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What is a financial advisor?

A financial advisor is a professional that helps by advising you on matters related to your money and/or investments. There are different specialties, but basically, a financial advisor helps you navigate your money and what to do with it. Some of the types of financial advisors out there include:

  • Financial coach
  • Certified Financial Planner™
  • Registered Investment Advisor
  • Certified Public Accountant
  • Tax preparer
  • Investment representative
  • Insurance agent
  • Personal banker
  • Wealth or portfolio manager
  • Robo-advisor

Not all of these financial advisors have specific credentials. A few types of financial advisors are regulated by the government, although some have independent governing boards. These self-regulating boards offer designations after an advisor has completed certain education and testing requirements.

It's not necessary to have someone with a specific credential. But such credentials provide you with information about an advisor and their expertise.

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What are the roles of financial advisors?

So, what do financial advisors do? It really depends on what you need help with. There's basically a type of financial advisor that can help you with just about any question you have when it comes to money.

Here are some of the things a financial advisor can do for you:

  1. Create a financial plan especially for you — Financial advisors can help you chart a course for your money based on your goals and risk tolerance. A financial planner is especially good at helping you create a plan. They may be able to help you figure out what types of things to invest in and how much you should set aside to reach your goals.
  2. Suggest investments and manage your portfolio — Some financial advisors are specifically focused on investments. Rather than just suggesting investments that can help you reach your short-term and long-term goals, they can manage your portfolio on your behalf. Robo-advisors like Betterment can help you create a portfolio that meets your needs while having an add-on that allows you to talk to a financial planner.
  3. Guide you on tax matters — If you have questions about taxes, some financial advisors can help. They can provide you with information to help you make the right choices about things like business structure and taxes and go through the tax implications related to different types of investment accounts and how to make the most of gains and losses.
  4. Help you protect your assets — You can get help from a financial advisor regarding your assets and how to protect them. An advisor can help you with different financial products, including insurance policies, annuities, and self-insure strategies. It's important to consider what they're selling carefully, but it can still help to talk to someone.

When should you get a financial advisor?

You should consider getting a financial advisor when you need help with your money. Different types of advisors can fit different stages of your finances.

For instance, you may want a financial coach when you're struggling with basic finances or the right financial mindset. On the other hand, a financial planner can help you create a roadmap for your finances, and then you can use a robo-advisor to execute the plan and manage your portfolio.

Here are some signs that you may need to get a financial advisor:

  • You're not sure what to do with your money: If you have questions about how to proceed, whether it's taxes or planning for college, it can help to talk to an advisor.
  • You have many assets: As your wealth grows, you may need help making the most of it. Or you might want access to different choices. When you get to this point, it makes sense to get an advisor to help you navigate what's available.
  • Your finances are increasingly complicated: Is your tax situation becoming more difficult to manage on your own? Do you have different types of assets, such as a business or rentals? As your finances get complicated, talking to someone can help you make better decisions.
  • You feel stressed about your money: When you feel stressed, and it's too much to manage on your own, that could be a sign that you're ready to hire a financial advisor.

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How much does a financial advisor cost?

Costs depend on the type of financial advisor you use as well as how they get paid. Think about what works best for you, and then consider how potential advisors get paid.

**Hourly or flat rate. **Some financial advisors charge an hourly rate; others, a flat rate. In many cases, these types of fees are charged by someone like a financial planner or coach who helps you overcome some sort of problem with money or put together a plan. There could be an hourly rate for time spent. Or there might be a flat rate for something like creating a financial plan for you.

You also see flat rates for things like tax preparation and maybe an hourly rate for financial advice.

Assets under management. One of the most common ways advisors charge is by assets under management. Basically, if a financial advisor manages your money for you and helps you with investments, they will take a percentage of your account value. For human advisors, this might be around 1% annually of your assets under management. Robo advisors often charge less, usually between 0.25% and 0.50%.

**Commissions. **Some financial advisors receive a commission. Instead of paying the fee, they get a kickback when you use the products they recommend. For example, they may receive a commission for selling you a specific mutual fund or insurance policy. While this isn't necessarily bad, you do need to be careful to watch for conflicts of interest.

