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What is a Financial Advisor?

definition

A financial advisor can provide financial advice to help customers to invest, save, or manage their money and reach their financial goals.

🤔 Understanding a financial advisor

A financial advisor can offer a wide variety of services, depending on the needs of his or her client. In a general sense, financial advisors provide services to help their clients to set and reach financial goals. These services can include investment and asset management, retirement planning, debt management, tax planning, estate planning, and making sure you have adequate insurance. “Financial advisor” is a broad term, and there are several different types of professionals that fall under this category. Different types of financial advisors include Certified Financial Planners, accountants, attorneys, brokers, and investment advisors.

example

One example of when you might use a financial advisor is when you’re ready to start saving for retirement. Once you’ve decided that you’re ready to get serious about retirement, you can see a financial advisor. They’ll take a look at your income and expenses and tell you roughly how much you’ll need to have saved in order to retire. Then they’ll help you to set up a game plan to get there.

Takeaway

Going to see a financial advisor for your financial health is like going to see a doctor for your physical health...

Sure, you can see them when your financial health is suffering, and they’ll help you to fix it. But it’s even better to go when you’re still financially healthy to prevent anything from going wrong down the road.

Tell me more...

What does a financial advisor do?
What are the different types of financial advisors?
What is the difference between a financial advisor and a financial planner?
What are the benefits of a financial advisor? Why do I need one?
How do I choose the right financial advisor?
What are some mistakes to avoid when choosing a financial planner?

What does a financial advisor do?

Broadly speaking, financial advisors guide their clients on financial matters. There are a wide variety of ways they actually do that. Financial advisors can also take things one step further to help manage certain parts of your finances and put your financial plan into action.

Financial Goal-Setting

A big part of the job of a financial advisor is to help you set financial goals and craft a game plan to reach those goals.

Whether those goals include paying off debt, buying a house, or planning for retirement, a financial advisor can help guide you in the right direction.

Debt Management

We’re living in a time where many people are overwhelmed by consumer debt and student loans. Financial advisors can help to walk clients through the debt pay-off journey so they can move on to other financial goals.

Life Changes

Going through major life changes often necessitates revisiting your finances and redirecting your financial plan. These changes might include getting married or divorced, buying a house, having a baby, or getting ready to retire.

Tax Planning

Taxes are a reality that we all have to deal with. And depending on what circumstances you’re dealing with, they can be pretty confusing. A financial advisor can help guide you through the process and make sure you’re taking advantage of every deduction available to you.

Retirement Planning

Planning for retirement is one of the most significant concerns of many aging individuals. A financial advisor can tell you if you’re on the right track to be able to retire and help make any necessary adjustments to your retirement plan to help you achieve your goals.

Investments

Investing can be a great way to reach your financial goals. But it can also be confusing when you’re just getting started. A financial advisor can offer investment advice and help you to manage your investment portfolio.

What are the different types of financial advisors?

“Financial advisor” is a broad term, and several different professionals fall under this category. Because of this, there’s no standard set of qualifications they must meet. Some professionals are required to go through a great deal of schooling, while others have to pass an exam.

Certified Financial Planner (CFP)

Financial planners can help you to identify your financial goals and create a clear plan to reach them. A Certified Financial Planner (CFP) can give advice across a wide variety of financial topics and can help look at the big picture of your finances. CFPs earn this title by going through CFP Board-registered education and passing the CFP exam, along with on-the-job experience.

Broker

A broker is a financial professional who buys and sells investments on behalf of their client. Brokers can also perform research for their clients and offer investment advice. Brokers have to pass an exam in order to hold this job.

Registered Investment Advisor

A registered investment advisor (RIA) provides investment advice and portfolio management. RIAs normally work with high-net-worth clients and charge a fee as a percentage of assets managed. RIAs are required to pass what is called the Series 65 exam.

Accountant

The primary functions of accountants as financial advisors would be to help you plan and prepare your taxes and to help you manage your business finances. Certified Public Accountants (CPAs) are those who have a college education and have passed the CPA exam.

Attorney

While an attorney may not be an obvious choice for a financial advisor, there are plenty of financial services they can help with. These include estate planning, bankruptcy, and helping to negotiate a prenuptial agreement or divorce settlement. To become an attorney, someone must have graduated from law school and passed their state’s bar exam.

Robo-Advisor

Robo-advisor services have made financial advice more accessible to the average person. Robo-advisors are digital platforms that allow you to invest based on algorithm-based recommendations.

What is the difference between a financial advisor and a financial planner?

A financial planner is one specific type of financial advisor. A financial advisor might include anyone who offers financial services or advice.

A financial planner can offer advice across a broad spectrum of financial topics and can help you create a big-picture or long-term financial plan.

What are the benefits of a financial advisor? Why do I need one?

Going back to our comparison between a financial advisor and a doctor, a financial advisor can be beneficial regardless of the state of your financial health.

If your finances are doing well right now, a financial advisor can help you to stay that way — and help you to create and reach new financial goals.

Even if you feel like you’re on the right track, a financial advisor can raise awareness about things you may not have considered, such as estate planning or investing.

A financial advisor can also help you to navigate difficult financial situations, such as tackling overwhelming debt, navigating a bankruptcy, or negotiating a divorce.

Regardless of the situation that you’re in, a financial advisor can help you create a clear plan for your future and provide peace of mind knowing someone is looking out for your finances.

How do I choose the right financial advisor?

As is the case with many professionals services you might need, choosing the right financial advisor for you can be daunting. After all, we are talking about something that may have a considerable impact on your future.

There are several things you consider when you’re looking for a financial advisor.

What do you need help with?

The most important thing to consider when choosing a financial advisor is what you actually need help with. There are different types of financial advisors, and you want to make sure you see the right kind.

For example, if you’re looking for investment advice, you wouldn’t seek out an accountant or tax attorney. You would instead find a broker or investment advisor. But if you’re looking for someone to help with tax planning, a tax professional would be the person to call.

How much do you want to pay?

As with any service you pay for, there are different options available at various price points. The cost will be vastly different based on what type of service you need.

For example, an accountant or tax attorney might charge an hourly fee, whereas a robo-advisor is more likely to charge a fee based on a percentage of the assets they are managing.

What are some mistakes to avoid when choosing a financial planner?

Here are three common mistakes to avoid:

Hiring the first advisor you meet: There are lots of financial advisors out there, and they are not all created equal. Do your research and don’t hire the first advisor you find.

Choosing an advisor with the wrong specialty: There are different types of financial advisors with different specialties. You want to make sure to hire someone who is an expert in what you need help with.

Not asking how they’re paid: Many advisors charge advisory fees, meaning you pay a percentage of the money you invest with them. Other advisors charge a fee. This could be a flat fee for their services or an hourly fee for the time they spend on your case. Both of these models are common, but it’s important to know upfront how they are paid, so there aren’t any surprises down the road.

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