm’s size and business activities. Under federal law, an investment adviser owes clients a fiduciary duty that includes duties of care and loyalty. Individual professionals working for an adviser may also have separate registrations, licenses or professional credentials.

Secondly, robo-advisors also provide unique financial advisory services. However, when you invest with a robo-advisor, your financial guidance comes from an algorithm. That computer program generates investment recommendations for you, based on your goals, age, time frame for investing, risk tolerance, and other factors.

A robo-advisor might appeal if you want hands-off way portfolio management. Robo-advisors can also be inexpensive since many of them charge low flat fees.

On the other hand, robo-advisors can offer a different level of personal interaction than traditional advisory relationships. Some rely primarily on automated portfolio management, while others provide access to human financial professionals in certain service tiers. When comparing them, consider the amount of human interaction available, the information the platform uses to make recommendations, its investment approach and the fees you will pay. A human advisor may also provide services beyond portfolio management, such as financial planning or behavioral coaching, depending on the advisory relationship.

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What Is a Fiduciary?

If you’re looking for a financial advisor you can trust, then knowing what standard applies when they provide advice is important. Investment advisors owe their clients a fiduciary duty under applicable law. For SEC-registered investment advisors, that federal duty includes duties of care and loyalty and requires the advisor to act in the client’s best interest without placing its own interests ahead of the client’s. Other professional standards may also impose fiduciary obligations in certain circumstances. For example, CFP® professionals are required by CFP Board to act as fiduciaries when providing financial advice to clients.

Broker-dealers operate under a different regulatory framework. When making covered securities recommendations to retail customers, they are generally subject to Regulation Best Interest, which requires them to act in the customer’s best interest and not place their financial or other interests ahead of the customer’s. Professionals who are both brokers and investment advisor representatives may operate under different standards depending on the capacity in which they are acting. Insurance recommendations can also be subject to separate state laws and standards, so ask which role and legal standard apply to the recommendation you are receiving.

The simplest way to find out how an advisor or firm is registered is to look up their record. Investment advisor firms file Form ADV with the SEC or applicable state securities regulators. Form ADV provides information about the firm’s services, fees, conflicts of interest, ownership and certain disciplinary events. You can review these filings through the SEC’s Investment Adviser Public Disclosure (IAPD) database and use FINRA BrokerCheck to research brokers and brokerage firms.

Wondering if a financial advisor is worth the cost? This calculator shows how their advice could affect your wealth over time.

How Much Could a Financial Advisor be Worth to You?

Calculate how much a financial advisor can potentially add to your net worth over time given your circumstances.

Total Potential Lifetime Value Added by a Financial Advisor

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Final Net Worth with an Advisor

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Final Net Worth without an Advisor

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About This Calculator

This calculator is based on the assumptions and equations detailed in SmartAsset's whitepaper, "The Value of a Financial Advisor: What's It Really Worth?". Users can input their own data – such as their current age, planned retirement age, income and investments – to find the projected value a financial advisor could be worth over their lifetime. Advanced fields let users customize other inputs such as their investment performance, the rate of inflation over time, their savings rate, and rate of withdrawal in retirement.

Assumptions

Assumptions come from SmartAsset's whitepaper, "The Value of a Financial Advisor: What's It Really Worth?" For years left until retirement, the client is assumed to be contributing a percentage of their income to their investments. These investments are assumed to grow over time, while fees are deducted in cases where the client maintains the services of a financial advisor. In either case, values account for inflation and are presented in today's dollars.

During retirement, savings contributions are assumed to end and withdrawals from the investment pool are assumed to be 4% unless user inputs dictate otherwise. Default values reflect an assumption that a retiree will reallocate their investments to a more conservative mix with a lower rate of return. Fees are still removed in the case the client has an advisor and inflation is accounted for.

The default value for inflation (2.56%) is based on annual historical data for 2000 through 2023. The default value for investment performance is based on S&P 500 performance (investment growth during career) and Moody's AAA rated corporate bonds performance (investment growth during retirement) for January 2000 through August 2024. The default annual savings rate (5.69%) is based on historical data from the Federal Reserve for the same time period.

An advisor is assumed to yield an additional annual average of 1.0495% of a client's income in tax savings during their career and 2.47% premium in annual returns, whether through investment allocations and performance, general guidance and coaching, or other more custom areas of financial benefit.

Advisor fees are removed from the net worth over time. Fees are 1% annually for people with an inputted current net worth of less than $1 million. At $1 million starting net worth and above, annual fees are 0.75%.

The duration of the relationship between the client and the financial advisor is assumed to end at age 77. A divergent assumption from the whitepaper in order to allow senior users access to the calculator is that if the user inputs their current age as 68 or older, the duration of the relationship is assumed to be 10 years.

This hypothetical example is for illustrative purposes only and does not represent an actual client or specific security. Actual results will vary.

