How to Evaluate Your Financial Advisor: 3 Key Questions to Ask

Choosing a financial advisor is one of the most significant financial decisions individuals face. According to a recent NerdWallet survey conducted online by The Harris Poll, nearly two in five Americans (39%) state that a financial advisor influences how they manage their finances.

With such high stakes involved, it is no surprise that many turn to personal networks for recommendations. The survey reveals that 13% of Americans rely on an advisor recommended by friends or family, while 12% are guided by an advisor introduced by their parents. Meanwhile, nearly a quarter (23%) of respondents independently select their financial advisor without external recommendations.

Regardless of how you discovered your advisor—whether through independent research, a personal referral, or a combination of both—asking the right questions is essential to determining if they are the right fit for your financial journey.

Are they a good communicator?

When evaluating a financial advisor, many clients focus primarily on financial metrics. However, you should consider the qualitative aspects of the relationship as well.

A 2023 study by Morningstar, a financial services firm, revealed that clients part ways with their advisors for reasons beyond cost and performance. The study highlighted that relationship dynamics and communication issues are key factors, with approximately one in five clients citing the quality of the relationship as a primary reason for termination.

A strong rapport with your advisor might seem secondary, but it is actually fundamental. Your financial goals are deeply intertwined with your personal life and experiences. Finding an advisor who listens and communicates effectively with you is essential.

Ask yourself: Is your advisor organized and responsive to follow-ups? Do they initiate contact proactively, or do you always have to make the first call? Have they taken the time to understand your personal values and unique circumstances? If they meet these criteria, your current relationship is well-positioned to weather future financial challenges. Conversely, if routine interactions leave you feeling irritated or misunderstood, you may face significant frustration during emotionally charged financial decisions.

Are their prices competitive?

While financial outcomes are important, client satisfaction is also heavily influenced by the transparency and structure of investment costs.

Of course, you want a sound investment strategy and solid long-term returns. However, investing is inherently unpredictable, and no advisor can guarantee to outmaneuver every market downturn.

The best financial advisors offer competitive, transparent fee structures and guide clients toward low-cost investment options. Excessive fees erode overall returns, even if the underlying investments perform in line with the market. According to the Morningstar report, high costs were cited as the third most common reason clients terminated their advisors.

For instance, some advisors charge a flat annual fee, such as $2,500. Others charge a percentage of assets under management (AUM). For example, a 1% fee on a $500,000 portfolio amounts to $5,000 annually, which is typically deducted directly from the account. Some advisors combine both fee structures. While both models are valid, it is crucial to understand how each pricing plan operates when comparing options.

Once you understand the exact annual cost, comparing it to industry standards is reasonable. However, the lowest price is not always the best choice. Higher fees can be justified by a broader suite of services, such as specialized tax planning or comprehensive estate management.

Ask yourself: Are you fully aware of what you are paying your advisor, or does fee discussions make you tune out? While your advisor must clearly explain their fees, it is your responsibility to ensure the price aligns with the value of services provided.

What certifications do they have?

The financial industry features a wide array of job titles, ranging from money coaches and wealth managers to financial therapists. Technically, the term ‘financial advisor’ is not a protected legal designation, meaning anyone can use it. Therefore, verifying an advisor’s actual credentials and certifications is essential.

One of the most respected credentials in the industry is the Certified Financial Planner (CFP) designation. All CFPs are legally required to act as fiduciaries, meaning they must work in your best interest and fully disclose or eliminate conflicts of interest. This designation also signifies that the advisor has completed a rigorous financial education curriculum and passed a demanding examination.

Not all fiduciaries hold the CFP designation. You can also verify if your advisor is a registered investment advisor (RIA) by checking the Investment Adviser Public Disclosure website. Registered investment advisors are also held to a fiduciary standard. If you remain uncertain about your advisor’s status, do not hesitate to ask them directly.

Ask yourself: Does your advisor hold a certification that legally obligates them to prioritize your financial interests over their own profits? While the absence of an external standard does not imply that an advisor lacks personal ethics, it does make it more challenging for consumers to understand the specific standards of accountability and how they would be enforced.

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About the author

Kurt Woock joined NerdWallet in 2021. Before that, he served as a writer and educator for Colorado PERA, a retirement system for public employees, and previously worked as a legislative editor for the Colorado General Assembly. Kurt holds a B.A. from Valparaiso University and an M.A. in journalism from the University of Missouri-Columbia. He is based in Chicago.

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