How to Check If a Financial Advisor Is Legit

Choosing a financial advisor is an important decision. This person (or firm) has influence over your investments, long-term planning, and the overall trajectory of your finances. However, not every professional delivers trustworthy or legitimate advice.

The wrong choice can put both your money and peace of mind at risk. In this article, we’ll outline five practical steps to help you confirm whether a financial advisor is legitimate. You’ll also learn how to use an initial meeting to evaluate their trustworthiness and expertise.

1. Verify Important Financial Advisor Credentials

Financial advisors often list multiple certifications and professional titles after their names. Some of these carry weight, while others may be less meaningful or even misleading. Your first step should be to understand which designations matter and verify that an advisor truly holds them.

Well-regarded credentials require rigorous education, thorough testing, and ongoing adherence to ethical standards. As you evaluate potential advisors, keep an eye out for widely recognized designations, such as:

• Certified Financial Planner (CFP): Considered the gold standard for financial planning, covering retirement, investments, tax, and estate planning.
• Chartered Financial Consultant (ChFC): Similar to a CFP, but often with more emphasis on insurance and advanced financial planning.
• Chartered Financial Analyst (CFA): Highly regarded in investment management, with deep training in portfolio construction, securities analysis, and ethics.
• Certified Private Wealth Advisor (CPWA): Specialized in serving high-net-worth clients, focusing on wealth transfer, tax strategy, and advanced planning.
• Chartered Retirement Planning Counselor (CRPC): Focused on retirement income planning, Social Security, and helping clients transition into retirement.

“Trust in this industry takes the root of credentials and licensing,” says Paul Ferrara, CIM^®, Senior Wealth Counsellor at Avenue Investment Management. He urges clients to prioritize credentials such as the Chartered Investment Manager (CIM) or CFP because they “demand continuous education” and an “ethical code of conduct and regulation,” which ultimately serve the client’s best interest.

2. Watch for Red Flags In Their Pitch

How an advisor talks about their services and themselves speaks volumes about their legitimacy. As a potential client, knowing what to look out for is crucial to protecting yourself.

According to Melanie McGovern, director of public relations at the Better Business Bureau, particular words or phrases “should raise a red flag for an investment opportunity.” More specifically, she warns not to believe “anything that is ‘guaranteed’ to do well, or that offers low or no risk with a high return.” To put it simply: if things sound too good to be true, they probably are.

McGovern also cautions against pyramid or multi-level marketing schemes that “require you to bring in other investors in order to recoup your initial investment.” Also of note is “the use of a ‘shill,’ a decoy who offers a fictional success story but is really being paid by the promoter of the plan,” she says.

Beyond the above, be cautious of advisors who talk more than they listen and give evasive answers. If you feel something is off, it’s best to just look elsewhere and find someone you can trust with confidence.

3. Understand How They Get Paid

Another important consideration is how a financial advisor earns compensation. Their fee structure can provide clues on whether they’re truly a fiduciary or if there are any conflicts of interest.

Common financial advisor fee models include:

• Flat-fee: You pay directly for advice or services, often as a flat rate or hourly fee. This reduces conflicts of interest and is usually the most transparent.
• Assets under management (AUM): You pay a percentage (often 1%) of your portfolio each year. For example, on a $400,000 account, that’s $4,000 annually. This model aligns the advisor’s incentives with your portfolio growth, but costs can add up.
• Commission-based: The advisor is paid when you buy certain products (like mutual funds or insurance policies). Long-term, this may create conflicts of interest.

“Paying must be easy to calculate and assess,” says Ferrara. “Assuming that I offer a fee of 1 percent on a given portfolio that could be $400,000, the client will know the annual fee is $4,000 and will be able to determine what he or she gets back precisely.”

Ferrara cautions that commission-based models can add “pressure to promote products that are not necessarily in the interest of the client.” For that reason, he advises clients to “demand a written cost breakdown of all the costs and compare whether those costs are appropriate to the service and advice they are getting.”