This is not an offer to buy or sell any security or interest. All investing involves risk, including loss of principal. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns). Past performance is not a guarantee of future results. There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest.

Articles, opinions, and tools are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor concerning your individual situation.

SmartAsset.com is not intended to provide legal advice, tax advice, accounting advice or financial advice (Other than referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). Articles, opinions, and tools are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor concerning your individual situation.

It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments based on that index. Indexes do not pay transaction charges or management fees.

The above summary/prices/quote/statistics have been obtained from sources we believe to be reliable, but we cannot guarantee their accuracy or completeness.

How Can You Determine Whether an Advisor Is Trustworthy?

Credentials are a good starting point but not the full picture. Designations like CFP®, CFA, and CPA mean an advisor has met specific education and exam requirements, but they don’t guarantee the advisor will act in your best interest. A better step is checking their disciplinary history through FINRA BrokerCheck or the SEC’s Investment Adviser Public Disclosure database, both of which are free. A pattern of client complaints, regulatory actions, or firm terminations tells you more about trustworthiness than any title on a business card.

How an advisor gets paid says a lot about where their incentives are. Fee-only advisors charge clients directly and don’t earn commissions on the products they recommend, which removes a major source of conflict. Commission-based advisors earn money when you buy certain products. That doesn’t make them untrustworthy, but it does mean you should ask why a specific product is being recommended and what the advisor earns if you buy it. If they’re reluctant to answer those questions clearly, that’s worth paying attention to.

Look for transparency about how they invest, how they plan, and who they typically work with. A trustworthy advisor can explain in plain language how they make recommendations, how often they review your plan, and what happens to your accounts if they leave the firm or retire. Vague answers to straightforward questions are a warning sign no matter how polished the presentation is.

Ask for references from current clients. An advisor with strong relationships should have no problem connecting you with people who can speak to their experience. Beyond that, pay attention to how the advisor communicates in your first few meetings. Someone who listens carefully, asks detailed questions about your goals, and doesn’t push products before understanding your situation is showing you the kind of behavior that tends to last.

Confirm fiduciary status in writing before you commit. Ask whether the professional will act as a fiduciary whenever they provide financial advice to you and whether they may also act in another capacity, such as a broker. Investment advisers generally owe clients a fiduciary duty, while broker-dealers making covered recommendations to retail customers are subject to Regulation Best Interest. A dually registered professional may operate under different standards depending on the service being provided, so ask them to explain when each standard applies.

How to Find a Financial Advisor You Can Trust

Finding a financial advisor you can trust really comes down to asking the right questions. Here is a list of seven questions that you could pose to a prospective advisor:

What services do you offer?
How do you make money?
When and how do you talk to clients?
What’s your investment strategy or style?
What is your typical client like?
Do you hold any professional certifications or designations?
How long have you been a financial advisor?

Ask a professional if they are a fee-only or fee-based advisor. A fee-only advisor charges fees based on the services they offered. They can charge you by the hour, as a percentage of your assets under management, using a retainer system or as a flat fee.

A fee-based advisor, on the other hand, may receive both fees paid directly by clients and commissions or other compensation through brokerage, insurance or other activities. The exact arrangement depends on the professional’s registrations and business model. Because different forms of compensation can create different incentives, ask whether the advisor or their firm receives commissions or other third-party compensation, how much you could pay in total and whether their compensation changes based on the products or services they recommend.

Also, ask yourself what kind of services you need and what you would like an advisor to be able to do for you. It may also be helpful to look for an advisor whose existing client base has a similar financial background to yours. If you’re a millennial, for example, it might make more sense to choose an advisor who’s also a millennial or works primarily with 20- and 30-somethings, versus an advisor who mainly advises retirees.

Bottom Line

The right financial advisor can be just as valuable as the assets they help manage, which is why finding one you trust is worth the effort.

Finding a financial advisor you trust starts with understanding who they are, how they are paid and what responsibilities they owe you. Ask about fees, conflicts of interest, services, experience and whether the advisor will act as a fiduciary when providing advice. You can then verify registration and disciplinary information through resources such as IAPD and FINRA BrokerCheck. Look for an advisor who explains recommendations clearly, understands your goals and is transparent about costs and potential conflicts.

“It’s important to thoroughly research an advisor that you may work with to ensure that you are comfortable with the way they conduct business,” said Brandon Renfro, CFP®, RICP, EA. Before committing, take the time to ask how they’re compensated, what services they provide, and how they handle situations where their interests might not perfectly align with yours.

Brandon Renfro, CFP®, RICP, EA, provided the quote used in this article. Please note that Brandon is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.

Tips for Finding a Financial Advisor

Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Consider trusting your instincts when shopping around for an advisor. Avoid financial professional who make claims or promises that seem too good to be true. Similarly, question those reluctant to share details about their fees or investment strategy. Those red flags indicate an advisor may not be trustworthy.