What is a financial advisor?
A financial advisor (or adviser) is a professional who gives paid guidance to individuals or organizations about money matters — investing, retirement, taxes, insurance, estate planning and more. The title is broad and used by many types of professionals (stockbrokers, insurance agents, investment managers, financial planners, bankers, etc.). What distinguishes a true advisor is that they provide ongoing advice and planning, not just one-off product sales or trade execution.
Key distinctions
– Fiduciary vs. suitability: Registered Investment Advisers (RIAs) who are governed by the Investment Advisers Act of 1940 are legally bound to a fiduciary standard — they must put client interests above their own. Broker-dealers and some sales agents are generally held to a “suitability” or reasonableness standard (caveat emptor), which allows recommendations that are suitable but may benefit the firm or advisor. Ask whether an advisor is a fiduciary for your relationship.
– Titles aren’t regulated uniformly: “Financial advisor” is generic. Look at licenses and credentials (see below) to understand what an individual is authorized and qualified to do.
How many advisors and typical pay
– There were about 330,300 financial advisors in the U.S. (2021), per the U.S. Bureau of Labor Statistics.
– Median pay (2021): about $94,170 per year ($45.27/hour), per BLS.
What financial advisors do
– Assess financial situation and goals (cash flow, debts, risk tolerance, time horizon)
– Build financial plans for retirement, education, estate transfer, taxes, insurance and investment allocation
– Manage investments (discretionary or non‑discretionary) and rebalance portfolios
– Coordinate taxes, insurance, and estate strategies with other professionals (CPAs, estate attorneys)
– Provide behavioral coaching and ongoing monitoring and adjustments
Common credentials and licenses
– Licenses for selling securities or providing investment advice: Series 7, Series 6, Series 63, Series 65, etc. (RIAs or those giving advice to the public typically hold the Series 65). (See NASAA and FINRA references below.)
– Professional designations signaling training and ethics: CFP® (Certified Financial Planner), CFA (Chartered Financial Analyst), ChFC (Chartered Financial Consultant), CPA for tax specialists, etc. CFP is common for holistic planners.
– Registered Investment Adviser (RIA) status: an advisory firm’s registration (with SEC or state) is a key indicator of being held to a fiduciary standard.
How advisors charge (typical fee structures)
– Assets under management (AUM): common — around 1% of AUM annually on average, often with sliding scale (larger accounts pay lower percentage). Example: 1% on $500,000 = $5,000/year.
– Flat annual or retainer fee: ranges reported commonly from $2,000 to $7,500 for ongoing service.
– Project or plan fee: one-time planning engagements often range $1,000–$3,000 depending on complexity.
– Commissions: on products sold (insurance, certain mutual funds or annuities); commissions can be 3–6% for some products.
– Hourly: less common but used for limited-scope or advisory work.
How much advisors make
Compensation varies by experience, region, client base, fee model, and services. Median figures above are a useful benchmark, but top advisors and rainmakers can earn substantially more.
How to choose a financial advisor — step-by-step
1. Clarify your needs
– Do you need comprehensive planning, investment management, tax planning, or a single service? Your needs determine the best compensation model (AUM vs. flat vs. hourly vs. commission).
2. Search and narrow options
– Look for advisors with relevant credentials (CFP, CPA/PFS for tax, CFA for investment specialization).
– Use advisor search tools (national associations, CFP Board, broker websites) and personal referrals.
3. Check registrations and records
– For investment advisors/brokers: search BrokerCheck (FINRA) and the SEC’s Investment Adviser Public Disclosure or your state regulator. Look for Form ADV (if an RIA) which discloses fees, conflicts and disciplinary history.
4. Ask direct questions (see checklist below)
– Confirm whether they are a fiduciary in writing.
– Ask how they are paid and for an itemized fee example.
– Request a sample financial plan or a description of a typical client engagement.
– Ask about investment philosophy, products used, and whether they take custody of assets.
– Ask about experience with clients like you and request references.
