Choosing an advisor
How to choose a financial advisor: a seven-step checklist
A practical, unglamorous process for choosing a financial advisor: define the job, check the registration, compare fee structures in dollars, ask the awkward questions, and spot the red flags.
Choosing a financial advisor is a hiring decision with unusual stakes: the person will influence your savings for decades, you will see them a few times a year, and the cost is often expressed as a percentage that hides its true size. Most people choose on personality, because personality is the only thing they can evaluate in a meeting.
This is the process we would use ourselves. It takes a few hours, mostly on the phone and the internet, and it removes most of the guesswork.
Step 1 — Write down the job before you look for a person
You cannot evaluate a candidate without a job description. Spend fifteen minutes writing these four things down:
- The decision in front of you. Retire in four years? Sell a business? Roll over an old 401(k)? Consolidate five accounts?
- What you already have. Approximate balances by account type — taxable, tax-deferred, tax-free — is enough. So is a rough annual spending figure.
- What you want to keep doing yourself. Some people want to choose investments. Some want to be told what to do and left alone.
- Your honest reaction to volatility. How did you behave in 2008 and in 2020? "I sold" is useful information, not an embarrassment.
A firm that cannot respond to that list specifically is answering a different question than the one you asked.
Step 2 — Check the registration before the first call
This takes about ten minutes and is the single most informative step in the process.
- Look the person and the firm up on the SEC's Investment Adviser Public Disclosure site. It shows registration, the firm's Form ADV, and any disciplinary history.
- Read Part 2 of Form ADV, which is written for clients. Look for the fee section, the conflicts-of-interest section, and whether the firm has any "disciplinary history" — the answer should be no, and it should be easy to find.
- If they are also licensed to sell insurance or securities, note that. It does not disqualify anyone, but it changes the conversation about fees.
Titles and designations matter less than this. A short, clean regulatory record plus a clear fee disclosure tells you more than a wall of certificates.
Step 3 — Compare fee structures in dollars, not percentages
Every fee model has an incentive buried in it. The right question is not "which is cheapest" but "what does this arrangement reward?"
| Fee model | How it works | What it rewards | Watch for |
|---|---|---|---|
| Percentage of assets | Typically 0.5%–1.2% of managed assets per year | Growing the portfolio — which usually helps you too | Reluctance to spend the money, pay off a mortgage, or move assets out of management |
| Flat annual retainer | A fixed fee agreed in advance | Complexity of the work, not the size of the balance | Vague scope: what is and is not included |
| Project or hourly | One-time plan or advice at an hourly rate | Finishing the job | No ongoing oversight, which may or may not be what you need |
| Commission | Paid by a product provider when you buy | Placing a product | Recommendations that are hard to evaluate and expensive to undo |
| Fee-based (hybrid) | Client fees plus possible commissions | Ambiguous by design | Sounds identical to fee-only. Ask which one they are |
Do the arithmetic. On a $600,000 portfolio, 1% is $6,000 a year — $60,000 over a decade before any growth, and considerably more if you count what that money would have earned. Ask each candidate for the total dollars you would pay over five years. If they cannot answer that in a number, that is your answer.
"If I decided to use half this money to pay off my mortgage and buy a smaller house, would your fee change?" Anyone paid a percentage of assets has to say yes. That is not a reason to rule them out — it is a reason to know it before you sign.
Step 4 — Insist on a written sample
Ask to see a sample plan, or the actual deliverable from a recent engagement with names removed. You are checking three things: is it readable, does it contain numbers rather than generalities, and could you follow it without calling anyone?
A plan that is forty pages of software output with no summary has not been written for you. One page of decisions plus supporting detail behind it is what good work looks like.
Step 5 — Ask the awkward questions
Ask all of these out loud, in the first meeting. Good advisors answer them without flinching.
- Are you a fiduciary for all of our work together, and is that in writing?
- How are you paid, who pays you, and what would change your fee?
- Do you sell any products, or receive anything from a fund company or insurer?
- What is included, and what costs extra?
- Who actually does the work — you, or a team I never meet?
- How often will we speak, and who do I call when something goes wrong?
- Will you tell me if you think I do not need you?
- What is your approach when markets fall 30%?
- Can I see your Form ADV Part 2 and your sample plan?
- What would make you suggest I go elsewhere?
Number seven is the most revealing. An advisor who cannot imagine losing your business to a cheaper or better option is either very new or not being straight with you.
Step 6 — Recognise the red flags
Most bad outcomes are visible in advance. Watch for these:
- Pressure to decide quickly, especially around a product with a deadline.
- Guarantees of returns. Nobody can honestly promise a market return. "Guaranteed" usually means "guaranteed to be complicated".
- No written disclosure of fees — or a fee described only as "about one percent".
- A recommendation you cannot explain to a friend in two sentences.
- Concentration in one product, one fund family or one private deal.
- Unsolicited contact — a cold call, a seminar with a free dinner, a message on social media offering a "free portfolio review" that ends in an annuity.
- Reluctance to put advice in writing, or a refusal to send a follow-up email summarising the meeting.
- Confusion between titles. If the answer to "are you a fiduciary" wanders, treat it as a no.
Step 7 — Run a trial period, not a leap of faith
You do not have to commit to a decade. Start with the smallest useful engagement — a first call, then a single piece of written work — and judge from there. You are assessing three things, and only one of them is technical:
- Competence: do the numbers hold up, and does the reasoning make sense?
- Communication: could you explain your own plan to someone else afterwards?
- Comfort: would you call this person on a bad day?
If the answer to all three is yes, the relationship will probably be worth its cost. If competence is there but communication is not, keep looking — an advisor you do not understand is an advisor you cannot follow through on.
One note on "free" reviews
A free portfolio review is a sales appointment unless the firm is transparent about why it is free. Ask what happens at the end of it. If the answer is a proposal with a fee table attached, that is fine — as long as you knew when you walked in. The guide on financial advisor versus financial planner covers how titles and roles are regulated, which is useful context for that first meeting.
Frequently asked questions
How many advisors should I interview?
Two or three is enough to see the range of fee models and communication styles. More than four becomes noise, and the differences stop being meaningful.
Is a cheaper advisor always better?
No. Cheap and wrong is more expensive than expensive and right. The goal is a fee you can see clearly, a scope you understand, and work that changes your outcome. Cost matters most when the advice is generic.
Can I check an advisor's record myself?
Yes. The SEC's public disclosure database covers registered investment advisers and their representatives, including disciplinary history and the firm's Form ADV. It is free and takes minutes.
What if I only need one question answered?
Say so. A pension election, a rollover decision or a single portfolio review can often be handled as a fixed-scope piece of work. A good firm will quote a project fee and not push you into ongoing management.
Should my advisor also prepare my taxes?
Only if they are a CPA and set up to do so. Otherwise, the better arrangement is an advisor who coordinates with your tax preparer. Retirement withdrawals and Roth conversions are far better decisions when both people are looking at the same numbers.