As you examine fee models, it’s important to prioritize financial advisors who operate on a fee-only structure rather than fee-based (combination of fees and commissions). The former are usually the experts or firms that adhere to a fiduciary duty, and don’t earn any commissions for products they recommend. Because they only charge for advice, you can be more certain they’re upholding your best interest.

4. Use Background-Check Tools

Several tools are at your disposal to research and vet a financial advisor. These allow you to follow up on their credentials, check fiduciary status, and review disciplinary disclosures, if any. Below is a breakdown of the most prominent:

• SEC’s Investment Adviser Public Disclosure (IAPD): Search for investment advisors (RIAs) registered with the U.S. Securities and Exchange Commission. This database shows registration status, firm details, and any disciplinary actions on record.
• FINRA’s BrokerCheck: A free tool that lets you review an advisor’s work history, certifications, and regulatory disclosures. If a firm isn’t a broker, you may need to visit the IAPD to follow up on additional details, such as disciplinary history.
• CFP Board: Lets you verify the credentials of a CFP professional you’re considering.

5. Test Trustworthiness in the First Meetings

Your first meeting with a financial advisor is a prime opportunity to test their trustworthiness and ask important questions. This may range from asking about their fiduciary status to confronting them about complaints or disciplinary history. How they respond can help you decide if it’s worth moving forward with them.

Pay close attention not just to the answers, but to the way the advisor communicates. Do they listen carefully, explain concepts clearly, and tailor their advice to your situation? Or do they rely on vague promises and product pitches? Their tone may reveal as much or more than the content itself.

As you sit down with a professional, consider asking the following five questions:

1. Are you a fiduciary?
2. How do you get paid and can you provide a written breakdown of all costs?
3. Have you ever been disciplined by a regulatory authority or had complaints filed against you?
4. What kind of clients do you typically work with?
5. How can we both measure success in our advisor-client relationship?

“The initial meetings tend to be the most accurate test of the integrity of an advisor,” says Ferrara. “Clients must examine the level of clarity with which the advisor links the strategies to their own specific situations and whether they are taking time to teach, not necessarily to sell.”

Bottom Line

Selecting a financial advisor is a choice with lasting benefits or consequences. By doing your homework beforehand, you can more easily find the right individual or firm to work with for the long haul. Your first meeting is also crucial and is a great time to understand how a professional communicates.

“Due diligence is critical, but ultimately it comes down to trust and relationships built over time,” explains Adam Spiegelman, CFP^®, wealth advisor at Spiegelman Wealth Management. At the core of your advisor-client relationship is the “long-term rapport,” which he highlights “matters as much as credentials and experience.”

If you’d like help finding a qualified advisor in your area, we recommend using a free matching tool. After filling out a short quiz to share your goals, you’ll be connected with a vetted expert who suits your needs.

Frequently Asked Questions

Are all financial advisors fiduciaries?

Financial advisors may adhere to a fiduciary duty, where they’re legally and professionally obligated to act in your best interest. However, some professionals may not and still provide financial advice. As a client, it’s best to ask directly about a professional’s fiduciary status, code of ethics, and any conflicts of interest they may have.

Do legit financial advisors use a specific fee-structure?

Fiduciary financial advisors will often use a fee-only or fee-based structure that avoids conflicts of interest. This is typically either a flat-fee (hourly, per project, or retainer) or a percentage of your assets under management, plus a potential advisory fee.

Can I trust commission-based advisors?

While commissions aren’t inherently bad, they can create conflicts of interest because their pay depends on selling products. It’s always important to ask how an advisor is compensated and request a written breakdown of fees.

Should I meet my advisor face-to-face before working with them?

It’s critical to meet with an advisor either on a call or in-person before you work with them. Think of it like hiring a babysitter: you wouldn’t hand your children off to someone you’ve never met. The same principle applies to your money. A meeting is a great chance to see if your values are aligned and gauge trustworthiness.