What Is A Financial Advisor? How Do They Work? (2024)

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Have you ever wanted expert help with your finances but felt you didn’t have enough money to hire an advisor? Financial advisors aren’t just for the wealthy—they also help everyday people achieve their financial goals. But first, you should understand what financial advisors do and the different ways they can work with you.

Financial Advisor Basics

A financial advisor is a professional who is paid to offer financial advice to clients. Just as you would hire an architect to create a plan for your home, you hire a financial advisor to create a plan for your finances. It’s all about paying someone for the expertise you need to reach specific goals. In this case, a brighter financial future.

To be effective, you should consider a financial advisor as a partner. A financial advisor needs to get to know you well—that means understanding your current spending and savings habits, your income and your expenses.

With that knowledge in hand, a financial advisor offers advice that you can implement across the entire breadth of your life—from budgeting in the present to retirement savings for the long term. Together you and a financial advisor refine your short- and long-term goals, and then your advisor helps you stay on track to achieve those goals.

With some advisors, you can do your own investing. Others offer full-service investment management services, handling tasks like trades and portfolio rebalancing for you.

It’s important to note that the term “financial advisor” encompasses a variety of job titles, such as wealth manager, financial representative and investment advisor. Many advisors also have earned certifications like the Certified Financial Planner® or Chartered Wealth Manager, as well as degrees that speak to the depth of their training and ongoing commitment to financial industry standards.

What Does A Financial Advisor Do?

A financial advisor provides advice and management on whatever aspect of your financial life you need help with. This most often is focused on managing your investment portfolio but financial advisors can do much more than that. They can help you plan for and save for long-term goals like retirement or short-term goals like a Disney vacation and everything in between.

They can help you optimize your life, health and disability insurance policies. They can help design and implement debt payoff strategies. A financial advisor can also help with estate planning, tax optimization and risk management.

How Much Does A Financial Advisor Cost?

How much a financial advisor costs is highly variable based on the experience of the advisor, the size of their firm, and your local market. A novice advisor operating their own firm out of their apartment in rural Kansas is going to cost less than an advisor with 20+ years of experience at a top 10 firm in New York City.

If your financial advisor charges based on Assets Under Management (AUM) you can expect to pay as low as 0.5% and as high as 5%, although a 1% fee is the most common. If your financial advisor charges a flat rate you can expect to pay anywhere between a few hundred dollars to tens of thousands per year. Some financial advisors are even implementing subscription-based services, in which case you can expect to pay a monthly fee as low as $50, but you may not be given as much one-on-one time with an advisor.

How To Find A Financial Advisor

You have many options to find a financial advisor. You can start by asking trusted friends and family members who have good control of their finances who they recommend. You can also utilize an in-depth financial advisor matching service like Datalign Advisory, which will ask you extensive questions about your current finances and goals to find you the perfect match.

If you’d prefer to go with a fiduciary financial advisor that charges a flat fee, you can start your search with The Garrett Planning Network. Advisors in this network must be hourly-based, fee-only fiduciaries with no investment minimums. This combination makes it easier to trust that a potential financial advisor will be operating in your best interests.

How To Choose A Financial Advisor

Choosing a financial advisor shouldn’t be based on who you find the most likable, who bought you a steak dinner or who is the best salesperson. You’re trusting this person with your hard-earned money and your family’s future financial wellbeing.

Ask any potential financial advisor questions. Find out if they’re a fiduciary, meaning they have a legal and ethical duty to operate in your best interests. Ask them how they get paid. If it’s a commission based on products they sell to you and which investments they pick for you, they may not be the best choice. Ask them what their credentials are and what makes them uniquely qualified to advise someone in your situation.

While you do get what you pay for, paying more may not get you better results. If they’re pushing you to invest in proprietary funds with high fees, ask them to compare the performance of those funds to a low-cost total market index fund. Make sure they’re using similar dates and see which comes out ahead, especially after accounting for the high fees they charge. You may find that while an advisor with an AUM fee model costs less upfront, you’ll save more in the long run by opting for a fee-based advisor who won’t put you your investments in high-fee funds.

Financial Advisors and Fiduciary Duty

If you hire a financial advisor, how do you know this professional will make recommendations that are a match for your financial goals? After all, they could just advise you to make investments and buy services that bring them the highest commissions and fees. This is where fiduciary duty comes into play.

