When you hear the term “financial advisor,” what comes to mind?
A lot of people think about an experienced expert who can give them financial advice, especially when it comes to investing. That’s a great place to start, but it doesn’t paint the full picture. Not even close! Financial advisors can help people with a bunch of other money goals too.
What Is a Financial Advisor?
A financial advisor helps you create strategies for eliminating financial risk and building wealth over the long term. They can give you a game plan that puts you on track to achieve your financial goals.
Financial advisors don’t come in a one-size-fits-all package. They get different degrees and certifications. They come from diverse backgrounds and offer a wide range of services. Because of that, they can do much more than explain confusing jargon and help you pick mutual funds.
Simply put, financial advisors help you with all types of financial planning. That means they can help you with everything from saving for retirement to handling an inheritance.
Market chaos, inflation, your future—work with a pro to navigate this stuff.
Think of the term “financial advisor” as an umbrella term over different types of financial professionals. It’s sort of like how we call most medical professionals “doctors” even though they specialize in different areas of medicine.
Here are some of the different types of financial advisors you might come across during your financial journey:
- Investment professionals
- Tax professionals
- Wealth managers
- Financial planners
What Does a Financial Advisor Do?
Each type of financial advisor is uniquely qualified to help you reach different financial goals. Let’s check out some of the things that a financial advisor can help you with.
What does your dream retirement look like? Do you want to travel the world? Visit your grandkids? Open your own business? Volunteer at the local homeless shelter? No matter what your dream is, you need to have stable income streams to carry you through two or three decades—or more.
A financial advisor like an investment professional can help you not only build wealth, but also protect it for the long term. They can estimate your projected financial needs and strategize ways to stretch your retirement savings. They can advise you on when to take your required minimum distributions (RMDs) from your investment accounts so you can avoid the nasty penalties. And they can also help you figure out when to tap into Social Security.
Some financial advisors are also investment professionals. Like SmartVestor Pros, they can help you figure out what mutual funds are right for you and show you how to manage and make the most of your investments. They can also help you understand the risks and what you’ll need to do to achieve your goals.
A seasoned professional can also help you stay on the roller coaster of investing when it takes a dive. They know that what goes down—mutual funds—will likely go back up. Because they can remain emotionally neutral, they can be a voice of reason that reminds you to look at your investments with a long lens. They offer a level of service that makes their expertise a crucial part of any retirement plan.
Nobody likes taxes. No matter how old you are, dealing with taxes can feel overwhelming—especially as you grow your wealth and get closer to that dream retirement. A tax professional can explain in plain English how taxes will impact your finances.
Whether it’s advising on charitable donations, constructing a tax-efficient estate plan, or making the most of tax breaks available to you, their goal is to minimize your tax burden while providing the best possible returns. That means more money in your pocket instead of Uncle Sam’s!
Keep in mind, though, you should never make investing decisions based solely on taxes.
Talking about end-of-life planning may seem downright depressing, but it doesn’t have to be. Whether you just bought your first home or have been running your own business for 30 years, you get to choose what to do with those assets you’ve worked so hard for.
But if your situation is more complex, working with a financial advisor (particularly a wealth manager if you’re managing an estate worth millions of dollars) or an attorney with estate planning experience is a must. They can give you the guidance you need to create a plan to make sure your wishes are carried out. You can’t put a price tag on the peace of mind that comes with that!
Health and Long-Term Care Planning
According to a recent study, a 65-year-old couple retiring in 2021 can expect to pay anywhere between $156,000 to more than $1 million in health care costs during their retirement.1
What can you do to prepare for those major expenses in that chapter of your life? A financial advisor or insurance agent can explain your options for long-term care insurance. Then you can choose a plan that’s affordable both now and in the future, when you’ll need it the most.
If you expect to receive an inheritance down the road, you may be wondering about everything from the tax implications to the best way to use the funds. A financial advisor—think wealth managers and financial coaches—can help keep that blessing from becoming a burden.
They can advise you on how to adjust your financial goals and strategies, and they can tackle hard questions—like projected taxes. They can also walk you through the practical steps to take when that time comes.
How Do I Choose a Financial Advisor?
Choosing a financial advisor is a big deal, folks! This is someone you could end up partnering with for years, maybe even decades, to help you build your wealth. You’ll be relying on this person for wise counsel and advice on how to invest your hard-earned money so that you can retire on your terms someday.