Some advisors get paid multiple ways. For example, you may have someone who manages your portfolio and charges for assets under management but who also charges a separate flat rate if you have them make a financial plan for you.

Benefits of hiring a financial advisor

If you're looking for a wealth advisor or financial advisor, there can be benefits that make it worth the cost. Some of the benefits of working with a financial advisor include:

  • Help planning your financial future — You don't have to do it on your own. A financial advisor can help you figure out what you need to do to accomplish your goals. They can help you figure out how to save a good nest egg for retirement while saving up for a down payment on your home and preparing to send your child to college.
  • Deal with your financial accounts — One of the reasons wealthy people have advisors and managers is because they don't have the time to deal with their finances. If you need help managing your investments or taking care of your taxes, a financial advisor can save you time and effort. And you can put that into other pursuits that could be more fulfilling and profitable.
  • Third-party opinion on your money — Sometimes, you're just too close to the situation to see it clearly. A third-party opinion can look on from the outside and tell you uncomfortable truths. If you want someone who can be honest with you, a financial advisor can provide you with information to improve your situation.

Should you use a robo-advisor?

One way to get the benefit of financial advice is to use a robo-advisor. With a robo-advisor, you can get automatic help with your portfolio, based on the asset allocation that makes sense for you. Usually, robo-advisors cost a little less than other financial advisors and can provide you with the basics as you start growing your wealth.

A human advisor can be a huge help and a complement to robo-advisors. For many people, a robo-advisor makes sense for long-term savings like retirement. But when it comes to planning and personalization, using a human financial advisor can help take your money to the next level.

More: Compare the best robo-advisors

Questions to ask when hiring a financial advisor

A good financial advisor can help you find solutions to your individual issues, and help you reach your goals — you just have to ask the right questions.

  1. What are your annual fees? Look for an advisor that charges a reasonable fee. You don't have to go with the cheapest advisor, but you can get a feel for what the “middle of the road” or “reasonable” is as you talk with potential advisors.
  2. What are your credentials/certifications? Find out what designations the financial advisor has, from MBA to CPA to CFP. Also research special certifications, such as in the area of tax planning or small business. You want an advisor that understands your needs and will fit your specific situation.
  3. What is your investment philosophy? Find out how each advisor chooses to trade. Does he or she like actively managed funds? What kind of portfolio management theory is important to the advisor? How often does he or she recommend that you trade? You'll have better results if your advisor is compatible with your own investing views.
  4. What funds do you recommend? What compensation do you receive? Get a feel for the types of recommendations the financial advisor makes so that you get an idea of how your portfolio will be managed. But don't forget to find out if your advisor is being compensated for putting you in those funds. Be wary of an advisor who is paid to put you in certain investments, rather than just being paid by you.
  5. Are you a fiduciary? Find out if the advisor has a fiduciary responsibility to clients. This means that he or she is required by law to act in your best interest. In many cases, that extra protection can be a big help to you.
  6. How long have you been doing this? The more experience a financial advisor has, the better in most cases. However, if you have a lower-end portfolio, you might not be able to afford someone with 10 to 15 years of experience. Try to get the most experience possible for your buck.
  7. What other services do you offer? If you are looking for an all-in-one financial advisor, find out if there are other services offered by the advisor, or the advisor's firm. This can include tax planning, wills, trusts, and other items that might be of interest to you.

Once you have a feel for the situation, and what each financial advisor has to offer, you can make a choice that fits you best.

Find a financial advisor that fits your needs

There are a lot of different options when it comes to finding a financial advisor. Carefully think about your needs, as well as consider how different advisors get paid. Then make a choice that fits your needs.

You may find that you need different financial advisors at various stages in your life. Or maybe you're starting a business and need help figuring out how it could impact your personal finances. Whatever the case, there's most likely a financial advisor out there who can help you.

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Miranda Marquit Freelance Contributor

Miranda Marquit is a journalism-trained freelance writer and professional blogger specializing in personal finance.


The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.