What to look for in a financial advisor
A reputable financial advisor is someone who is registered with a government regulator, discloses how they make money, and can show you their disciplinary history. The two main regulators in the United States are the Securities and Exchange Commission (SEC) for advisors managing larger accounts, and state securities regulators for advisors managing smaller accounts. Both require advisors to register and file public records about their background, credentials, and any complaints or violations.
The most important distinction is whether an advisor is a fiduciary — meaning they are legally required to put your interests ahead of their own — or not. Some advisors are fiduciaries only for certain types of information (like retirement accounts) but not others (like insurance products). Ask directly: "Are you a fiduciary 100% of the time, or only for certain accounts?" A clear answer tells you whether they have a legal obligation to recommend what is best for you or what pays them the most.
Reputable advisors also explain their fee structure upfront. The three common models are: flat fees (you pay a set amount per year), hourly fees (you pay for time spent), or assets under management (a percentage of the money they invest for you, typically 0.5% to 1.5% annually). Some advisors use a commission model, earning money when you buy certain products — this creates a conflict of interest and is a red flag unless they also disclose it clearly and explain why you should still trust their recommendation.
Key Takeaways
- Check an advisor's registration and disciplinary history using the SEC's Investment Adviser Public Disclosure database or your state securities regulator's website — both are free and public.
- Ask whether the advisor is a fiduciary 100% of the time; if they say "only for retirement accounts" or hesitate, they are not required to put your interests first in all situations.
- Understand how the advisor makes money before you hire them — flat fees, hourly fees, and assets under management are transparent models; commissions on products you buy are a conflict of interest.
- Verify credentials like CFP (Certified Financial Planner) or CFA (Chartered Financial Analyst) by checking the issuing organization's website, not just the advisor's claim.
- Ask for references from current clients and speak to at least two before deciding — a reputable advisor will provide them without hesitation.
How to check an advisor's registration and history
The SEC maintains the Investment Adviser Public Disclosure database at investor.gov. Search by the advisor's name or firm name, and you will see their registration status, the types of clients they serve, how much money they manage, and any disciplinary actions. This database is free and updated regularly. If an advisor does not appear in this database, they may not be registered — which could mean they are unqualified or operating illegally.
For advisors registered at the state level (usually those managing under $100 million), check your state's securities regulator website. Each state maintains its own database. You can find your state regulator through the North American Securities Administrators Association (NASAA) website, which has links to every state's office. The state database shows the same information as the SEC database: registration, credentials, and any complaints or violations.
When you find an advisor's record, look for the "Form ADV" — this is the official registration document advisors must file. It lists their business practices, fees, conflicts of interest, and any disciplinary history. Read the section labeled "Part 2" carefully; it discloses how they make money and what risks come with working with them. If an advisor refuses to show you their Form ADV or says it is "too technical," that is a warning sign.
Verifying credentials and certifications
Common credentials like CFP (Certified Financial Planner), CFA (Chartered Financial Analyst), and CPA (Certified Public Accountant) mean the advisor has passed exams and met education requirements. However, not all credentials are equal, and some are easier to obtain than others. Always verify a credential by checking the issuing organization's website directly, not by trusting the advisor's word.
For a CFP, go to the Certified Financial Planner Board of Standards website and search their registry. For a CFA, check the CFA Institute website. For a CPA, contact your state's accounting board. These organizations maintain public registries where you can confirm the credential is current and the advisor has not been disciplined. If an advisor claims a credential but does not appear in the official registry, they are either lying or the credential has been revoked.
Be cautious of credentials you have never heard of or that sound official but are not widely recognized. Some organizations create credentials with impressive-sounding names but have low standards for earning them. Stick with credentials from established organizations that require ongoing education and have enforcement power to discipline members who break rules.
Understanding fee structures and conflicts of interest
The way an advisor makes money directly affects the information they give. An advisor paid by assets under management (AUM) — a percentage of the money they invest for you — has an incentive to encourage you to invest more money with them, but they also benefit when your money grows, so their interests align with yours to some degree. This model is common and generally considered transparent.
Flat-fee and hourly-fee advisors have no incentive to recommend one investment over another because they are paid the same regardless. These models are often the most transparent, though they may not work well if you need ongoing management of a large portfolio.
Commission-based advisors earn money when you buy certain products, like mutual funds or insurance policies. This creates a direct conflict: they make more money if they recommend a more expensive product, even if a cheaper one would serve you better. Some commission-based advisors are honest and will recommend what is best for you anyway, but the structure itself is a red flag. If an advisor works on commission, ask them to explain why their recommendation is better than alternatives and get a second opinion before buying.
Some advisors use a hybrid model — they charge a flat fee or AUM but also earn commissions on certain products. This is common but creates a conflict. Ask the advisor to disclose all the ways they make money from your account, and ask them to explain any situation where their financial interest might conflict with yours.
