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Do you need assistance with money management? You could require assistance if you're like many Americans. The National Financial Education Council estimates that the average American loses $1,200 annually due to a lack of personal finance education.

By focusing on your goals rather than these costs, finding a skilled financial advisor can assist you. Working with a financial advisor is a terrific option for anyone who wants to organize their personal money and establish long-term goals; they are not just for the wealthy. To locate the ideal financial advisor for your requirements, follow these steps.

1. Decide What Part of Your Financial Life You Need Help With

Before you speak to a financial advisor, decide which aspects of your financial life you need help with. When you first sit down with an advisor, you’ll want to be ready to explain your particular money management needs.

Keep in mind that financial advisors provide more than just investment advice. The best financial planner is the one who can help you chart a course for all your financial needs. This can cover investment advice for retirement plans, debt repayment, insurance product suggestions to protect yourself and your family, and estate planning.

Depending on where you are in life, you may not need comprehensive financial planning. People whose financial lives are relatively straightforward, like young people without families of their own or significant debt, might only need help with retirement planning.

People with complex financial needs, however, may need extra assistance. They could be looking to establish college funds or trusts for their children, navigate aggressive debt payment situations or solve tricky tax problems. Not all types of financial advisors offer the same menu of services, so decide which services you need and let this guide your search.

2. Learn About the Different Types of Financial Advisors

There’s no federal law that regulates who can call themselves a financial advisor or provide financial advice. While many people call themselves financial advisors, not all have your best interest at heart. That’s why you have to carefully evaluate potential financial advisors and make sure they are good for you and your money.

Part of learning about the different types of advisors is understanding fiduciary duty. Some, but not all, financial advisors are bound by fiduciary duty, meaning that they are legally required to work in your financial best interest. Other people who call themselves advisors are only held to a suitability standard, meaning they only must suggest products that are suitable for you—even if they’re more expensive and earn them a higher commission. (The SEC is trying to regulate this, though, by limiting the use of “advisor” to those who hold themselves to a fiduciary standard.)

Regardless of which kind of advisor you choose, you should make sure you know how they earn money. This helps you determine if their recommendations are actually better for you—or for their wallets.

Here’s how to think about the different types of financial advisors:

Fee-Only Financial Advisors
Fee-only financial advisors earn money from the fees you pay for their services. These fees may be charged as a percentage of the assets they manage for you, as an hourly rate, or as a flat rate.

Almost all fee-only advisors are fiduciaries. Generally speaking, they have chosen to work under a fee-only model to reduce any potential conflicts of interest. Because their income is from clients, it’s in their best interest to make sure you end up with financial plans and financial products that work best for you.

Financial Advisors Who Earn Commissions
Some financial advisors make money by earning sales commissions from third parties. Among financial advisors that earn sales commissions, some may advertise themselves as “free” financial advisors that do not charge you fees for advice. Others may charge fees, meaning they derive only part of their income from third-party commissions.

Either way, financial advisors who earn third-party sales commissions derive some or all of their income from selling you certain financial products. If you choose to work with a financial advisor who earns sales commissions, you need to take extra care.

Commission-only advisors are not fiduciaries. They work as salespeople for investment and insurance brokerages, and are only held to suitability standards. In contrast, some fee-based financial advisors are fiduciaries, though it’s important to determine if they’re always acting as fiduciaries or if they “pause” fiduciary duty when discussing certain types of products, like insurance.

Keep in mind, commissions aren’t bad in and of themselves. They’re not even necessarily red flags.

Some financial products are predominantly sold under a commission model. Take life insurance: A fee-based planner who receives compensation for helping you purchase a life insurance policy may still have your best interests at heart when advising on other financial products.

“To be clear, there’s nothing wrong with paying the commission for life insurance,” says Karen Van Voorhis, a fee-based certified financial planner (CFP) and Director of Financial Planning at Daniel J. Galli & Associates in Norwell, Mass. “That’s how the structure of that industry works.”

Purchasing financial products via financial advisors that earn commissions may be a matter of convenience, especially if someone will receive a commission regardless of where you buy the product. What’s important is understanding the difference. And if you work with a fee-based financial advisor, understand when they are acting as a fiduciary, especially when they help you purchase financial products.

Registered Investment Advisors
Registered Investment Advisors (RIAs) are companies that provide fiduciary financial advice. RIAs employ Investment Advisor Representatives (IARs), who are bound by fiduciary duty. An RIA may have one or hundreds of IARs working for it.

IARs may call themselves financial advisors, and may be fee-only or fee-based. Some may have additional credentials, including the certified financial planner (CFP) designation.

“The certified financial planner designation is really the gold standard in the financial planning industry,” says Van Voorhis. A CFP designation indicates a financial advisor has passed rigorous industry exams covering real estate, investment, and insurance planning as well as has years of experience in their fields.

Because of their wide range of expertise, CFPs are well suited to help you plan out every aspect of your financial life. They may be particularly helpful for those with complex financial situations, including managing large outstanding debts and will, trust, and estate planning.

