How do you choose a financial adviser?

To choose a financial adviser, decide what help you need, look for someone who must act as a fiduciary at all times, understand exactly how they are paid, and check their record for free on the SEC and FINRA lookup tools. Fees matter a lot: in the example, a 1% yearly fee on $50,000 costs about $36,000 over 20 years.

There are several ways advisers get paid

Some charge a percentage of the assets they manage each year, often called an asset-based fee. Others charge by the hour, a flat fee per plan or a yearly retainer. Some earn commissions on products they sell. Some combine these.

The standard of care differs

Registered investment advisers owe a fiduciary duty that covers the whole relationship. Brokers must act in your best interest when they make a recommendation, under the SEC's Regulation Best Interest, but not necessarily afterward.

Small fees compound into large ones

A fee taken as a percentage of your balance is charged every year on a growing amount. Even small ongoing fees can have a large effect on what you end up with over decades.

Every firm must disclose its record

Investment advisers and brokers give you a relationship summary, Form CRS. Advisers also give a brochure explaining fees and conflicts. Disciplinary history is searchable for free on Investor.gov and BrokerCheck.

Decide what kind of help you need

Write down the question you want answered. "Should I pay off my student loans or invest?" or "How should I invest my 401(k)?" can often be handled in a single paid session. "Manage all my investments and taxes as my income grows" is ongoing work.

Financial planners look at your whole picture: budget, debt, insurance, retirement and taxes. Investment managers focus on choosing and running your investments. Automated advisers, sometimes called robo-advisers, build and rebalance a portfolio for a lower fee, with little or no personal advice.

How advisers are paid

An asset-based fee, for example 1% a year, is charged on everything the adviser manages, whether or not anything changes in your account. Hourly and flat fees are paid for specific work, so you know the cost up front. Commissions are paid when you buy a particular product, such as an annuity, insurance policy or certain mutual funds.

Each model has conflicts. A commission can reward selling you a product, and an asset-based fee can reward keeping your money invested with the adviser rather than paying off a mortgage. Fee-only advisers, who take no commissions, remove the product conflict. Ask any adviser to explain, in dollars, every way they will be paid.

Fiduciary duty and best interest

A registered investment adviser has a fiduciary duty under federal law. It requires advice in your best interest based on your goals and full disclosure of any conflicts, and it covers the whole relationship.

Brokers follow Regulation Best Interest, which requires them to act in your best interest at the time they make a recommendation. Many professionals are both, acting as an adviser for some accounts and a broker for others, so ask which hat they wear for each account you open.

Check their background for free

Before you hand over money, search the person and the firm with the free "Check Out Your Investment Professional" tool on Investor.gov, which shows whether they are licensed and registered. FINRA BrokerCheck shows registration, work history, customer complaints and disciplinary actions for brokers.

Read the firm's Form CRS, a short plain-language summary of services, fees, conflicts and legal history. For advisers, also ask for the brochure, which lists the fee schedule and whether fees can be negotiated. If someone claims to be registered but doesn't appear in these tools, walk away.

Questions to ask in the first meeting

The SEC suggests questions like these: What services will I get and how often? If I give you $10,000 to invest, how much will go to fees and costs, and how much will be invested for me? Who will make decisions for my account, and what are their qualifications? How might your conflicts of interest affect me? Do you have any disciplinary history?

A good adviser answers clearly and in writing, and doesn't rush you. Pressure to decide today, promises of high returns with little risk, or vague answers about fees are reasons to keep looking.