What to ask before you hire

Before you pay a financial advisor or hand over account information, ask about their credentials, how they charge, and what they actually do with your money. The right questions protect you from conflicts of interest, hidden fees, and advisors who are not may have access to to handle your situation. Most advisors expect these questions — the ones who get defensive are the ones to avoid.

Start by asking how they are registered and what licenses they hold. Then ask how they make money from you. Then ask what happens to your accounts and who can access them. These three conversations tell you whether an advisor is trustworthy and whether their incentives align with yours.

Key Takeaways

  • Ask whether the advisor is a fiduciary for all their work with you, or only for certain accounts — this determines whether they must put your interests first.
  • Request a written explanation of all fees: percentage of assets under management, flat fees, commissions on products sold, or hourly rates, because verbal promises are not enforceable.
  • Verify their registration with the SEC or your state's securities regulator, and ask about any disciplinary history or customer complaints.
  • Ask who holds your money and what custodian they use, because your advisor should never hold your actual cash or securities.
  • Request references from clients with similar situations to yours, and contact at least two to ask whether the advisor delivered what was promised.

Credentials and registration to verify

Ask what licenses and certifications the advisor holds. The most common are CFP (Certified Financial Planner), CFA (Chartered Financial Analyst), and CPA (Certified Public Accountant). Each requires passing exams and meeting education requirements, but they measure different things — a CFP has broad financial planning training, a CFA focuses on investment analysis, and a CPA specializes in taxes. None of these alone means the advisor is right for you, but their absence is a red flag.

Ask whether they are registered with the SEC (Securities and Exchange Commission) or with your state's securities regulator. This is not optional — if they manage money or give investment information, they must be registered somewhere. You can verify their registration and check for complaints on the SEC's Investment Adviser Public Disclosure website or your state regulator's site. Ask them directly for their registration number and the name of their firm, then look it up yourself rather than trusting their word.

Ask about any disciplinary history, customer complaints, or lawsuits. Advisors are required to disclose this on their registration forms, but many do not volunteer it. If you find something in the public record, ask them to explain it. A single old complaint may not disqualify someone, but a pattern of complaints or a recent settlement is worth taking seriously.

How they charge and what that means for you

Ask for a written breakdown of every way they make money from you. The main models are: assets under management (AUM), where they charge a percentage of your account balance each year; flat fees, where you pay a set dollar amount; hourly rates, where you pay for time spent; and commissions, where they earn money when you buy or sell certain products. Many advisors use a combination.

AUM fees create a conflict of interest — the advisor makes more money if your account grows, which sounds aligned with your interests, but it also means they benefit from you keeping money with them even if you should move it elsewhere. A 1% AUM fee on a $500,000 account costs $5,000 per year; over 20 years that is $100,000 in fees. Ask whether the percentage drops as your account grows, and whether they charge the same rate for all account types.

Commission-based advisors earn money when you buy or sell investments, which creates pressure to trade more often than you need to. Ask what products they sell and what commissions they receive. If they sell insurance, annuities, or mutual funds, they are almost certainly earning commissions — ask for the exact percentage.

Request a sample invoice or fee schedule in writing. Verbal promises about fees are not binding; written terms are. Ask whether there are any hidden costs — account maintenance fees, trading fees, or charges from the custodian that you will pay separately.

Fiduciary duty and conflicts of interest

Ask whether they are a fiduciary for all of their work with you. A fiduciary is legally required to put your interests ahead of their own. Not all financial advisors are fiduciaries — many are only held to a lower standard called "suitability," which means they only have to recommend products that are not unsuitable, even if better options exist. This is a critical difference.

Some advisors are fiduciaries only for certain accounts or services. For example, they might be a fiduciary when managing your IRA but not when selling you an annuity. Ask them to state in writing which services are covered by fiduciary duty and which are not. If they hedge or refuse to answer clearly, that is a sign they are not putting you first.

Ask about other clients or businesses they work with that might create conflicts. Do they own an insurance company? Do they have a referral arrangement with a mortgage broker? Do they get paid more for recommending certain mutual funds? None of these necessarily disqualify them, but you need to know about them so you can judge whether their recommendations are influenced by money.

