A survey by MagnifyMoney revealed that 95% of people who have a financial advisor think the cost is well worth the money. But the survey also revealed several misconceptions people have about financial advisors. According to the survey, some people think that financial advisors are only for the wealthy or the middle-aged. Others assume financial advisor fees are higher than they actually are.
If you’re unsure whether you need a financial advisor or when you should hire one, here are some answers to common questions such as ‘what does a financial advisor do’ and ‘how can a financial advisor help me.’
What Is a Financial Advisor?
A financial advisor is a common title used by many different financial professionals. The following professionals are all examples of financial advisors:
- wealth managers
- investment advisors
- financial planners
- financial brokers
- financial consultants
Fiduciary vs. Non-fiduciary Advisors
A financial advisor can be fiduciary or non-fiduciary. Knowing the difference is very important when hiring an advisor.
There are two sets of compliance standards that financial advisors follow – the fiduciary standard and the suitability standard.
Financial advisors who follow the fiduciary standard are legally bound to act in a client’s best interest. They are not paid commissions on the products and investments they recommend, so there is no financial motivation for them to recommend one product over another to you.
Financial advisors who follow a suitability standard are legally required to ensure the investments they recommend are suitable for their clients. Still, the investments do not have to be the best options for clients. These advisors work on commission and may offer the products that make them the most money.
Fee-Only Advisors vs. Fee-Based Advisors
Fee-only advisors do not work on commission. Most are paid a percentage of the assets managed by the advisor, but some may charge an hourly rate or a flat fee.
Fee-based advisors charge commissions and fees. Clients pay them fees, and they also earn commissions or brokerage fees on the products and investments they recommend to clients.
What Does a Financial Advisor Do?
Financial advisors advise clients on money matters. They can help clients build wealth, teach them how to protect their wealth, assist with money management, or recommend financial products from investments to insurance. Some financial advisors specialize in a particular area of financial services, such as estate planning or investing, whereas others advise on all areas of finances.
Regardless of how much wealth you have, your financial goals, or your age, following a financial strategy to help you achieve your goals is a good idea. A financial advisor can help turn your financial needs into a plan of action that can start you on a path to building and maintaining wealth now and into the future.
Once again, a plan may cover all areas of a client’s financial life or focus on a specific money goal, such as retirement planning or buying a home. It all depends on your financial needs.
How Can a Financial Advisor Help Me?
There are many financial advisor benefits to consider that can help improve your finances. Regardless of your stage of life, a financial advisor can help you with:
- Estate planning
- Retirement planning
- Debt management
- Paying for kids’ college
- Long-term care planning
- Tax planning
Younger clients might benefit from planning for large purchases like a down payment for a home, paying down debt, establishing good credit, or getting started planning for retirement. Older clients might need guidance on achieving financial independence, tax planning, or estate planning.
A financial advisor can help ensure you’re making the most financially sound decisions that can help protect your financial future at every stage of life.
How Do I Choose a Financial Advisor?
Before choosing a financial advisor, you first must decide what you need from them. Think about what worries or uncertainties you have about your financial future. Consider any financial milestones you’d like to meet.
Are you worried about having enough money for retirement? Would you like to be able to put your kids or grandkids through college? Considering questions such as these can help you determine the type of financial advisor that would be best for your specific money goals and aspirations.
Once you’ve determined what financial advice you need, think about how much you can afford for these services. Some advisors work with people who are saving enough each month to benefit from the services of a financial advisor, while others only work with clients who have a minimum of $1 million in assets or more to invest.
If you feel you are in a financial position to benefit from a financial advisor, you can likely find one you can afford.
Be sure to investigate the advisor you’re considering. Look into their qualifications. Find out what other customers say about them. Be thorough – it’s your money and your financial future that you are putting in their hands.
An excellent place to start researching a personal financial advisor is to visit the National Association of Personal Financial Advisors website. Even if you already have an advisor in mind, you can learn more about them on NAPFA.org and find out how they get paid.
Could Your Finances Benefit from an Advisor?
Handling personal finances isn’t always easy, especially as you accumulate assets and wealth. Taxes become more complex, the amount of wealth you have to lose becomes more significant, and the financial tools available to you get more complex.
Having a financial advisor can go a long way in helping you maximize and protect your wealth. The investment in an advisor is usually well worth the returns as long as you remember that the best financial advisors are the ones that meet both your needs and your budget.
If you still have questions about ‘what does a financial advisor do’ and ‘how can an advisor help me,’ contact us to schedule a meeting with one of our trusted advisors.