Robo-Advisors
Robo-advisors offer low-cost, automated investment advice. Most specialize in helping people invest for mid- and long-term goals, like retirement, through preconstructed diversified portfolios of exchange traded funds (ETFs).

“For younger people who are really tech savvy, a robo-advisor just to manage retirement funds could be a perfect solution,” says Brian Behl, a CFP at Behl Wealth Management in Waukesha, Wisc. “I don’t think they’re going to get as in-depth advice on insurance and retirement and taxes.”

People with complex financial needs should probably choose a conventional financial advisor, although many robo-advisors provide financial planning services a la carte or for higher net worth clients.

“While the robos have really disrupted the industry…I do think there’s still a place for human advisors right now,” says Corbin Blackwell, a CFP at robo-advisor Betterment.

Betterment, for example, allows clients to purchase individual financial advising sessions, and Personal Capital, Wealthsimple, and Betterment provide regular financial planning for clients with higher account balances for a management fee.

3. Choose Which Financial Advisor Services You Want

Services offered by financial advisors vary from advisor to advisor, but advisors may provide any of the following:

Investment advice. Financial advisors research different investment options and make sure your investment portfolio stays within your desired level of risk.

Debt management. If you have outstanding debts, like credit card debt, student loans, car loans, or mortgages, financial advisors will work with you to chart a plan for repayment.

Budgeting help. Financial advisors are experts in analyzing where your money goes once it leaves your paycheck. Advisors can help you craft budgets so you’re prepared to reach your financial goals.

Insurance coverage. Financial advisors may examine your current policies to identify any gaps in coverage or recommend new types of policies, like disability insurance or long-term care coverage, depending on your financial situation.

Tax planning. Tax planning involves strategizing ways to decrease the amount of taxes you may pay, like by large charitable donations or tax-loss harvesting. Keep in mind that not all financial planners are tax experts and that tax planning is different from tax preparing. You will probably still need a CPA or tax software to file your taxes.

Retirement planning. Financial advisors can help you build funds for the ultimate long-term goal, retirement. And then, once you’re retired or nearing retirement, they can help ensure you’re able to keep your money safe.

Estate planning. For those who wish to leave a legacy, financial advisors can help you transfer your wealth to the next generation, whether that’s family, friends, or charitable causes.

College planning. If you hope to fund loved ones’ educations, financial advisors can craft a plan to help you save for their higher education.

In addition to investment management and financial planning, financial advisors also offer emotional support and perspective during volatile economic times. During the beginning of the coronavirus pandemic in March of 2020, for instance, client demand for financial advisor contact increased by almost 50% .

“I think that during these times, we can be a source of reason,” says Blackwell. “We can weather the storm. We’ve built this portfolio for a reason.”

When choosing a financial advisor, make sure they offer the services you’re looking for in your financial and non-financial lives.

4. Decide How Much You Can Pay Your Financial Advisor

It used to be that financial advisors charged fees that were a percentage of the assets they managed for you. Today advisors offer a wide variety of fee structures, which helps make their services accessible to clients of all levels of financial means.

Commission-only advisors may seem free on paper, but they may receive a portion of what you invest or purchase as a payment. These “free” financial advisors typically are available through investment or insurance brokerages. Remember, these advisors may only be held to suitability standards, so they may end up costing what you would pay for a similar financial product suggested by a fiduciary financial advisor—or more.

Fee-only and fee-based financial advisors may charge fees based on the total amount of assets they manage for you (assets under management) or they may charge by the hour, by the plan, through a retainer agreement, or via a subscription model.

5. Research Financial Advisors

Because financial advisors come in many forms with many different specialties and offerings, you need to thoroughly research potential advisors. You want to make sure the person guiding your financial decisions is trustworthy and capable.

You can find good financial advisors a couple of ways. Ask friends, family and peers for recommendations. Alternatively, look for financial advisors online. Many professional financial planning associations provide free databases of financial advisors:

• NAPFA (The National Association of Personal Financial Advisors)
  Garrett Planning Network
  XY Planning Network
  ACP (Alliance of Comprehensive Planners)

When evaluating advisors, be sure to consider their credentials as well as research their backgrounds and fee structures. You can view disciplinary actions and complaints filed against financial advisors using FINRA’s BrokerCheck. And remember, just because someone is a part of a financial planning association, that doesn’t mean they’re a fiduciary financial advisor.

Questions to Ask a Financial Advisor
In your first meeting with a financial advisor, make sure you learn the answers to these questions and that you’re comfortable with their responses.

Are you a fiduciary?
Are you always acting as a fiduciary? (Some fee-based advisors may not always act as fiduciaries when selling commission-based products.)
How do you make your money?
What is your approach to financial planning?
What financial planning services do you offer?
What kind of clients do you normally work with?
Do you have any account minimums?
Do you have any conflicts of interest in managing my money?
What information do I need to bring for you to look at when developing my financial plan?
How many times and how often will we meet?
Will you collaborate with my other advisors, like CPAs or attorneys?

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