Choosing a Financial Advisor: When and How To
How can you find the right financial advisor? Learn how to choose one that fits you and what to expect once you’ve hired one.
Key Takeaways
Getting financial help starts with knowing if and when you should seek advice.
Finding a professional who understands you and who you can trust can sound difficult.
Get tips for where to start, how to choose and what to expect from a financial advisor.
Relying on a professional might be an easy way to simplify your finances. The problem? Finding a financial advisor who understands your needs—and who you can trust. Here are suggestions for figuring out when you might want to seek advice, what kind of advice you may need, how to choose the right financial advisor and what you might expect once you select one. You may want to start by understanding your perceptions about getting financial advice.
Have a Specific Question About Advice? Jump to your question.
Do I Need a Financial Advisor?
Of course, we think financial advice can be beneficial, especially when clients get a solid financial plan based on their goals. Many people believe they could use help but don’t ask for it. For example, about 66% of Americans say their financial plans need help, but only 37% work with an advisor.1
Why the disconnect? Perhaps deeper questions are holding them back. Do any of these sentiments sound familiar to you?
“I want help, but I’m not ready to discuss my finances.”
Money is personal, so it makes sense to hesitate. However, consider viewing an advisor like you would a physician. The advisor should be just as professional and not make you feel “less than” about your finances or previous financial decisions. The vibe should be, “I’m here to help.”
“Can I really trust an advisor?”
This question may be about whether you will lose control of your finances. Some clients like to be hands-on, while others are happy to turn over the reins in a managed account where investment professionals make the portfolio decisions. The good news is that you get to choose.
“It sounds too complicated.”
Nobody wants complicated when it comes to their finances, and an advisor should help make it easier. Together, you can tackle one financial goal or question at a time and then move on to the next one. It doesn’t have to be all or nothing unless you want it to be.
“Financial advice is too expensive.”
Advisor fees can be misunderstood because different firms have different structures. We believe fees should be transparent, and you should know upfront what you will pay. That’s one reason our Private Client Group advisory service has one flat fee that covers both a financial plan and investment fees. We’ll go over different kinds of fees later.
Another part of the “do I need a financial advisor” question may center around when you need advice.
When Should I Seek Advice?
One of the most critical times to seek advice is when life changes. A marriage, the birth of a child or a divorce are all family changes that may warrant choosing to work with a financial advisor. The same can be true with career changes, such as a first job, a job change, starting a business or retirement.
Health changes or the passing of a family member may also be a time when you need financial help. Or if you suddenly or could potentially need to become a caregiver for an aging parent or another family member. You may also want financial advice over money questions about receiving an inheritance, tax issues or thinking longer-term with an estate plan.
No life change? You still may want to consider working with an advisor if you don’t have time to manage your finances or your assets have grown to a point where you’re no longer comfortable or willing to manage them yourself.
What Types of Financial Services Do I Need?
Different financial advisors have different areas of expertise. Areas they may be able to help include:
Investing and retirement planning: A financial advisor can help you more fully utilize your retirement accounts, such as 401(k) and IRA contributions, and determine the appropriate investment products and funds based on your risk tolerance.
Budgeting and debt management: An advisor can help you build a monthly budget to pay off high-interest debt in a timely fashion, live within your means today, and potentially find extra to invest for the future. A primary goal for budgeting before and after retirement is to help make your money last as long as needed.
Portfolio tax questions: Some advisors provide detailed strategies for planning for and mitigating the impact of taxes on your investments, whether it be managing your tax-advantaged retirement accounts such as your 401(k) or decreasing the effects of capital gains taxes.
College savings strategies: Financial planners can help you develop a college savings strategy and choose a tax-advantaged account, such as a 529 college savings plan.
Estate planning: Some financial planners can help plan your financial legacy to help protect your loved ones.
What Can I Expect from a Financial Advisor?
While styles may vary, the most important result should be a sound financial plan. At a minimum, advisors should help you:
Establish your goals. Short-term goals are those you want to accomplish in the next year, such as building an emergency fund or purchasing a new car. Mid-term goals are for the next three to five years—like purchasing a home. Long-term goals are further out, such as retirement.
Understand what kind of investor you are. That includes understanding when you'll need the money for each goal and how you feel about risk. Your advisor should respect your comfort with risk and build your portfolio accordingly.