Financial advisors fall into one of two classifications: fiduciary and non-fiduciary.It’s important to know which your prospective financial advisor adheres to before engaging in a relationship:

  • A fiduciary financial advisorhas an obligation to put your best interests above their own. They’re not allowed to collect commissions from the sale of any investment and typically operate on a fee-based system, one where clients pay a flat fee (monthly, annually) for their services. Any fees charged are paid separately and not taken out of your investment balances or trade proceeds.
  • A non-fiduciary financial advisoroften works for institutions that incentivize them (via commissions) for selling particular investment products. They’re only held to the standard that investments be “suitable” for your needs and not necessarily the lowest cost or best match. This isn’t a red flag, but it does mean that you need to ask how fees and commissions could impact your portfolio earnings over time.

To help you understand the difference, consider two mutual funds with similar performance. A financial advisor who is a fiduciary must recommend the fund with the lowest fees since that’s in their client’s best interests. A non-fiduciary financial advisor can recommend the fund with higher fees since it’s still “suitable” although it nets them a higher commission.

When considering advisors, always be sure to ask how the advisor is compensated and whether they practice in a fiduciary or non-fiduciary capacity.

Services Offered by Financial Advisors

The types of services offered by different financial advisors will vary. There’s no one-size-fits-all model, so it helps to understand the common services many professionals offer. All in all, the best financial advisors have a vested interest in the whole of your financial life and will help build a road map for your ongoing financial health. Here’s what you should look for:

  • Investment advice: Financial advisors can help you identify the best investments for your risk tolerance and goals. They also can help you stay the course or make strategic adjustments when life’s unexpected events come calling.
  • Saving for college: With the cost of education on the rise, an advisor can help identify educational savings strategies that match your desire to fund a loved one’s education.
  • Debt management:If you feel like your debts are standing in the way of a sound financial life, a financial advisor can create strategies to pay down your existing debtand help keep you out of debt for the long term. Less debt means more in your pocket to save.
  • Budgeting: From saving for a vacation to buying your dream home, financial advisors can help craft savings strategiesfor the money you both spend and save, putting your goals within reach.
  • Retirement planning:Whether you already have some money stashed away for retirement or not, advisors can help you boost your savings, identify shortfalls and then protect what you’ve saved as you head into retirement.
  • Estate planning:From strategies to transfer your wealth to family members, to creating charitable gifts, advisors can help identify opportunities to accomplish your desires for your legacy.
  • Long-term care:No matter your age, your advisor can help chart a path toward providing for your healthcare later in life, including long-term care insurance that works for your budget.
  • Tax planning: Advisors can help you identify ways to take advantage of available tax savings. This can include charitable donations, strategies like tax-loss harvesting and working with your tax professional to make sure that your investment plan helps minimize your annual tax liability.

The top financial advisors will always be those who offer the depth and breadth of services you both need and will use. When comparing advisors, be sure to also compare their offerings to your current needs and needs you might have in the near future.

Financial Advisor vs. Robo-Advisor

Speaking of your needs, you might be wondering if there’s a middle ground between a full-service financial advisor and going it on your own. Arobo-advisorcould offer the exact financial services you need and at an affordable cost. Here’s howtraditional financial advisors compare with robo-advisors:

  • Fees: Traditional financial advisors will charge either by transaction or with an annual management fee. Rates can vary, and are often between 1% to 2% of the assets under management. Meanwhile, robo-advisors have lower fees, typically ranging from 0% to 0.25% of the assets under management.
  • Services: Robo-advisors only cover your investment accounts and don’t offer the robust, personal advice that a traditional advisor can, such as budgeting, educational savings or estate planning.
  • Investment options:Robo-advisors tend to offer carefully curated collections of exchange-traded funds (ETFs)and prebuilt portfolios, such as those with a target retirement date a certain number of years in the future. Traditional advisors offer a more diverse selection of individual stocks, mutual funds and fixed-income investment vehicles.

If you’re trying to decide between these two types of advisors, here are a few ways to determine which might be a better fit:

You May Wanta Financial Advisor When:

  • You can meet account minimums.
  • You find the annual management fees reasonable.
  • You want more than just investment advice.
  • You need a variety of investment options at your disposal.

You May Want aRobo-Advisor When:

  • You need to start with a low opening account balance.
  • You would prefer to pay lower management fees.
  • You only need basic investment advice.
  • You’re comfortable with a few low-cost investment options.

