What to do before you contact a financial advisor

Before you reach out to any advisor, gather three things: a list of your current accounts and their balances, your most recent tax return, and a written description of what you want to accomplish in the next five to ten years. An advisor cannot give you useful direction without knowing your actual situation, and you cannot compare advisors fairly if you tell one person you have $50,000 to invest and another you have $100,000.

Write down your specific goals. "I want to retire" is too vague. "I want to stop working at 62 with $4,000 a month in today's dollars" is concrete enough for an advisor to work backward from. If you have multiple goals — a child's college fund, a house down payment, retirement — list them separately with rough timelines.

Know what you do not know. If you are unsure whether you need a 401(k), an IRA, or both, write that down. If you inherited money and do not know what to do with it, say so. Advisors expect these questions. What they cannot work with is vagueness about your own circumstances.

Key Takeaways

  • Gather your account statements, tax return, and a written list of your goals before contacting an advisor, so they can understand your full situation.
  • Financial advisors are regulated differently depending on whether they are registered investment advisors, broker-dealers, or insurance agents — each has different legal duties and fee structures.
  • Ask every advisor directly whether they are a fiduciary for all of their work or only part of it, because this determines whether they must put your interests ahead of their own profit.
  • Fee-only advisors charge a flat rate, hourly rate, or percentage of assets managed; commission-based advisors are paid by the products they sell you; many advisors use a hybrid model.
  • Interview at least two advisors before deciding, and ask for references from clients in situations similar to yours.

The difference between advisor types and their legal duties

A registered investment advisor (RIA) is registered with the Securities and Exchange Commission (SEC) or your state's securities regulator. RIAs must act as fiduciaries — meaning they are legally required to put your interests ahead of their own profit — in all of their work with you. They typically manage money directly or recommend specific investments.

A broker-dealer is licensed to buy and sell securities on your behalf. Brokers must follow a suitability standard, which means they can only recommend investments that are appropriate for you, but they do not have to recommend the best option for you if a different option makes them more money. Brokers are regulated by the Financial Industry Regulatory Authority (FINRA).

An insurance agent sells insurance products and may also discuss investments. Insurance agents are licensed by your state's insurance department. Their fiduciary duty depends on the type of product and the state you live in — it is not automatic. Many insurance agents also hold broker or RIA licenses, which changes their duties.

Some people call themselves "financial advisors" or "financial consultants" without holding any license. They can discuss your finances and goals, but they cannot buy or sell securities, insurance, or other regulated products. If someone offers to manage your money or sell you an investment and has no license, that is a red flag.

How to check an advisor's background and licenses

Use the SEC's Investment Adviser Public Disclosure database at investor.gov to search for RIAs. The database shows their registration status, any disciplinary history, and their Form ADV — the document that describes their business, fees, and conflicts of interest. If an advisor claims to be an RIA but does not appear in this database, they are not registered.

For broker-dealers, search FINRA's BrokerCheck at brokercheck.finra.org. BrokerCheck shows the broker's licenses, employment history, and any customer complaints or disciplinary actions. Read the details of any complaint, not just the count — some complaints are resolved in the customer's favor and others are not.

For insurance agents, contact your state's insurance department directly. Most states have an online lookup tool on their insurance commissioner's website. You can verify the agent's license and check for complaints filed against them.

If an advisor has no license at all, they cannot legally manage your money or recommend specific securities. They may be able to discuss general financial planning, but you should understand the limits of what they can do.

Fee structures: what you will pay and how

Fee-only advisors charge you directly and receive no commissions from products they recommend. Common fee structures are hourly rates (typically $150 to $400 per hour), flat fees for a specific project (such as $2,500 for a retirement plan), or a percentage of assets under management (usually 0.5% to 1.5% per year on the money they manage for you). Fee-only advisors are almost always fiduciaries.

Commission-based advisors are paid by the financial companies whose products they sell you — mutual funds, insurance policies, annuities, or brokerage accounts. You do not write them a check, but you pay through higher fees built into the product. Commission-based advisors are not automatically fiduciaries and may have an incentive to recommend products that pay them more.

Hybrid advisors charge you a fee for planning or account management and also earn commissions on some products. Ask a hybrid advisor which parts of their work are fee-based and which are commission-based, and whether they are a fiduciary for all of it or only the fee-based part.

