What Type of Financial Advisor Do I Need?

Financial advisors can help with everything from managing an investment portfolio to building a retirement, tax or estate plan, but not every advisor offers the same services. Some specialize in comprehensive financial planning, while others focus on investments, taxes, insurance or high-net-worth wealth management. Advisors can also differ in how they are registered, how they get paid and the standard that applies when they make recommendations.

When you’re looking for a financial advisor, it’s important to find one who can address your range of current needs while keeping your goals in mind.

What Is a Financial Advisor?

A financial advisor is a professional who provides expert guidance on managing your finances. They help individuals and businesses make informed decisions about investments, retirement planning, tax strategies, and other financial matters. By assessing your financial situation, goals, and risk tolerance, a financial advisor can create a personalized plan to help you achieve your financial objectives. Their expertise can be invaluable in navigating complex financial landscapes and ensuring that your financial future is secure.

Financial advisors wear many hats, offering a range of services tailored to meet the unique needs of their clients. They may assist with budgeting, debt management, and estate planning, ensuring that all aspects of your financial life are aligned with your goals. Advisors also monitor your financial progress and make adjustments to your plan as needed, keeping you on track to meet your objectives. Their role is not just about providing advice but also about educating clients, empowering them to make informed financial decisions.

Within the field of financial advisors, there are different specializations that each advisor may choose. You can generally tell an advisor’s specialty from his or her financial certifications. For example, an accredited estate planner (AEP) is an advisor who specializes in estate planning. Selecting the right financial advisor is crucial for achieving your financial goals. It’s important to consider their qualifications, experience, and areas of expertise.

What Type of Financial Advisor Do You Need?

If you’re unsure exactly what you need help with, it’s a good idea to meet with an advisor who can look at your whole financial picture and help set you in the right direction. An advisor who is a Certified Financial Planner™ (CFP®) or chartered financial consultant (ChFC) is generally a safe choice. Both of these are among the most common certifications.

The result of the certification process is that CFP®s and ChFCs are well-versed in topics across the field of personal finance. They can assess your whole situation and help you to create a plan to meet your short- and long-term goals. It could also include help with managing an investment portfolio. You can work with one of these advisors regardless of your financial or life situation.

Want to work with a more specific type of advisor? Here is a rundown of the most common types of financial advisors and certifications, along with their specialties.

Comparing Financial Advisor Fees

Another thing to consider in your financial advisor search is the advisor’s pay structure and cost. Financial advisors can be compensated in several ways, including asset-based management fees, flat or engagement fees, hourly charges, retainers or subscription fees and, depending on their business model, commissions. A fee-only advisor receives compensation from clients rather than commissions for selling financial products, while a fee-based advisor may receive both client-paid fees and other forms of compensation.

They sound similar, but there’s a crucial difference. Fee-based advisors charge fees to clients but may also earn commissions or other compensation through brokerage, insurance or other activities. The exact compensation model depends on the professional’s registrations and services. Because commissions and other third-party compensation can create conflicts of interest, ask how the advisor and firm are paid and whether their compensation changes based on the product or service recommended.

There is nothing illegal about earning commissions, and a fee-based advisor can still be a fiduciary in certain circumstances. However, earning a commission may pose a conflict of interest. The brochures that accompany an advisor’s Form ADV will mention the potential conflicts of interest that an advisor has.

An advisor’s management fee is charged as a percentage of the money the advisor is managing for you, also known as your assets under management (AUM). Advisors set their own fees, and many use marginal, tiered fee schedules, meaning the rate only applies to the portion of assets within a given range, rather than to the full account value. For example, an advisor might charge 1.5% on AUM between $0 and $1 million, but only 1% on the portion above $1 million. It’s worth noting that not all advisors structure fees this way; some apply a single rate to the entire account once a breakpoint is reached, rather than a marginal, tiered structure. Fees generally decrease as AUM increases, though the exact structure can vary by advisor.

Some advisors also charge other fees. For example, an advisor’s management fee may or may not cover the costs associated with trading securities. Some advisors also charge a set fee per transaction. Make sure you understand any of the fees an advisor charges. You don’t want to put all of your money under their control only to deal with hidden surprises later on.

Another fee structure to be aware of is a wrap fee program. This is a service where the advisor bundles account management and trading costs into one comprehensive fee, rather than billing them separately. Because this fee covers more, it is usually higher than a fee that only includes management and excludes things like trading costs.

Wrap fees are appealing for their simplicity but also aren’t worth the cost for everyone. Make sure you consider the pros and cons of wrap fees before signing up for anything.

Advisor fees reduce returns, but that doesn’t mean they don’t add value. Use this calculator to see whether the benefits might outweigh the costs.

Why Fiduciary Status Matters

Regardless of your specific needs and financial situation, one criterion you should strongly consider is what standard applies when a financial professional provides advice or recommendations to you.

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. CFP® professionals are also required under CFP Board standards to act as fiduciaries whenever they provide financial advice to a client.

Broker-dealers operate under a different regulatory standard. 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 put their own financial or other interests ahead of the customer’s. Some financial professionals are both investment advisor representatives and brokers, so the standard that applies can depend on the capacity in which they are acting.

Before working with a financial professional, ask whether they will act as a fiduciary when providing advice to you and whether they may serve in another capacity at other times. You can also review the firm’s Form CRS and Form ADV, when applicable, for information about its services, fees, conflicts of interest, standard of conduct and disciplinary history.

Scenarios in Which You Might Need a Specific Type of Financial Advisor

Again, financial advisors are typically unique in that each has their own specialties. But even if you know what kinds of services you’re looking for, you may not know exactly where to start. Below, we break down a few common examples of financial situations you might currently find yourself in and what kinds of advisors can be helpful during them.