With over 200 robo-advisorsavailable on the U.S. market, plenty of options await if you decide that’s the best fit for your needs.

Financial Advisor vs. Wealth Manager

If you’ve already accumulated a fairly large portfolio of financial assets, you might wonder if you need a financial advisor or a wealth manager. Understanding the differences between these two related but different categories can help you choose.

Wealth managers are financial advisors who specialize in working with high-net-worth clients. Depending on the wealth manager, asset minimums to qualify for service can be as low as $250,000, while others require anywhere from $1 million to $10 million as an opening balance.

Wealth managers offer their clients a set of comprehensive services that investors with lower levels of assets might not need. These services include full-service tax planning, family foundation management, philanthropic planning, legal services and more.

A traditional financial advisor often will be a better fit for those with assets below the above minimums who don’t have more complex business, estate and tax planning needs.

Do I Need a Financial Advisor?

Now that you know what a financial advisor does, the types of advisors and the different capabilities they can offer clients, you probably have a good idea of whether you’d find a financial advisor helpful.

No matter your current financial picture, there’s a type of financial advisory service out there that’s the right fit for your assets and goals. Your next step is doing the research, evaluating your options and taking the next step toward financial success.

Are Financial Advisors Worth It?

Investing doesn’t have to be hard. Avoiding get-rich-quick schemes and educating yourself in basic financial literacy and investment terminology will put you leagues ahead of the average American. If you’re unsure if you have the discipline and confidence to be an investor and you don’t have the time to learn a new skill set, consulting with a financial advisor is definitely worth it.

Even if you feel like you know everything about investing and money management already, you may find that a periodic check-in with an objective and knowledgeable third party is helpful. A financial advisor may be able to find ways to make your financial life even more efficient, which makes consulting with one worth it.

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As a seasoned financial expert with extensive experience in the field, I can provide a comprehensive overview of the concepts covered in the article about financial advisors. My expertise is rooted in practical knowledge and a deep understanding of financial planning, investment strategies, and wealth management.

The article begins by dispelling the misconception that financial advisors are exclusively for the wealthy, emphasizing that they assist everyday individuals in achieving their financial goals. Financial advisors are likened to architects, hired to create a tailored plan for one's finances, and the importance of considering them as partners is highlighted.

The role of a financial advisor is described as encompassing various aspects of a client's financial life, from budgeting and present-day financial decisions to long-term retirement savings. The article emphasizes the collaborative process between the client and the advisor in refining and achieving both short- and long-term financial goals.

The term "financial advisor" is broad, covering job titles such as wealth manager, financial representative, and investment advisor. Advisors often hold certifications like Certified Financial Planner® or Chartered Wealth Manager, showcasing their training and commitment to industry standards.

The article explores the diverse services offered by financial advisors, including investment advice, saving for college, debt management, budgeting, retirement planning, estate planning, long-term care, and tax planning. It delves into the variable costs associated with financial advisors, ranging from asset-based fees to flat rates and subscription-based services.

Crucially, the article addresses the pivotal aspect of fiduciary duty in financial advising. It distinguishes between fiduciary and non-fiduciary advisors, underscoring the obligation of fiduciaries to prioritize clients' best interests. The potential impact of fees and commissions on portfolio earnings is highlighted, emphasizing the importance of understanding an advisor's compensation structure.

The article further guides readers on how to find a financial advisor, suggesting recommendations from trusted sources, utilizing matching services, and considering fiduciary advisors. The importance of asking relevant questions during the selection process is emphasized, focusing on factors such as fiduciary status, compensation, credentials, and investment strategies.

A comparison between traditional financial advisors and robo-advisors is provided, considering factors like fees, services, and investment options. The article assists readers in determining whether they may need a traditional financial advisor or a robo-advisor based on their specific requirements.

Additionally, the distinction between financial advisors and wealth managers is discussed, with wealth managers specializing in high-net-worth clients and offering comprehensive services like tax planning, family foundation management, and legal services.

The article concludes by addressing the question of whether one needs a financial advisor, emphasizing that there is a suitable type of financial advisory service for every individual's assets and goals. It encourages readers to research and evaluate their options before taking the next step toward financial success.

In summary, the article provides a thorough exploration of financial advisor concepts, catering to readers with varying financial needs and goals.

What Is A Financial Advisor? How Do They Work? (2024)


What Is A Financial Advisor? How Do They Work? ›

Financial planners create long-term strategies to help people meet their financial goals, while the financial adviser title encompasses the work of brokers, money managers, bankers and more and involves managing investments, buying or selling stocks or creating comprehensive tax plans.