Questions to ask before hiring an advisor
Start with the basics: "How are you registered, and with whom?" A reputable advisor will tell you when ready whether they are registered with the SEC or their state, and they will offer to show you their Form ADV. If they are vague or defensive, move on.
Ask: "Are you a fiduciary 100% of the time?" Listen carefully to the answer. "Yes" is good. "Only for retirement accounts" or "Only when I am giving investment information" means they have situations where they are not required to put your interests first. "I always try to act in your best interest" is not the same as being a fiduciary — it is a nice sentiment but not a legal requirement.
Ask: "How do you make money from my account?" They should give you a clear, specific answer. If they say "We charge a small fee" or "It depends," ask them to put the fee structure in writing before you sign anything. Ask for examples: "If I invest $500,000 with you, what will I pay in the first year?" This forces them to do the math and show you the actual dollar amount.
Ask: "Can you give me the names of three current clients I can speak with?" A reputable advisor will provide references without hesitation. Call them and ask: "How long have you worked with this advisor? What do you like about them? What would you change? Have they ever recommended something you did not understand, and did they explain it clearly?" Client references are one of the best ways to learn what it is actually like to work with someone.
Red flags that signal an unreliable advisor
An advisor who guarantees returns is making a promise they cannot keep. Markets go up and down; no one can may provide a specific return. If an advisor says "You will make 10% a year" or "I can beat the market," they are either inexperienced or dishonest. Reputable advisors discuss expected returns based on historical data and risk, but they do not may provide anything.
An advisor who pressures you to decide quickly, uses high-pressure sales tactics, or discourages you from asking questions is not acting in your interest. Reputable advisors welcome questions and give you time to think. If someone says "This opportunity closes today" or "You need to decide right now," that is a sales tactic, not information.
An advisor who is not registered, does not have a clear fee structure, or refuses to show you their Form ADV is operating outside the rules. Registration is not optional — it is the law. If they are not registered, they should not be managing your money.
An advisor who has a long history of complaints or disciplinary actions in their Form ADV is a risk. One complaint does not mean much, but a pattern of violations, customer disputes, or regulatory actions suggests they have a history of putting their interests ahead of clients' interests.
Where to search for advisors and get second opinions
The Garrett Planning Network and NAPFA (National Association of Personal Financial Advisors) are membership organizations that include advisors who work on a fee-only basis (meaning they do not earn commissions). Their websites let you search by location and specialty. Being a member of these organizations does not may provide quality, but it does mean the advisor has committed to a fee-only model, which reduces conflicts of interest.
The CFP Board website has a "Find a CFP" search tool where you can look for certified financial planners in your area. Again, this does not mean every CFP is right for you, but it is a starting point for finding advisors who have met certain education and ethics standards.
Before hiring an advisor, consider getting a second opinion from another advisor or from a fee-only financial planner who charges by the hour. Paying $200 to $500 for a second opinion on a major financial decision can save you thousands in bad information. A reputable advisor will not be offended if you want a second opinion — they expect it.
Frequently Asked Questions
What is the difference between a financial advisor and a financial planner?
The terms are often used interchangeably, but technically a financial planner usually creates a comprehensive plan covering your whole financial life (retirement, insurance, taxes, estate planning), while an advisor might focus on just investing your money. Both should be registered and disclose their fees. Ask what services they provide and whether they will create a written plan for you.
Do I need a CFP, or is any registered advisor good enough?
A CFP has passed rigorous exams and met education requirements, which is a good sign. However, some excellent advisors do not have a CFP, and some CFPs are not a good fit for your situation. Registration and fiduciary status matter more than any single credential. A CFP who is not a fiduciary is less trustworthy than a non-CFP who is a fiduciary 100% of the time.
Can I check an advisor's history if they work for a big bank or investment firm?
Yes. Even advisors at large firms like Fidelity, Vanguard, or Bank of America are registered individually and have their own records in the SEC or state databases. Search by the advisor's name, not the firm name, to find their personal disciplinary history. Some large firms have good reputations, but individual advisors within them vary.
What should I do if I find complaints about an advisor in their Form ADV?
One or two complaints do not necessarily disqualify an advisor — complaints happen in any profession. But read what the complaints were about. If multiple clients complained about the same issue (like hidden fees or unsuitable recommendations), that is a pattern. If the advisor settled complaints without admitting wrongdoing, ask them to explain what happened and why you should still trust them.
Is it okay to work with an advisor who earns commissions?
Commission-based advisors can be trustworthy, but the fee structure creates a conflict of interest. If you work with one, ask them to explain why their recommendation is better than lower-cost alternatives, and get a second opinion before buying. A commission-based advisor who is also a fiduciary is better than one who is not, but a fee-only advisor eliminates the conflict entirely.