Have you ever looked at your bank account and thought, There’s so much money in here, I don’t know what to do with it? Me neither. But if you have, it’s probably time to find a financial adviser. And if not, it still helps to be aware of what a financial adviser can do for you and when it’s worth hiring one down the road.
A good financial adviser is like an angel with dollar bills for wings, whispering sweetly into your ear, “No, you can’t buy that thing because your future self deserves better.” At the most basic level, they can work with you to make a realistic plan for saving and investing. They can also manage more complicated financial questions, like how to juggle competing goals or save up to open a business. And finally, they come in handy when big life stuff happens — a loved one dies and leaves you money or other assets, for instance.
At least theoretically they can. Some financial advisers will just charge you high fees, bury you in confusing jargon, and funnel your money into investments that pay them a commission (i.e. a kickback) but aren’t actually well-aligned with your needs. So how do you know the difference?
To start, it’s worth examining whether you need to hire a financial adviser in the first place, and if so, what you want them to do for you. Here are the steps to make this process more straightforward.
1. Get on top of your basic financial health.
Most people technically don’t need a financial adviser. That’s because the financial milestones they’re working toward are simple enough for them to pursue on their own — for free. (To be clear, simple doesn’t mean they’re easy to reach.)
Georgia Lee Hussey, a certified financial planner and CEO of the wealth-management firm Modernist Financial, classifies this as “stage one”: Your objectives include paying off high-interest debt like credit cards, staying on top of your bills, saving up an emergency fund, and working toward maxing out retirement accounts like a 401(k) and/or an IRA. If you’re anything like me, these goals will keep you pretty busy for a while, no professional help needed.
2. Educate yourself.
This phase is also a great time to learn about personal finance using free (or cheap) resources like podcasts (I recommend Farnoosh Torabi’s So Money), websites (I like Ellevest), and books (here’s a list of ideas; Hussey also recommends Money for the People, by Paco de Leon). You’d also be surprised at how many free financial-education courses you can find — at your local library, credit union, community center, etc.
While you’re at it, start thinking about what you’d want a financial adviser to help you do once you’ve got stage one covered. Maybe you want to buy a house someday, help out your family when they need it, pay for your real or hypothetical kids to go to college, own a goat farm in the woods … think big! You aren’t putting these plans in motion yet; you’re just brainstorming.
3. But also, be realistic about what you can accomplish on your own.
If the last two paragraphs made you staple your eyes shut because, let’s be real, you just are never going to read a book about personal finance and you’re not even sure what a 401(k) is, then it might be worth making an exception and talking to a financial adviser to demystify the basics. It’ll cost more than figuring it out yourself, but if it makes the difference between having a plan versus no plan at all, then it’ll definitely save you money in the long run.
“A lot of people aren’t sure when they should work with an adviser, so they put it off, and it causes stress because there are a lot of unknowns,” says Pari Hashemi Magura, a certified financial planner at Wells Fargo. Alternatively, they might think that their finances have to be in better shape before they can seek help. But there are lots of decent advisers who will sit down with you for an hour or two, for a one-time fee, and help you with whatever you need.
4. Put together your financial to-do list for the future.
Before you start looking for an adviser, get a general idea of what you’re seeking help with. Maybe you’ve checked all your stage-one boxes, saved up some cash, and are ready to start investing beyond your existing retirement accounts. Or maybe one of those “life stuff” things happened and you need a hand. Or perhaps you fall into the “no idea what I’m doing at all” camp and want some direction. It’s important to get clarity on your goals so that you can communicate them clearly.
5. Focus your search.
You want a certified financial planner (they should have “CFP” in their title), which means they have a credential from the Certified Financial Planner Board of Standards. “There is no reason to hire anybody but a CFP. Financial advisers who are not CFPs are not qualified to give advice,” says Hussey. You are also looking for a “fiduciary,” she adds, which is a legal classification that requires them to act in your best financial interest. (That might seem like a no-brainer, but it allows you to sue them if they do anything crooked.)
Where should you look? You could start by asking family and friends if they have anyone they like, recommends Magura. Hussey also suggests the XY Planning Network, a database of CFPs who offer fee-only services and won’t earn commission by selling you products you don’t need. Their website offers detailed search functions so that you can get specific about the type of person you think would make you feel most comfortable and would best suit your phase of life (for instance, if you’re 25, you probably don’t need someone who specializes in estate planning).
6. Interview candidates and pay attention to how they make you feel.
The next part is squishy and very important: You’ve got to figure out if you like them, trust them, and feel confident that they’re the right fit. Make a list of three to five contenders and ask if they’ll speak with you on the phone for 10 to 15 minutes. (They should not charge for this.) Describe where you are financially. Then ask if they think they can help you and what the next steps would look like. This is sort of like finding a therapist — you’ve got to feel it out.
Then, listen! If you can’t understand what they’re saying, then say so and see how they react and clarify. (If you still can’t understand, say thank you and hang up the phone.) “You’re looking to see, ‘Am I going to be respected in this relationship even if I don’t know a lot?’” says Hussey. “Some people can be very helpful and, when you don’t understand something, see that as an opportunity to teach and empower. That’s who you want to work with.”
Other ways to suss out whether an adviser is for you: You can look on their company website and see where they donate (or don’t). You can look at the diversity of their staff. You can also prepare a question or two that will reveal potential blind spots or red flags. “If you come from a community that has encountered systemic barriers to building intergenerational wealth, ask a question that helps you understand whether they understand that,” says Hussey.
7. Make sure you can afford it.
Finally — and perhaps most importantly — you’ll want to ask a potential financial adviser how much they charge. This will vary. Some financial advisers will charge a percentage of how much money they manage, usually between 0.25 and one percent (absolutely do not go with anyone who charges more than that). More typically, especially if you’re working with an adviser for the first time, they will charge by the hour, usually between $200 and $500. Many will also charge a higher retainer fee up front, between $1,000 and $5,000, to review all your information and put together a comprehensive financial plan, says Hussey.
If this is beyond you — which is understandable — some financial advisers are willing to offer sliding scale rates. Alternatively, you can access pro bono services through the Foundation for Financial Planning.
Ultimately, a good financial adviser should be worth a ton more than they charge. (Hussey says that one of her clients named their car after her because she’s saved them that much money.) The good news is that if you don’t feel like they’re worth it, you can always switch or stop working with them. Signs that your financial adviser is doing their job include checking in with you, answering your questions in a way that you can understand, and adjusting your plans when things change, which they will. Most of all, they should put your mind at ease.
The Cut’s financial advice columnist Charlotte Cowles answers readers’ personal questions about personal finance. Email your money conundrums to mytwocents@nymag.com