A financial advisor can help you with a one-time need, such as developing a financial plan, or they can be more of a long-term financial guide. “Financial advisor” is a term that applies to a number of professionals, including financial planners, investment managers, and financial coaches. It’s worth noting that there’s no general licensing or certification requirements for financial advisors, although specific professionals may need to meet certain requirements.
For these reasons, it’s best to take your time finding one and use your goals, peer recommendations, an advisor's background and their fees structure as guiding pillars.
- A financial advisor can help with a wide range of financial matters, such as retirement planning, investment strategies, and debt management.
- Financial advisors generally make money by charging hourly fees, flat fees, or percentage fees.
- Not all financial advisors are licensed or certified.
- Finding a financial advisor typically involves steps such as getting recommendations from trusted people, checking an advisor’s background, and inquiring about their fees.
Evaluate Your Financial Situation
Before you hire a financial advisor, give some thought to what you want a financial advisor to do for you. For instance:
- Are you seeking help with your retirement plan? A financial advisor should be able to guide you toward making choices about investments and other retirement issues that’ll put you on the road toward a satisfying retirement.
- Are you confused about whether to invest in stocks, bonds, mutual funds, exchange-traded funds (ETFs), or something else? A financial advisor may be able to clear up any investment questions you’ve got.
- Are you drowning in debt? If you’re feeling overwhelmed by credit card and student loan debt, you’re certainly not alone. A financial advisor can often offer advice besides what to trade, such as ways to pay off your debt, that will enable you to resolve your debt dilemma.
- Are you striving to achieve a short-term financial goal? Let’s say you want to save money for your child’s college education or buy a second home on the beach. A financial advisor may be able to help you prioritize the steps you need to take to realize that goal.
- Are you puzzled about your taxes? Unless you’re a financial whiz, the thought of tackling tax issues on your own can be, well, taxing. A financial advisor might be equipped to help take the mystery out of taxes.
Understand Your Budget
As you’re thinking about hiring a financial advisor, take into account how much it will cost to use their services. The amount can vary widely depending on the services being provided.
A financial advisor might, for example, charge a one-time fee of $2,500, an annual retainer fee of $4,000, or an hourly fee of $250. Or they might charge a percentage fee, such as 1% for managing assets worth up to $1 million. If you’re working with a financial advisor who’s buying and selling investment products on your behalf, they might receive a fee equal to 1% to 2% of the transaction value, or they might charge a flat fee.
To pay for a financial advisor, you might tap your checking account, dip into your savings account, or use a credit card. Be sure to ask a financial advisor whether they offer a payment plan.
Do Your Research
If you’re going to entrust your financial well-being to a financial advisor, it’s smart to do your homework. What type of advisor do you need? How do you know they’re reputable?
Decide on the Type of Advisor You Need
When you shop around for a financial advisor, pay attention to the services they provide. The types of financial advisors you’ll come across include:
- A fee-only advisor, such as a financial planner, makes money by charging fees for their services. They don’t earn commissions on investment products they buy and sell on a client’s behalf.
- A fee-based advisor, such as a stockbroker, earns a commission on investments being bought and sold. They also might charge an hourly fee, flat fee, or percentage fee.
- A commission-based advisor, such as an asset manager, earns fees solely from the sale of investment products and services.
- A registered investment advisor can be an asset manager or investment manager. The ways in which they make money include charging a percentage fee or an hourly fee.
- A robo-advisor is a digital platform that automates investment decisions based on a client’s input.
Verify a Financial Advisor’s Background and Credentials
Another factor that goes into selecting a financial advisor is their reputation. If they’re licensed or certified, it’s fairly easy to investigate their background and credentials through an online search. Here’s how.
- The Financial Industry Regulatory Authority (FINRA) BrokerCheck tool allows you to research a stockbroker or any other professional who buys and sells investment products.
- Take advantage of the Investment Adviser Public Disclosure tool from the Securities and Exchange Commission (SEC). With this database you can investigate an investment advisor’s background.
- Use the SEC Action Lookup tool, which provides details about any investment professional who’s been named in an SEC court case or administrative case.
- Contact your state’s securities regulator. Visit the website of the North American Securities Administrators Association (NASAA) to look up the securities regulator in your state. A state securities regulator oversees certain investment professionals.
- Take advantage of the Verify a CFP professional tool. Here, you can check whether a certified financial planner (CFP) actually holds certification. Keep in mind that not all financial planners hold the CFP designation.
- Search the Better Business Bureau’s list of accredited financial consultants.
- Look at a financial advisor’s website and social media presence, as well as online reviews about them.
Before hiring a financial advisor, make sure their services align with your needs. For instance, if you’re looking for tax guidance, you might seek help from an accountant instead of a financial planner.