5. Compare fees and value
– Don’t pick solely on lowest fee — consider services, experience, and potential conflicts. Calculate dollar impact (e.g., a 1% fee on large sums matters over decades).
6. Review contract and disclosures
– Read the advisory agreement and Form ADV (for RIAs). Confirm services, fees, termination terms, and whether they receive third-party payments (commissions/referrals).
7. Start with a trial or limited scope (optional)
– Consider starting with a single project (a financial plan or hourly consultation) before committing assets.
8. Monitor and review regularly
– Schedule annual reviews and demand transparent reporting. Reassess if responsiveness or suitability is unsatisfactory.
Checklist of questions to ask any prospective advisor
– Are you a fiduciary for this relationship? Can that be put in writing?
– Are you an RIA? Are you registered with the SEC or the state? Can I see your Form ADV?
– What licenses and professional designations do you hold? How long have you been practicing?
– How do you charge (AUM, flat fee, hourly, commissions)? Provide a fee example for my hypothetical portfolio.
– What services are included? Are there additional fees for tax prep, estate work, or third-party products?
– Do you receive any third-party compensation or incentives for recommending specific products?
– Will I have direct access to you; who will handle my account day-to-day?
– Can you provide references from clients with similar needs?
– What is your investment philosophy and how do you manage risk?
– How will we measure progress toward my goals?
Red flags to watch for
– Lack of transparency about fees or conflicts of interest.
– Guarantees of unusually high returns or pressure to buy specific products.
– Inability or unwillingness to provide Form ADV, disciplinary history, or references.
– Advisor focuses mainly on selling proprietary products or earns large commissions from recommended products.
How to become a financial advisor — practical steps
1. Education: complete a bachelor’s degree (finance, economics, accounting helpful but not strictly required).
2. Entry experience: seek internships or entry-level roles at banks, broker-dealers, or advisory firms (firms often sponsor licensing).
3. Licensing: depending on role, obtain required exams — common ones include Series 7, 6, 63, and Series 65 (Series 65 often required for advisory roles). See NASAA exam outlines and FINRA qualification references.
4. Professional designations: pursue CFP® (for comprehensive planning), CFA (for investment management), or other specialized credentials. CFP requires education, exam, experience and ethics requirements.
5. Registration and compliance: if starting your own advisory firm, register as an RIA with the SEC or state and file Form ADV. Follow recordkeeping and compliance obligations.
6. Build client base: network, referrals, and marketing; many advisors start under a firm or franchise to build initial clients.
7. Ongoing education: maintain continuing education, stay current on regulations, tax and investment developments.
Practical examples and math
– Fee impact example: 1% AUM fee on $500,000 = $5,000/year. Over 30 years, a consistent 1% annual drag can materially reduce retirement assets compared with a lower-cost alternative (compounded impact).
– Flat planning fee: a $2,500 plan may be appropriate if you need one-time retirement and estate planning with implementation by you or your advisor.
Bottom line
A financial advisor can be an extremely valuable partner for building a plan, managing investments and coordinating taxes, insurance and estate matters. Because “financial advisor” covers many roles, do your homework: verify credentials, understand exactly how the advisor is paid, confirm whether they’ll act as a fiduciary, and get everything in writing. Your relationship should provide clear value relative to the fees and should be reviewed regularly.
Sources and further reading
– Investopedia — What Is a Financial Advisor? (primary summary used): https://www.investopedia.com/terms/f/financial-advisor.asp
– U.S. Bureau of Labor Statistics — Personal Financial Advisors (employment and pay data): https://www.bls.gov/ooh/business-and-financial/personal-financial-advisors.htm
– FINRA — Qualification Exams: https://www.finra.org/registration-exams-ce/qualification-exams
– North American Securities Administrators Association (NASAA) — Series 65 Exam Content Outline: https://www.nasaa.org/industry-resources/exams/series-65/
If you’d like, I can:
– Draft a short list of certified advisors in your state (public data permitting), or
– Provide a customizable interview script you can use when meeting prospective advisors, or
– Create a cost comparison calculator (AUM vs flat fee vs commission) for your portfolio. Which would help most?