There may come a time in your life where it feels necessary to get help from a financial advisor. But before doing so, you may want to learn more about financial advisors, and how exactly they can help you.
This guide will teach you everything you need to know about personal financial advisors. By the end, you’ll know what a financial advisor is, who can benefit from financial advisory services, and how to choose the right financial advisor for you.
What Do Financial Advisors Do?
A financial advisor helps you to make important decisions about money. These decisions are usually, although not always, related to investing.
You can use the services of a financial advisor to accomplish your money-saving or investing goals. So, for instance, if you want to save a certain amount of money for retirement within 20 years, or pay for your child’s university fees within 10 years, a financial advisor can work with you on a strategy to make these plans a reality.
You will cover a range of topics with your financial advisor, including the savings accounts you may need, how much money you want or need to save, insurance, and tax and estate planning.
A CERTIFIED FINANCIAL PLANNER™ professional can educate you on the things you need to know to achieve your financial goals. Your financial advisor will ensure that you have an advanced understanding of saving and budgeting, as well as complex insurance, tax, and investment matters.
When working with a financial advisor, your first step is to understand your financial health. It’s impossible to make proper future plans if you don’t know where you currently stand. Usually, your financial advisor will ask you to fill out a questionnaire, and your answers will help the advisor to better understand your current financial situation.
What Does a Financial Advisor Need to Know?
Personal financial advisors need to have a clear understanding of every aspect of your financial situation, including your:
- History
- Income
- Expenses
- Assets
- Liabilities
- Long-term financial obligations
- Pensions
- Retirement plans
- Investment preferences
Your risk capacity and risk tolerance will also be evaluated by your financial advisor, which is essential for determining your investment asset allocation.
Additionally, financial advisors may also look at your tax and insurance situation, as well as your existing estate plan, if you have one.
How a Financial Advisor Creates A Financial Plan
Once your financial advisor has gathered the information they need to get a clear picture of your financial situation, they can work on producing a comprehensive financial plan that will support your major financial decisions going forward.
This financial plan will start by summarizing the current financial situation, including your:
- Assets and liabilities
- Net worth
- Liquid or working capital
Next, the document will look in more detail at aspects including estate planning, risk tolerance, and other notable financial issues.
In their plans, financial advisors will draw up several scenarios for a person’s financial situation, and outline the steps that should be taken to avoid undesirable outcomes.
Once you have reviewed your financial plan and confirmed that you’re happy with the information provided, you’re ready to utilize your financial planner’s services.
Who Needs a Financial Advisor?
Not everybody needs a financial planning advisor – but there will usually come a time in your life where you could significantly benefit from the advice of a professional.
Most people reach out to personal financial advisors to discuss the following situations:
- Building an investing portfolio
- Buying a home
- Getting married or starting a family
- Retirement planning
- Naming a significant career change
- Starting or expanding a business
- Getting divorced
- Moving abroad
- Taking out a financial product, like a mortgage or a pension
Many people assume that you need to be rich to seek financial advice, but this isn’t true. There is a range of financial services that anyone could benefit from, regardless of wealth or financial status. Most personal finance advisors will work with clients based on the situations they’re facing, rather than the money they have.
How to Choose a Financial Advisor
There are many financial advisory firms to choose from, and finding the best option for you can be challenging.
If you’re choosing between personal financial advisors, taking the following steps will make your decision easier:
1. Know which type of advisor you’d like
There are several types of financial advisors, all with their own unique roles and methods of working with their clients.
The different types of financial advisors include:
- Robo-advisors – digital services offering low-cost financial advice and investment management, usually as a rolling monthly package.
- Online advisors – more advanced than robo-advisors, with real people, rather than computer algorithms, offering investment management and one-on-one consultations with professionals.
- Traditional advisors – CERTIFIED FINANCIAL PLANNER™ professionals and registered investment advisors offering a range of services, including wealth management, financial consulting, retirement planning, investment advice and planning, and more.
2. Choose your preferred services
The types of services you’re looking for, and the level of support you require, will determine the types of financial advisors you should consider.
For instance, if you’re just looking for advice on managing an investment portfolio, a Robo-advisor may be a cost-effective choice. However, if you require more complex financial services, you’re best looking at online or traditional financial advisors that can provide a more tailored, trustworthy service.
It’s your choice whether to go with a personal financial advisor based solely online, or an advisory firm that you can visit in person. In-person meetings can be helpful in getting to know more about your advisor and their values, but they certainly aren’t necessary in today’s online world.
When choosing between personal financial advisors, read up on the services that each advisor can offer. For instance, if you’re looking predominantly for investment advice, choose an advisor who specializes in this service.
3. Consider your budget
Not all financial advisors price their services the same. The general rule is that you can expect to pay more money for every additional service you require.
Personal financial advisors who offer a tailored, one-on-one service that includes regular meetings and reviews of your plan will also cost more than online automated services, like Robo-advisors.
Cost can depend on factors including local competition and how established the financial advisory firm is. Generally, here’s how much you can expect to pay for personal financial advisors:
- Robo-advisors – an annual fee of between 0.25% and 0.50%, taken from your account balance
- Online financial planners – a flat subscription fee or a percentage of your assets under management
- Traditional personal finance advisors – typically a fee of between 1% – 3%, taken from the amount managed, or an hourly rate/monthly retainer
If a financial advisor’s services and fees align with your requirements, that’s good news. However, before you sign up for a service, make sure that your chosen personal financial advisors are qualified and experienced in the industry. Read up on previous customer reviews to get an idea of the experience that people like you have had with an advisor.
Financial Advisors FAQ:
How do I become a financial advisor’s client?
Usually, you will need to contact the firm and arrange a meeting, whether in-person, over email, or over the phone. You can use this initial meeting to discuss your specific situation, why you need a financial advisor, and what you’re hoping to achieve. Your financial advisor will then discuss their services and charges with you, and you can decide whether they’re in line with your needs and budget.
Do personal financial advisors specialize in any particular areas?
It depends on the firm you opt for. Most traditional firms will be able to match their clients up to financial advisors that specialize in certain areas, to help you best achieve your financial goals.
What should I bring to my first meeting with a traditional financial advisor?
You will need to bring your identification and any other relevant financial paperwork, depending on the services you require. Your advisor can provide more information after your initial discussion via email or phone call.
How much will I pay for financial planning?
To create your initial financial plan, a traditional firm may charge a one-time upfront fee of between $1,000-$2,000, depending on the complexity of the plan. Ongoing fees typically depend on your total assets under management but could cost around $50-$100 per month, on average.
I’m not sure what I want to achieve in life – can financial planning services help me clarify this?
Yes, a financial planning advisor can help you to clarify your goals, depending on your current financial situation.