A financial advisor helps you make decisions about saving, investing, and planning for major expenses or retirement

A financial advisor is someone you pay to look at your money situation and suggest what to do with it. They might recommend where to put savings, how to structure investments, whether to buy insurance, or how to plan for retirement. Some advisors manage your money directly — they make trades or move money between accounts on your behalf. Others just give you a plan and let you decide whether to follow it.

What an advisor actually does depends on what you hire them for and what type of advisor they are. Some work for banks or investment firms and sell their employer's products. Others work independently and can recommend products from any company. Some charge you a flat fee, others take a percentage of the money they manage, and some earn commissions when you buy what they recommend. Understanding which type you're talking to matters, because it changes what they have financial incentive to suggest.

Key Takeaways

  • Financial advisors can build a plan for your money, manage investments on your behalf, or both — what they do depends on what you hire them to do.
  • Fee-only advisors charge you directly; commission-based advisors earn money when you buy their recommendations; fee-based advisors do both.
  • A fiduciary advisor is legally required to put your interests ahead of their own; a non-fiduciary advisor is not.
  • You do not need an advisor to invest or save, and many people manage their own money through banks, brokerages, or robo-advisors.
  • Before you hire an advisor, ask how they are paid, whether they are a fiduciary, and what services they actually provide.

The three main things advisors do

Most financial advisors do one or more of three things. The first is planning — they listen to your situation, ask questions about your goals and timeline, and create a written plan that says what you should do with your money. This plan might cover retirement, college savings, insurance needs, tax strategy, or all of those. You get the plan and then decide what to do with it.

The second is investment management. You give the advisor money, they invest it in stocks, bonds, mutual funds, or other securities according to a strategy you agree on, and they monitor and adjust it over time. You do not have to make individual decisions about which stocks to buy — the advisor does that work. This is sometimes called discretionary management because the advisor has discretion to make trades without asking you first.

The third is ongoing information. Some advisors meet with you regularly — once a year or quarterly — to review your situation, answer questions, and adjust your plan as your life changes. Others are available when you call with a specific question. Some do both.

How advisors get paid — and why it matters

An advisor's payment method shapes what they have incentive to recommend. There are three main models.

Fee-only advisors charge you a direct fee and earn no commission on products you buy. The fee might be a flat amount per year (say, $2,000), an hourly rate (say, $150 to $400 per hour), or a percentage of the money they manage (often 0.5% to 1.5% per year). Because they only make money from you, not from selling you products, they have no financial incentive to steer you toward expensive investments or unnecessary insurance.

Commission-based advisors earn money when you buy what they recommend — a percentage of the investment you purchase, or a flat payment from the company whose product you buy. They do not charge you a separate fee. The risk here is that they earn more money by recommending expensive products or frequent trades, even if those are not what you actually need.

Fee-based advisors charge you a fee and also earn commissions. This can work well if the fee is substantial and the commissions are small, but it can also create confusion about where their incentive lies.

Fiduciary versus non-fiduciary advisors

A fiduciary advisor is legally required to put your interests ahead of their own. If a fiduciary recommends an investment, they must believe it is in your best interest, even if they would make more money recommending something else. This is a legal standard, and breaching it can result in lawsuits and regulatory action.

A non-fiduciary advisor is held to a lower standard called "suitability." They must recommend products that are suitable for you, but they do not have to recommend the best option for you — only one that is not unsuitable. They can recommend a more expensive product if a cheaper one would work just as well.

Most fee-only advisors are fiduciaries. Many commission-based advisors are not. Some are fiduciaries only for certain services (like retirement information) and not for others. Before you hire an advisor, ask directly: "Are you a fiduciary 100% of the time, or only for certain services?" Get the answer in writing.

What advisors do not do

A financial advisor does not manage your bank account, pay your bills, or handle your day-to-day banking. They do not file your taxes, though some work with your tax preparer. They do not may provide returns or promise you will make money — anyone who does is breaking the law. They cannot force you to follow their information; you can ignore their recommendations or fire them and go elsewhere.

You also do not need an advisor to invest or save money. Many people open a brokerage account at a bank or online brokerage and buy investments on their own. Others use robo-advisors — automated services that build and manage a portfolio for you based on your age and risk tolerance, usually for a much lower fee than a human advisor. Some people use a combination: they manage some money themselves and hire an advisor for specific questions or larger accounts.

Types of advisors and what they specialize in

Different advisors focus on different areas. A financial planner (often a CFP, or Certified Financial Planner) typically builds a comprehensive plan covering retirement, insurance, taxes, and major life goals. An investment advisor focuses mainly on managing your investments and building a portfolio. A wealth manager usually works with people who have substantial assets and handles investments, tax strategy, estate planning, and other services. An insurance advisor focuses on insurance products.

Some advisors specialize by life stage — working with young professionals, families with children, or people nearing retirement. Others specialize by income level or by specific goals like college savings or business succession planning. When you are looking for an advisor, it helps to know what you need help with, so you can find someone who focuses on that area.

Questions to ask before hiring an advisor

Before you hire someone, get clear answers to these questions in writing. First: "How are you paid, and what is the total cost to me?" Ask them to show you the fee or commission structure and estimate what you will pay in the first year. Second: "Are you a fiduciary 100% of the time?" Do not accept vague answers. Third: "What services do you provide?" — planning, investment management, ongoing information, or some combination? Fourth: "What is your investment philosophy?" — do they believe in low-cost index funds, active stock picking, or something else?

Fifth: "What are your credentials?" — are they a CFP, CFA, or other designation? Sixth: "Can you provide references from clients similar to me?" Seventh: "What is your process if I want to fire you?" — can you get your money back, and how long does it take? Finally, ask to see their Form ADV, which is a disclosure document that lists their fees, conflicts of interest, and disciplinary history. You can also search for an advisor's background on the SEC website or FINRA BrokerCheck.

Frequently Asked Questions

Do I need a financial advisor to invest money?

No. Many people invest through a brokerage account or a robo-advisor without hiring a human advisor. If you have a straightforward situation — a steady job, no dependents, and a long time until retirement — you may not need one. If your situation is complex, you have a lot of money, or you want a detailed plan, an advisor can be worth the cost.

How much does a financial advisor cost?

Costs vary widely. Fee-only advisors might charge $1,500 to $5,000 per year for planning, or 0.5% to 1.5% of assets under management. Commission-based advisors charge you nothing upfront but earn a percentage of what you invest. Robo-advisors typically charge 0.25% to 0.50% per year. Ask for a total cost estimate before you hire anyone.

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

A financial planner typically builds a comprehensive written plan covering multiple areas of your finances. A financial advisor might do planning, but might also just manage investments or provide ongoing information. The terms overlap, so ask what services each person actually provides rather than relying on their title.

Can a financial advisor may provide I will make money?

No. Anyone who guarantees investment returns is breaking securities law. An advisor can explain their strategy and show you historical returns, but they cannot promise future results. Markets go up and down, and past performance does not predict the future.

How do I know if an advisor is trustworthy?

Check their background on FINRA BrokerCheck or the SEC website, read their Form ADV, ask for references, and verify their credentials. Choose a fiduciary if possible. Start with a smaller amount of money if you are unsure, and watch how they communicate — a trustworthy advisor explains things clearly and does not pressure you to decide quickly.