Request a written fee schedule before you hire anyone. The schedule should state the exact dollar amount or percentage you will pay, when you pay it, and what services are included. If an advisor is vague about fees or says "we'll figure it out later," that is a reason to look elsewhere.

Questions to ask before you hire an advisor

Ask directly: "Are you a fiduciary 100% of the time, or only when you are managing my money?" A fiduciary is required to put your interests first. If they are only a fiduciary part of the time, you need to know which services are covered and which are not.

Ask: "How are you compensated?" Listen for a clear answer about fees, commissions, or both. If they say "we charge a small percentage" without naming the percentage, ask them to write it down.

Ask: "Do you have any conflicts of interest I should know about?" They may own the firm, receive bonuses for selling certain products, or have family members in the business. Conflicts are not automatically disqualifying, but you should know about them.

Ask: "What is your investment philosophy?" Listen for whether they describe a specific approach (such as low-cost index funds, active stock picking, or a mix) or speak only in generalities. A clear philosophy tells you how they will manage your money.

Ask: "Can you give me the names of three clients I can contact?" Request clients in situations similar to yours — if you are saving for retirement, ask to speak with someone else saving for retirement. A good advisor will have references willing to talk.

What happens in your first meeting

A first meeting usually lasts 30 minutes to an hour and is often free. The advisor will ask about your income, expenses, assets, debts, and goals. They may use a questionnaire or software to gather this information. Bring the documents you prepared beforehand — account statements, tax return, and your written goals.

The advisor may ask about your investment experience, your comfort with risk, and what you have done with money in the past. These questions help them understand whether you are likely to panic and sell during a market downturn, or whether you can stick to a long-term plan.

At the end of the meeting, the advisor should explain what they would do for you, what it would cost, and how long it would take. They should also tell you what happens next — whether they will send you a proposal, when you would hear back, and whether there is a contract to sign.

Do not feel pressured to decide in the meeting. A good advisor expects you to think it over and compare them to others. If they push you to sign something on the spot, that is a warning sign.

Red flags that mean you should look elsewhere

An advisor who guarantees returns is breaking the law. No one can promise that your investments will earn a specific percentage or that you will not lose money. If someone says "I can may provide 8% a year," they are either lying or running a scam.

An advisor who is vague about fees or avoids the question is hiding something. You should be able to write down exactly what you will pay and when. If they say "it depends" or "we'll see how it goes," ask them to put a number in writing before you move forward.

An advisor who discourages you from asking questions or checking their background is not acting in your interest. Legitimate advisors expect you to verify their licenses and ask for references.

An advisor who pressures you to move money quickly or says you will miss out if you do not act now is using a sales tactic, not giving you information. Real financial planning takes time.

An advisor with a history of customer complaints, regulatory actions, or criminal charges should be avoided. Check BrokerCheck and the SEC database before you meet with anyone.

Frequently Asked Questions

Do I need a financial advisor, or can I manage my money myself?

That depends on your situation and comfort level. If you have a straightforward situation — a job, a 401(k), and a savings account — you may not need an advisor. If you have multiple income sources, inherited money, a business, or complex tax situations, an advisor can save you money and time. Many people use an advisor for planning and then manage their own accounts afterward.

What is the difference between a financial advisor and a financial planner?

The terms are often used interchangeably, but "financial planner" usually means someone who creates a comprehensive plan covering retirement, taxes, insurance, and estate planning. A "financial advisor" may focus only on investments. Ask what services each person offers rather than relying on the title.

How often should I meet with my advisor?

Most advisors recommend at least one meeting per year to review your plan and adjust it if your situation has changed. Some clients meet quarterly or semi-annually. Ask your advisor how often they recommend meeting and whether additional meetings cost extra.

Can I fire my advisor and move to someone else?

Yes. You can end the relationship at any time, though some advisors charge a fee to close your account or transfer your money. Read your contract to understand any exit costs. Moving your accounts usually takes two to four weeks.

What should I do if I think my advisor is not acting in my interest?

Document the specific actions or information that concern you, then contact your advisor in writing and ask for an explanation. If you are not satisfied, you can file a complaint with the SEC (for RIAs), FINRA (for brokers), or your state's insurance department (for insurance agents). You can also consult another advisor for a second opinion.