So how do you know which financial advisor is right for you? Here are some things you can do to make sure you’re hiring the right person to help you invest.
1. Interview a Few Different Advisors
What do you do when you have two bad options to choose from? Easy! Find more options. The more options you have to choose from, the more likely you are to make a good decision.
A good rule of thumb is to try to interview at least two to three financial advisors before you ultimately decide who you want to work with. Our SmartVestor program can make it easy for you by showing you up to five financial advisors who can serve you. The best part is it’s completely free to get connected with an advisor!
And don’t forget to come to the interview prepared with a list of questions to ask to help you figure out if they’re a good fit.
2. Find an Advisor Who Wants to Teach You, Not Sell You
You want to hire a financial advisor who has the heart of a teacher. You should leave their office feeling smarter than when you walked in—that’s how you know they’re a teacher first! That’s because a good financial advisor wants you to understand the facts, your situation, the stock market, and how your investment options work so that you can make a wise buying decision.
3. Look for an Advisor Who Is Qualified and Knowledgeable
Let’s cut right to it: You want someone who knows their stuff. Someone who is on top of what’s happening in the stock market and can answer any questions you have about retirement and investing—from the difference between a Roth and traditional IRA to what stocks are inside your mutual fund options.
But listen, just because an advisor is smarter than the average bear doesn’t give them the right to tell you what to do. Sometimes, advisors get so full of themselves because they have more degrees than a thermometer. If an advisor starts talking down to you, it might be time to show them the door. A financial advisor works for you—not the other way around. Remember that!
4. Find Out if Their Advice Will Be Consistent With Your Beliefs
It’s important that you and your financial advisor—whoever that ends up being—are on the same page. You want an advisor who has a long-term investing strategy, someone who will encourage you to keep investing consistently whether the market is up or down.
You also don’t want to work with someone who is going to recommend investing in something that’s risky or that you’re not comfortable with. We recommend spreading out your investments between four different types of mutual funds: growth, growth and income, aggressive growth, and international. That mix will give you the diversification you need to invest for the long haul!
How Much Does a Financial Advisor Cost?
Before you hire a financial advisor, make sure you have a good understanding of what you’re actually paying for. The cost of a financial advisor can vary depending on how they charge their fees, such as: commission-only, fee-only, and fee-based.
With an advisor who only charges a commission, you’ll pay that commission up front as a portion of the money you invest. So if you have $1,000 to invest and your advisor recommends a mutual fund that charges a 5% commission, you’ll pay $50 as the commission while the remaining $950 gets invested.
Fee-only advisors usually arrange their fees in several different ways. Sometimes they’ll charge you at an hourly rate (usually somewhere between $120 to $300 an hour) based on how much time they spend working with you. They could also have a flat fee structure that’s based on the services you’re getting from your advisor.
Other financial advisors charge a retainer fee based on a certain percentage of the assets they’re managing for you, which usually is somewhere between 0.5% and 2%.
Fee-based advisors take commissions and fees and combine them as part of their payment structure. They might charge an hourly rate to sit down with you to create an investing plan tailored for you and a commission based on the funds they recommend.
How much does a financial advisor cost?
Based on a percentage of how much you invest, usually between 3–6%
Average financial planner hourly fee ranges from $120–300 per hour
Flat fees can be anywhere from $500 to $10,000 depending on a wide range of factors, including services provided.
Usually somewhere between 0.5–2% of assets under management
Overall, there are different types of cost structures when it comes to financial advisors. Fees can vary from one financial advisor to another, so it’s important to understand exactly how they structure their fees before working with them and how those fees stack up over the life of your investment.
Find a Financial Advisor
There’s a lot more to creating a financial plan than just picking the right mutual funds. You need to get on a budget and stick to it. You need a strategy and action steps to grow and build your retirement accounts. And you need to be intentional about planning for the future.
A financial advisor can come alongside you to educate and encourage you as you work toward your goals. Think of them like your own personal coach and cheerleading squad.
If you’re out of debt and ready to start investing, go talk to a SmartVestor Pro—it’s free to get connected to an investment professional in your area. With SmartVestor, you’ll have the peace of mind knowing you’re working with someone who really does have your best interest at heart.
These are general guidelines. Your situation may be unique. If you have questions, connect with a SmartVestor Pro.