How to choose the right financial advisor
Editorial staff, J.P. Morgan Wealth Management
- Financial advisors give clients advice about investing their money and achieving their financial goals.
- Picking a financial advisor is not a one-size-fits-all process. It’s important to choose a financial advisor who is right for you.
- There are three general types of advisors available to choose from: robo-advisors, online financial advisors and traditional financial advisors. Each avenue has advantages and disadvantages when it comes to cost, the level of personal attention and other factors.
What is a financial advisor?
A financial advisor gives people guidance on managing their money and achieving their financial goals. They can help with a range of financial needs, from budgeting to estate planning to investing and more.
Types of financial advisors
When considering your financial advisor options, there are three main types of financial advisors available:
- Robo-advisors: This is a digital service that is mainly for investing. With a robo-advisor, an algorithm will create an investment portfolio for you based on your tolerance for risk and your goals. This is a low-cost, low-hassle option. However, it will offer you less personalized and less holistic financial planning services.
- Online financial advisors: There are a range of services offered by different online financial advisors, but generally this is a middle ground between a robo-advisor and a traditional financial advisor. In some cases, you can get automated investment management as well as virtual access to a real person who can answer questions and help you make plans for your finances.
- Traditional financial advisors: A traditional financial advisor will give you personalized advice, usually in person. Traditional investment services from a dedicated advisor tend to be the most expensive of the three options, but if you are looking for professional help with complex financial issues like setting up an estate plan or creating a personalized investment portfolio, paying for specialized services may be a good investment in the long term. Some financial advisors specialize in specific areas. You may want to seek out an advisor with specific knowledge if you know you want help with a certain area, like sustainable investing, setting up a financial plan for a child with special needs or other unique situations.
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Does everyone need a financial advisor?
Not everyone needs a financial advisor, but many can benefit from having one. Some advice suggests that you should consider seeking out a financial advisor once you have a stable, steady income and you are able to save 20% or more of what you earn annually.
However, this is just one very specific guideline to deciding when you should seek out an advisor. Everyone’s situation is different, and the level of professional help you may want to enlist in your financial life comes down to a personal decision as you weigh the costs and advantages of different types of services.
How to find a financial advisor
You may have heard that it’s a good idea to consult with a financial advisor when it comes to many different aspects of your financial wellbeing. While that holds true, picking a financial advisor is not a one-size-fits-all process. It’s important to start with picking a financial advisor who is right for you. You likely want an advisor who will have the specific experience to help you with your financial goals. At the same time, you shouldn’t pay for an advisor who is going to charge you for services you won’t use.
Researching and selecting a financial advisor
Once you have figured out if you need a financial advisor and narrowed down what type of financial advisor you want to use, you still need to choose a specific advisor. Here are a few general steps to get started:
- Consider asking friends or acquaintances in a similar financial situation for recommendations, the same way you might for a new hair stylist or doctor.
- The internet can help you research potential financial advisors, however, it may be difficult to narrow down your options. Verify credentials for any financial advisors you’re considering with the help of online tools, such as FINRA's BrokerCheck website.
- If you’re looking for a traditional advisor, it may be a good idea to set up meetings with multiple candidates so you can interview each one. During meetings, it’s helpful to be open and honest about your financial situation and ask them about their approach to working with clients, their specialties and anything else you want to know.
- Investigating any potential advisor’s fee structure ahead of time helps ensure it aligns with your needs. Bear in mind that advisors often charge a percentage based on the assets they manage for you.
- Take the time to thoroughly research and consider your options to ensure you choose the right financial advisor for your needs.
How to prepare to meet with a financial advisor
If you’re going the route of choosing a traditional financial advisor, it’s best practice to perform a self-assessment of your financial situation before the first appointment. In particular, nail down what exactly you’re looking to get help with. If you want to get serious about retirement planning, for example, you’ll need to collect all the information and documents pertaining to existing retirement accounts. In addition, it helps if the advisor has a full picture of your general finances: income, expenses, debt, investments and overall goals.
Once you’ve prepared all the necessary documents, focus on the impression you get from the advisor. A first meeting is a bit like a job interview for them, so don’t be afraid to come with a list of questions. Get clear on their background, credentials, working experience and fee breakdowns. Not only will a financial advisor be able to address all of this, but they should provide an atmosphere that puts you at ease. It's important that you can be transparent with your advisor, since they’ll be handling many aspects of your livelihood.
If all goes well, you may feel confident moving forward with the advisor and establishing a plan based on your needs. Similar to seeing the doctor, many people schedule recurring meetings (like yearly or even quarterly) with their financial advisor to detail any changes and polish up their financial plans. Remember that a financial advisor can help you navigate your investing journey – and the process doesn’t have to be intimidating or expensive.
The bottom line
Working with a financial advisor can potentially help you feel more confident and reassured about your financial goals and the path to take to achieve them. But it all starts with learning how to choose a financial advisor that’s right for you. Regardless of the type of advisor you choose to work with, it’s helpful to do your research and check their credentials and fee structures before committing to anything.
Frequently asked questions about choosing a financial advisor
There are several ways to find a financial advisor, including online searches and personal recommendations from family and friends. Additionally, the financial institutions you already work with, such as your bank or investment firm, will often have their own advisors.
While there’s never a bad time to work with a financial advisor, many people generally turn to advisors when they need guidance on specific financial matters such as investment management, specific savings goals (for example, retirement or college) or estate planning.
Certain credentials such as certified financial planner (CFP) or registered investment advisor (RIA) automatically carry fiduciary duty as an obligation. Certain online directories may also allow you to specifically search for advisors based on fiduciary status. You may also confirm an advisor’s fiduciary status with them and ensure that their fiduciary duty is stated in the client agreement.
You can get financial advice from a variety of sources, such as online financial education pages, the financial institutions you might already work with or from a reputable certified financial advisor.
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Editorial staff, J.P. Morgan Wealth Management