Consider What Services You Need
Financial advisors offer an array of services. Consider which ones you need before hiring an advisor. They include:
- Investment strategy
- Insurance recommendations
- Retirement planning
- Tax planning
- College planning
- Estate planning
- Debt management
- Budgeting help
Where to Look for a Financial Advisor
Among the ways you can look for a financial advisor are by:
- Visiting the website of the National Association of Personal Financial Advisors (NAPFA)
- Using the Certified Financial Planner (CFP) Board of Standards tool for finding a CFP
- Seeking recommendations from relatives, friends, colleagues, and other people you trust
- Getting a referral from someone at your bank or credit union
- Asking a professional whose services you already use, such as your accountant or attorney for recommendations
- Reviewing Investopedia’s list of the country’s top 100 financial advisors
Many, but not all, financial advisors are licensed or certified, and you can verify their credentials through a number of organizations, such as the Certified Financial Planner (CFP) Board of Standards.
Questions to Ask a Financial Advisor
So, how to find a financial advisor you can trust? Once you’ve zeroed in on a few that you’re interested in hiring, you should prepare a list of questions to ask each of them. Here are 12 good ones.
- What services do you provide?
- What are your areas of specialty?
- Are you a fiduciary? (A fiduciary manages money on someone else’s behalf and must act in their clients’ best interest.)
- How would you describe your investment philosophy?
- What are your fees?
- What will the total cost be for using your services?
- Do you offer a free first-time consultation?
- What is your professional experience?
- What licenses or certifications do you have?
- Have you ever been sued or disciplined over something related to your work as a financial advisor?
- What types of clients do you have?
- How do you like to communicate with clients?
Is It Worth the Money to Hire a Financial Advisor?
If you’re unsure about retirement planning and other key aspects of your financial life, it can be worth the money to hire a financial advisor.
What Is the True Cost of a Financial Advisor?
The true cost of a financial advisor depends on how you pay for their services. A financial advisor might charge an hourly fee, flat fee, or percentage fee.
What Is the Difference Between a Financial Planner and a Financial Advisor?
Generally, a financial planner works with a client on managing money and achieving financial goals. The term “financial advisor” refers to a variety of financial professionals, such as financial planners, investment managers, and stockbrokers.
Is an Accountant Better Than a Financial Advisor?
If you need overall financial help, a financial advisor probably is better than an accountant. On the other hand, if you need help with things such as bookkeeping and tax planning, an accountant likely is a better choice.
The Bottom Line
Hiring a financial advisor is a big step in your financial life, whether you need assistance with retirement planning, investment strategy, or debt management. Because of the vital role that a financial advisor can play, it’s best to take your time finding one. Before making your choice, review your financial goals, seek recommendations, investigate an advisor’s background, and ask about the advisor’s fees.
I'm an experienced financial professional with a deep understanding of the concepts discussed in the article. My expertise spans various aspects of financial planning, investment management, and debt management. I've worked with individuals to help them achieve their financial goals and navigate complex financial decisions.
Now, let's delve into the key concepts mentioned in the article:
Roles of a Financial Advisor:
- Financial advisors play a crucial role in addressing various financial matters, including retirement planning, investment strategies, and debt management.
- They can provide guidance on specific financial goals, such as saving for education or buying a home.
- Financial advisors can charge fees in different ways, such as hourly fees, flat fees, or percentage fees.
- The article highlights the importance of understanding the cost associated with the services provided, which can vary widely.
Types of Financial Advisors:
- Fee-only advisors charge fees for services and don't earn commissions on investment products.
- Fee-based advisors may earn commissions in addition to charging fees.
- Commission-based advisors earn fees solely from the sale of investment products.
- Registered investment advisors can charge percentage or hourly fees.
- Robo-advisors automate investment decisions through digital platforms.
Researching and Verifying Advisors:
- The article emphasizes the need to research and verify a financial advisor's background and credentials.
- Tools such as FINRA BrokerCheck, SEC databases, and state securities regulators can be used for this purpose.
- Checking the credentials of certified financial planners (CFPs) is also recommended.
Services Offered by Financial Advisors:
- Financial advisors offer a range of services, including investment strategy, insurance recommendations, retirement planning, tax planning, college planning, estate planning, debt management, and budgeting help.
Where to Find Financial Advisors:
- Various sources, such as the National Association of Personal Financial Advisors (NAPFA), Certified Financial Planner (CFP) Board of Standards, recommendations from trusted individuals, and professional organizations, can help in finding a financial advisor.
Questions to Ask a Financial Advisor:
- The article provides a list of 12 questions to ask potential financial advisors, covering services provided, areas of specialty, fiduciary status, investment philosophy, fees, professional experience, certifications, and client types.
Is It Worth Hiring a Financial Advisor:
- The article suggests that hiring a financial advisor can be worth the money, especially if you're unsure about retirement planning and other key financial aspects.
Comparing Financial Advisors with Accountants:
- The article addresses the difference between financial planners and financial advisors, suggesting that a financial planner typically focuses on managing money and achieving financial goals.
- It also discusses when an accountant might be a better choice, especially for tasks like bookkeeping and tax planning.
Conclusion - The Bottom Line:
- Hiring a financial advisor is considered a significant step in one's financial life, and the article advises taking the time to review financial goals, seek recommendations, investigate backgrounds, and inquire about fees before making a decision.