How does working with a financial advisor work? ›

Investment advising: A financial advisor offers advice on investments that fit your style, goals, and risk tolerance, developing and adapting investing strategy as needed. Debt management: A financial advisor creates strategies to help you pay your debt and avoid debt in the future.

What is a financial advisor job description? ›

Personal financial advisors assess the financial needs of individuals and help them with decisions on investments (such as stocks and bonds), tax laws, and insurance. Advisors help clients plan for short- and long-term goals, such as budgeting for education expenses and saving for retirement through investments.

What's the definition of a financial advisor? ›

A financial advisor is a professional who provides expertise for clients' decisions around money matters, personal finances, and investments. Financial advisors may work as independent agents or they may be employed by a larger financial firm.

What a financial advisor will tell you? ›

They can estimate your future financial needs and plan ways to stretch your retirement savings. They can also advise you on when to start tapping into Social Security and using the money in your retirement accounts so you can avoid any nasty penalties.

What do financial advisors do daily? ›

The daily schedule of a financial advisor includes prospecting, servicing current clients, administrative tasks, financial planning, and continuing education. In addition to providing financial guidance, a large part of a financial advisor's career is managing relationships.

Do financial advisors handle your money? ›

A financial advisor helps people manage their money and map out a plan for the future, including retirement. Whether they focus on financial planning in a broader form or focus on niche topics, financial advisors draw up plans or recommend specific investment products and vehicles to meet the needs of their clients.

How does a financial advisor make money? ›

What Are the Ways Financial Advisors Get Money? The three main ways advisors get money are via commission, hourly-based fees, and advisory fees. Rates and average fees within these frameworks can vary widely, and some advisors may combine two or more structures.

Why would someone be a financial advisor? ›

You can make a positive impact on your client's lives and helping them to achieve their goals can be extremely gratifying. Advisor careers can offer flexibility, especially if you're operating your own practice. There's unlimited earning potential, as demand for financial advice remains steady.

What degree is best for financial advisor? ›

Becoming a financial advisor requires at least a bachelor's degree. Some employers seek a bachelor's in accounting, business, law, or economics. Financial planner education includes coursework in taxes, investments, and risk management.

What financial advisors don t tell you? ›

10 Things Your Financial Advisor Should Not Tell You
  • "I offer a guaranteed rate of return."
  • "Performance is the only thing that matters."
  • "This investment product is risk-free. ...
  • "Don't worry about how you're invested. ...
  • "I know my pay structure is confusing; just trust me that it's fair."
Mar 1, 2024

Do financial advisors help with debt? ›

Financial advisors can help you in many different ways, from developing a strategy to pare down debt or save for retirement. Financial advisors can help you prioritize your debts and get them under control to focus on other financial goals. Be sure to shop around for a credentialed advisor who fits your needs.

Should you tell your financial advisor everything? ›

It might come as a surprise, but your financial professional—whether they're a banker, planner or advisor—wants to know more about you than how much money you can invest. They can best help you achieve your goals when they know more about your job, your family and your passions.

How much do most financial advisors make? ›

Financial Advisor Salary in California
Annual SalaryWeekly Pay
Top Earners$135,205$2,600
75th Percentile$129,300$2,486
25th Percentile$74,000$1,423

What do you want in a financial advisor? ›

The best financial planner is the one who can help you chart a course for all your financial needs. This can cover investment advice for retirement plans, debt repayment, insurance product suggestions to protect yourself, your family and estate planning.

What are the cons of working with a financial advisor? ›

Con: costs and fees

Advisor fees typically decrease the more funds you invest. You may also find that many of them offer reasonable fees given the competitiveness that has increased in this field, both online and off. Ask yourself: Will I reach my goals sooner with or without an advisor after fees are paid?

Does it make sense to work with a financial advisor? ›

Deciding to work with a financial advisor is a personal choice. There is no set litmus test for whether you need one. If you have investable assets, personal and financial goals, or questions about your finances, you may want to hire a financial advisor.

What to know before meeting with a financial advisor? ›

Before your first consultation, you'll want to reflect on and be prepared to discuss:
  • Your values about money and your vision for your future.
  • What life events are happening or could potentially happen.
  • Short- and long-term life and financial goals.
  • Investment questions.
  • Your current financial situation.


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