Who holds your money and how it is protected

Ask who the custodian is — the company that actually holds your cash and securities. Your advisor should never hold your money directly. The custodian is usually a large bank or brokerage like Fidelity, Charles Schwab, or TD Ameritrade. The custodian sends you statements directly, and you can verify your balance independently. This separation protects you if the advisor goes out of business or commits fraud.

Ask whether your accounts are covered by SIPC (Securities Investor Protection Corporation) insurance. SIPC covers up to $500,000 per account if the custodian fails, though it does not cover losses from bad investment performance. Ask the custodian directly about their insurance, not just the advisor.

Ask how often you will receive statements and what information they will contain. You should get statements at least quarterly, and you should be able to log in to your account online to check your balance anytime. If the advisor discourages you from reviewing your statements or logging in, that is a warning sign.

What they will actually do for you

Ask for a written description of the services they provide. Will they build a financial plan? How often will they review it? Will they rebalance your portfolio, and if so, how often? Will they handle tax-loss harvesting or coordinate with your tax preparer? Will they help with estate planning or insurance needs? Different advisors offer different services, and you need to know what you are paying for.

Ask how often you will meet or speak with them. Some advisors meet quarterly, others annually, and some only by phone or email. Ask whether you will work with the same person every time or whether you might be handed off to someone else. Ask what happens if your advisor leaves the firm — will you be assigned to someone new, or will you have a choice?

Ask what their investment philosophy is and how they choose investments. Do they use index funds, actively managed funds, individual stocks, or a mix? Do they use a specific model or process, or do they customize everything? Ask them to explain it in plain language, not jargon. If they cannot explain it straightforward, they may not understand it themselves.

Red flags and what to do if something feels wrong

Walk away if an advisor promises specific returns, guarantees you will not lose money, or claims they have a system that beats the market. No one can may provide investment returns. Walk away if they pressure you to decide quickly, if they are vague about fees, or if they discourage you from asking questions.

Walk away if they do not want you to know who the custodian is, if they ask you to make checks out to them personally, or if they discourage you from reviewing your statements. These are signs of fraud.

If you have a complaint about an advisor, file it with the SEC or your state regulator. You can also file a complaint with FINRA (Financial Industry Regulatory Authority) if the advisor is a broker. These agencies investigate complaints and can take action against advisors who break the rules.

Frequently Asked Questions

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

A financial advisor typically manages investments and gives information on specific products. A financial planner usually takes a broader approach, looking at your whole financial picture — retirement, taxes, insurance, estate planning, and debt — and creating a written plan. Some people use the terms interchangeably, so ask what services they actually provide rather than relying on their title.

Should I hire an advisor who works for a bank or brokerage, or an independent advisor?

Both can be good or bad. Bank and brokerage advisors have institutional backing and may have lower fees, but they may be limited to selling their employer's products. Independent advisors can recommend anything, but they may charge higher fees and have less oversight. Ask the same questions either way — credentials, fees, fiduciary duty, and who holds your money.

How much should I expect to pay a financial advisor?

Fees vary widely. AUM fees typically range from 0.5% to 1.5% per year depending on account size. Flat fees might be $2,000 to $10,000 per year for a financial plan. Hourly rates typically range from $150 to $400 per hour. Ask what is typical in your area and for your situation, and compare fees across multiple advisors before deciding.

Can I fire an advisor and move my money if I am unhappy?

Yes. You own your accounts, and the custodian holds them in your name. You can move your money to a different advisor or custodian anytime. Ask your current advisor and the new custodian about the process before you start — some transfers take a few weeks. You may owe fees to your current advisor if you leave before the end of a billing period, so check your contract.

What should I do if I find a complaint against an advisor in the public record?

Ask the advisor to explain it. A single old complaint may have been resolved fairly. A pattern of complaints or a recent settlement is more concerning. You can also contact the regulator who filed the complaint to learn more details. Trust your judgment — if something feels off, you can always interview other advisors.