3 Questions to Ask About Your Financial Advisor

Choosing a financial advisor is a big decision, and one that millions of Americans make. Nearly two in five Americans (39%) say a financial advisor shapes how they manage their finances, according to a new NerdWallet survey conducted online by The Harris Poll.

Given the high stakes — your money — it makes sense that some would rely on a referral to find a financial advisor: 13% of Americans say an advisor recommended by friends or family members shapes how they manage their finances, and 12% say the same of an advisor their parents introduced them to, according to the survey. Others are shaped by an advisor chosen without recommendations from family or friends: Nearly a quarter (23%) of Americans cite a financial advisor they selected independently.

Whether you found a financial advisor through your own research, based on a tip from a friend or a combination of both, here are three questions to ask yourself to determine if your advisor is a good fit.

Are they a good communicator?

When evaluating their financial advisor, many clients think about more than just money. You should, too.

A 2023 study from Morningstar, a financial services company, found that “clients fired their [financial] advisors for a number of reasons, not just due to cost and return performance, but also due to things like their relationship and lack of communication.” Among clients who parted ways with their advisor, about one in five cited the quality of relationship as a reason.

If good rapport with your advisor seems superfluous or hollow, think again. Your financial needs don’t sit in isolation; they’re likely a product of your personal story. Having someone who knows how to listen and communicate on your wavelength is a must.

Ask yourself: Is your current advisor organized and quick to follow up? Do they reach out proactively, or are you always the one calling them? Have they spent time trying to understand who you are and what’s important to you? If so, the relationship you’re building now will likely be equipped to handle challenges in the future. If not, and you find yourself irked or misunderstood during routine exchanges, you’re likely to be deeply frustrated when you’re facing an emotionally difficult financial decision.

Are their prices competitive?

Money plays an important role in client happiness, but you may want to focus on the investment costs in addition to the outcomes.

Sure, you want a sound investment strategy, and everyone hopes for solid returns year after year. But investing is full of surprises; nobody should expect their advisor to outmaneuver every market dip.

Here’s what you should expect: The best advisors have a competitive and straightforward price structure, and they steer clients toward investments with low fees. High costs dampen returns, even if the investment performance mirrors the market. According to the Morningstar report, high costs were the third most common reason clients fired their financial advisor.

Before you start comparing your current advisor’s rates to those of other advisors, become familiar with the most common pricing structures financial advisors use.

For example, some advisors charge a flat fee, like $2,500 per year, which you’d pay like any other bill. Other advisors charge a percentage of the assets under management (AUM). A 1% fee on $500,000 of investments would result in a $5,000 annual charge. In this case, the amount is subtracted from your investment accounts. Some advisors use a combination of both types of fees. Both methods are legitimate; just be aware of pricing plans that operate differently when you compare.

Once you have a grasp of the exact amount you’re paying per year, it’s reasonable to compare them to the competition. But the lowest price isn’t necessarily what you should be after. Higher prices could be justified by a wider range of services they provide, like helping with complex tax planning.

Ask yourself: Do you know what you’re paying your advisor, or do your eyes glaze over when this information is shared with you? It’s your advisor’s job to be transparent about costs, but not to be judicious about the price you’re paying — that’s on you.

What certifications do they have?

In the financial industry, there are a wide range of job titles — including money coach, wealth manager and financial therapist. Technically, “financial advisor” isn’t a legal designation, so anyone can call themselves a financial advisor. This means you should see what your advisor’s actual certifications are.

One well-respected certification in the financial industry is the certified financial planner designation (CFP). All CFPs are required to act as a fiduciary. That's good news for clients — it means the advisor is legally required to work in your best interest and eliminate or disclose any conflicts of interest. A CFP designation also indicates the advisor has received a thorough financial education and passed a rigorous exam.

Not all fiduciaries are CFPs. You can also check if your advisor is a registered investment advisor, using the Investment Adviser Public Disclosure website. Registered investment advisors are also required to be fiduciaries. If you’re still unsure whether your financial advisor is a fiduciary, ask them.

Ask yourself: Does your advisor have a certification that requires them to act in your best interest, rather than focusing on maximizing their profit? If not, the lack of an external standard doesn’t mean the advisor lacks standards themselves, but it does make it harder for consumers to sort out exactly what those standards are and how their advisor would be held accountable for not upholding them.