1. Building a Financial Plan

If you’re early in your career, you should probably have two major goals: Create a financial plan and start saving for retirement. A CFP® can help with both goals. If you can’t find a CFP®, most financial advisor generalists will have expertise in basic financial and retirement planning. With a CFP®, though, you know you’re getting someone with certified expertise in these areas.

If you don’t have a lot in the bank and you’re just starting to save for your future, you might also consider a robo-advisor. A robo-advisor is a service that uses software to manage your portfolio. All you have to do is answer a short questionnaire about how much you have and what your goals are. The robo-advisor will then create a portfolio and handle all the management. You usually don’t need to have a lot of money to open an account, with many services having a minimum opening investment of $1 or less.

Robo-advisors can appeal to investors who want automated portfolio management and may offer lower costs or account minimums than some traditional advisory relationships. Their pricing varies, however. Some charge a percentage of assets, while others use monthly subscription fees or other arrangements. When comparing services, look at the total cost, including the advisory fee and the expenses of any funds held in the portfolio.

The amount of human assistance also varies among robo-advisors. Some platforms operate primarily through automated tools, while others offer access to financial professionals or hybrid planning services, sometimes at a higher service tier or account minimum. If you need help with issues beyond portfolio management, such as retirement planning, taxes, divorce or estate planning, compare exactly which planning services and level of human support each platform provides.

2. Getting Comprehensive Help With Investing

Most types of advisors can provide information and advice on investing. A chartered financial analyst (CFA) is an expert in investments and securities. Becoming a CFA takes time and is quite challenging, so you know that anyone with the certification has earned his or her stripes. You may also want to consider a chartered Investment counselor (CIC) if you have a large portfolio and need an experienced, high-level expert to manage your investments.

3. Managing a Large or Growing Amount of Wealth

If you have a high net worth, you may also want to look for a wealth manager. A wealth manager is an advisor who works specifically with high-net-worth and ultra-high-net-worth individuals. The services of wealth managers are typically very hands-on. They work closely with clients and take a holistic approach to managing the clients’ finances.

Keep in mind that account minimums vary by advisor. Some wealth managers may work with you if you have $250,000, while others may only take clients with $10 million in AUM. Another thing to note is that many advisors who aren’t strictly wealth managers will also offer wealth management for high-net-worth clients.

How to Narrow Your Search for a Financial Advisor

The first step in deciding what type of financial advisor you need is to consider your financial situation and goals. Are you early in your career and just starting to save money, or do you have a considerable amount of wealth that you want help managing? Are you saving up for any particular goals, such as the down payment for a house? Or perhaps you’re later in your career and want someone to help you with a trust or estate planning?

Do you work in a specific field? Some advisors work only with certain types of clients, such as professional athletes or business owners. Do you need help getting through a unique circumstance? Some advisors focus on particular life situations, including family planning, divorce, starting a business or legacy planning.

You should also consider how much money you have. If you’re looking for an advisor to manage your money or to help you invest, you will need to meet the advisor’s minimum account requirements. Minimums vary from advisor to advisor. Some may work with you if you have just a few thousand dollars or less. Others require you to have $1 million or more to open an account.

Another simple way to find financial advisor options near you is to use a matching service. SmartAsset’s free financial advisor matching tool can help with this, as it will pair you with up to three local financial advisors. You’ll then have the ability to interview your matches to find the right fit for you.

Red Flags to Watch for When Choosing a Financial Advisor

Finding the right financial advisor is not just about credentials or experience. It can also help to recognize signs that an advisor’s approach or business practices may not align with your financial needs or expectations.

One place to start is with the advisor’s regulatory record. Registered investment advisors are required to disclose disciplinary events, regulatory actions and certain legal matters in their Form ADV. Reviewing that document can provide additional context about an advisor’s history and business practices. If you have questions about an advisor’s record or disclosures, consider discussing them before deciding whether to work together.

Transparency about compensation is also important. You should understand how an advisor is paid, whether through advisory fees, commissions, product sales or another compensation arrangement. A clear explanation can help you evaluate potential conflicts of interest and compare advisory services.

You may also want to take time to understand any recommendations before making a decision. While no advisor can guarantee investment returns or consistently predict market performance, they should be able to explain the risks, costs and rationale behind their recommendations in a way you understand.

It is also helpful to understand whether and when an advisor acts as a fiduciary. Many advisors begin by discussing your goals, finances and risk tolerance before making recommendations. Asking how recommendations are developed and whether the advisor’s approach fits your objectives can help you decide whether the relationship is a good fit.

Bottom Line

The right financial advisor depends on what you need help with. A CFP® professional or other comprehensive planner may be useful if you want guidance across several areas of your finances, while an investment advisor, tax professional, insurance specialist or wealth manager may be a better fit for a more specific need. Just remember that credentials are only part of the comparison. Before choosing an advisor, look at the services they provide, how they are compensated, whether they have relevant experience and what regulatory or fiduciary standard applies to the relationship.

“Advisors may specialize in certain areas or have specific expertise. Make sure you choose an advisor with the skills to help you,” said Brandon Renfro, CFP®.

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 Choosing 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.
• Once you have a few advisors in mind, you should talk or meet with the advisors before actually hiring them. To help you choose the right advisor, here is a list of questions to ask a financial advisor.

Next Steps

Do you want to learn more about financial advisors? Check out these articles:

• Fiduciary vs. Financial Advisor
• Financial Advisor vs. Wealth Manager
• Investment Advisor vs. Financial Planner
• Robo-Advisors vs. Financial Advisors
• Financial Planner vs. Financial Advisor

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