Create, implement and monitor your plan. It’s reasonable to expect an advisor to:
Create a comprehensive financial plan for your future based on your discussions.
Implement your plan and begin your investments.
Monitor your investments and recommend changes, if necessary.
Adapt your plan as your circumstances change (e.g., marriage, divorce, retirement).
Check on your progress. Your advisor should schedule regular reviews and seek you out when significant changes occur in the investing environment.
What Questions Do I Ask When Choosing a Financial Advisor?
Finding the right advisor takes homework. Friends and family can make suggestions, but ultimately, you need a professional who has qualities that make you feel comfortable sharing about your life and money. You also need to know the details about working with them. Here’s what to ask a financial advisor when you’re shopping around:
Are You a Fiduciary Financial Advisor?
It might not feel like the first question to ask a prospective financial advisor, but it should be one of your non-negotiables.
Under the “suitability standard,” non-fiduciary advisors are allowed to make recommendations that reasonably fit your goals—and don’t generate excessive fees. So, a non-fiduciary advisor might push you to invest in a fund that also offers them a great commission. They are not required to put your interest over their own.
Fiduciary advisors are obligated to act in your best interest. Non-fiduciary advisors operate under a suitability standard, but don’t have the same obligation. All financial consultants with our Private Client Group advisory services are fiduciaries.
However, a fiduciary advisor must operate on a higher level. These advisors are legally bound to act only in your best interest regarding your finances.2 So you can have more confidence that a fiduciary advisor is truly working with you.
How Are You Paid?
Many advisors charge an annual fee based on the amount of money they manage for you, called an assets-under-management fee.
If your potential financial advisor doesn’t charge an assets-under-management fee, ask them to describe their fee structure. Here are some potential ways they could charge:
Fee only: The advisor collects a fixed fee only—usually an annual charge or an hourly rate
Commission only: In this case, they collect a fee based solely on the investments they sell you
Fee-based: The advisor collects both a fixed fee and commissions for investments sold
Our Private Client Group advisory services offers a unique fee structure. Clients pay one flat fee for both advice and investment management fees of the underlying funds. At 0.90%, it's lower than what many pay for investments alone.
Find out more: Private Client Group
Before you choose your advisor, tally a rough estimate of the costs under that professional’s fee structure. Consider how often you’ll be in touch, the frequency of your trades and the types of investments you plan to own.
Additional Advisor Fees You May See
Your advisor’s rates aren’t the only expenses you’ll pay. You may be charged for trades your advisor makes on your behalf. And you’ll need to factor in expense ratios for any funds in your portfolio.
Check-in with your advisor to get a sense of what these costs might be for you. If your advisor buys and sells frequently, your trading fees might be higher than if they hold assets for longer periods. And actively managed investments, including mutual funds and exchange-traded funds (ETFs), will generally come with higher management costs than index investments.
Expense ratios are determined by dividing the costs to operate a fund by the total value of the investment’s assets.
What Services Do You Offer?
You’ll want to ensure the advisor you choose has the skills to help you achieve the goals you identify. But they might offer additional services to make managing your money even easier.
For instance, ask whether your advisor offers a selection of pre-designed portfolios or sits with you to create a custom one—or both. Your professional might provide automatic rebalancing or dividend reinvestment. And maybe they can handle the day-to-day investment decisions for you if you’re looking to authorize that.
How Do You Communicate with Your Clients?
Choose an advisor with a level of contact that fits your personal financial needs. That might mean monthly or quarterly meetings. Maybe you want regular check-ins or simply email updates. Ask your advisor how they communicate and see if they can accommodate your preferred style.
Additionally, find out how they respond to one-off questions or concerns. Do you need to set up an appointment? Can you reach them with a short call or email? How quickly can you expect a response?
Besides these questions, you can research your advisor candidates. The BrokerCheck website, sponsored by the Financial Industry Regulatory Authority (FINRA), provides the career history of an advisor, including where they’ve worked and for how long, as well as any regulatory issues or client complaints. You can also do a simple Google search as well.
What Questions Should I Ask Myself Before Choosing an Advisor?
