What is a Financial Advisor?

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A financial advisor is someone who helps clients assess their finances and develop a plan to achieve their financial goals.

To help their customers, financial advisors can provide a variety of services, from creating a holistic financial plan to determining which investments to buy or even managing those investments for their clients. As such, the term financial advisor can be applied to a variety of financial professionals, from financial planners to investment managers to stockbrokers.

Financial advisors primarily work with clients to help them improve or manage their financial situation. The exact services provided by an advisor may vary. A financial planner can focus on creating a holistic financial plan to address your entire financial situation, including building savings, paying off debt, and buying insurance, while a investment manager can focus on helping you choose the right investments for your goals. Some advisers can help you buy and sell investments, while others will simply tell you what to invest in and send you out to do the trades on your own.

Working with a financial advisor typically begins with an introductory meeting where the advisor reviews your financial situation against your short and long term goals. The advisor may ask you questions about your assets, income, debts and expenses. From there, the advisor can recommend strategies to help ensure that you will be able to achieve your financial goals.

These goals can be big or small, short or far. Financial advisors can help you at every stage of your financial life, from when you get your first job and try to decide what to invest in and how much to pay off your student loans, to helping you navigate retirement. Advisors can even help you prepare your finances for the next generation with estate planning.

Financial advisors often serve as the hub of a person’s financial life, providing connections to other professionals who can help meet your financial needs. For example, some wealth management offices include in-house counsel and tax, insurance and estate planners. Other times, advisors will provide you with a referral to someone in their network who can provide these specialized services if the advisor is not equipped to do so.

Financial planning is the essence of what many financial advisors do. It is the process of reviewing your financial situation and creating a plan to achieve your short and long term goals.

Financial planners take a holistic view of a person’s financial situation, looking beyond the investments you should have to meet your cash flow, tax, insurance and retirement needs. Financial planning is an ongoing process. It doesn’t end with the developing a financial plan. Instead, you want to continually revisit this plan to gauge your progress and make sure it’s still the right path to take toward your goals.

Financial advisors can be an integral part of your life. For some people, a financial advisor is the core of their financial team, who can provide the necessary connections to other professionals, such as tax or insurance advisors, if needed. On the other side of the spectrum are people who prefer to manage their own finances and don’t feel the need to consult a financial advisor. Although both approaches are valid, it is useful to know the types of financial advisors and the services they provide so you can get the right advice if and when you need it.

Here are some of the most common types of advisors and the services they provide:

  • Financial planners focus on financial planning advice, such as developing a holistic financial plan to help you achieve your goals.
  • Investment advisors specialize in managing your investment portfolio and can help you with day-to-day management of your investments, such as determining when to buy and when to sell.
  • Brokers transact on behalf of their clients. Unlike an investment manager who can make buy and sell decisions for you, a broker will only act on your instructions.
  • Wealth managers tend to provide the widest range of services under one roof, from financial planning to estate planning and tax management, but often only work with high net worth clients.

You may want to work with a financial adviser if:

  • You don’t know if you’re saving enough to meet your financial goals.
  • You struggle to create a financial plan for your future.
  • You want help choosing the right investments or managing your investments.
  • You don’t know when to buy or sell your investments.
  • You want help assessing your current financial situation.

Although financial advisors can help you navigate your financial life, working with a financial advisor has some downsides:

  • Financial advisors can charge high fees.
  • Advisors who earn commissions on the products they sell may have an incentive to offer you more expensive products.
  • Some advisors only provide limited services, such as investment management, without helping you create a financial plan.

FAQs

The best place to start if you’re looking for a financial advisor is to search online. You can use a search engine or online database of financial advisors. Financial associations such as the Garrett Planning Network and the National Association of Personal Financial Advisors also have resources to help you find local financial advisors. Friends, family members or colleagues can also provide recommendations to the advisors they work with. The government also provides two tools to verify your advisor’s license and background: Investor.gov, which audits the Securities and Exchange Commission’s public disclosures about advisers; and brokercheck.finra.orgwhich checks Financial Industry Regulatory Authority records on brokers.

Financial advisors can be great resources to help you navigate your financial life, but not everyone needs an advisor. Generally speaking, it’s a good idea to work with an advisor if your situation is too complicated to search the internet for the answer, you don’t want to do the research necessary to invest on your own, or you feel overwhelmed by taking financial decisions. You may also want to work with a financial advisor if you and your spouse or another household member often disagree about how to manage your finances.

Financial advisors often charge fees based on the amount of money you have invested with them, called assets under management or AUM. The average fee is around 1% of the AUM per year, although this may vary depending on the services provided. Some advisors will charge hourly fees or flat fees for specific services, such as $2,000 for a financial plan. Advisors may also earn commissions on the products they sell.

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