The questions you ask yourself before hiring a financial professional may be just as important as the ones you ask the prospective advisor. Before deciding to hire a particular financial advisor, give yourself a gut check by considering these questions:
Do I feel that this person gets me? You want your advisor to understand your needs, goals, dreams and fears.
Do I feel comfortable with them? Your advisor works for you, so you shouldn’t feel nervous or uneasy about stating your needs, declining recommendations and sharing personal information.
Do they respect my comfort level with risk? Steer clear of advisors who use pressure tactics or hard sell you on specific investments. It’s your money, after all.
Can I understand them easily? Find an advisor who communicates clearly and in plain language—not confusing jargon.
What do I want to get out of this relationship? Why did you decide in the first place? Recall those reasons and make sure your chosen professional checks all the boxes.
Choosing Alternatives to Traditional Financial Advice
Think the traditional way to get financial advice—one-on-one with a financial professional—is not for you? There are other ways to get help for your finances, including how to invest. Here are a few and how they compare to the traditional option.
Digital or Robo-advisors: These financial advisory products use algorithms and online questionnaires to automate financial advice given, such as a recommended portfolio. These services charge annual rates as low as 0.25% of your total assets under management or can be based on your account size. Robo- or digital advice can help make getting advice easier, and you don’t have to talk to a person.
Online financial planners: These financial advisory companies offer a mix of automated financial advice and management, like robo-advisors, but also some limited options for one-on-one advice. Services like these can range from 0.5% to just under 1% annual fees based on your account assets, or they may charge a flat fee for a consultation with the advisor.
Advice for Your World—Your Way
Find advice services designed to fit you. From digital advice to personal consultations or ongoing premium advice, we have a service that can help you get practical direction for your investing world.
Advisor Chosen, Now Prep for Your First Meeting
Your work isn’t over once you set your first meeting with a financial advisor. To make sure you’re prepared, be ready to discuss goals, your current and expected family situation and what you need from your portfolio.
Deciding to work with a financial partner is significant, but finding the right one is even more important. If you have an advisor, we suggest you talk about any questions this article may have sparked.
Authors
Investor Center Manager
Let Us Help You Get Direction and Make Sense of Your Financial World
2023 Planning and Progress Study, Northwestern Mutual, May 2023.
What is a Fiduciary Financial Advisor, by Coryanne Hicks, U.S. News & World Report, April 15, 2021.
American Century's advisory services are provided by American Century Investments Private Client Group, Inc., a registered investment advisor. These advisory services provide discretionary investment management for a fee. The amount of the fee and how it is charged depend on the advisory service you select. American Century’s financial consultants do not receive a portion or a range of the advisory fee paid. Contact us to learn more about the different advisory services. All investing involves the risk of losing money.
Digital Advice is provided by American Century Investments Private Client Group, Inc., a registered investment advisor, for clients with a minimum $10,000 investment. Digital Advice provides discretionary investment management. American Century does not charge an advisory fee for this discretionary advice. The Journey Portfolios offered through Digital Advice all contain American Century exchange traded funds (ETFs) and mutual funds, which charge investors investment management fees, underlying fund fees, and other administrative and servicing fees. Depending on the different weightings or allocation of such ETFs and mutual funds, your fees for investing in a Journey Portfolio will vary, but generally range from 0.25% to 0.40% per year. American Century Investments' financial consultants do not receive a portion, or a range of the advisory fee paid by clients. Client-oriented trades outside of our recommendations, personal consultations by phone or in-person with our financial consultants, and other activities like wire transfer fees are offered for an additional fee.
All investing involves risk.
Private Client Group advisory services are provided by American Century Investments Private Client Group, Inc., a registered investment advisor. This service is generally for clients with a minimum $50,000 investment. Call us to determine the level of service that is appropriate for you. The advisory service provides discretionary investment management for a fee. All investing involves risk.
Annual Investment Advisory Fee is 0.90% for balances $5 million and under and 0.70% for balances over $5 million. American Century Investments Private Client Group charges a single annual fee based on the value of your assets under management with us. The single fee includes our Private Client Solutions, along with any underlying trading costs, commissions, and custody services related to our recommendations. American Century Investments' financial consultants do not receive a portion, or a range of the advisory fee paid by clients. Client-oriented trades outside of our recommendations and other activities like wire transfer fees, may result in additional cost.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.