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What is a Financial Advisor?

Financial advisors can help you navigate investing, debt payoff, retirement plans and more. But is it worth the cost to hire one?

March 8, 2022

Navigating personal finance can be confusing and intimidating. For many of us, it’s helpful to have someone we can turn to for advice. A financial advisor can provide just that — while helping us pay off debt, save for retirement, figure out financial priorities and more. 

But what is a financial advisor, exactly? What services do they offer, and how much do they cost? 

What is a financial advisor?

A financial advisor is a professional who provides financial services and advice to clients. 

Clients can pay advisors to answer questions and draft financial plans. Many financial advisors also directly manage investments on behalf of clients. 

Some financial advisors simply offer advice, and others can completely manage your finances for you. And some are somewhere in between — offering a mix of services to serve a wide variety of clientele. 

The term “financial advisor” is general and can refer to various financial professionals. It’s also not a legally protected term, so just because someone calls themselves a financial advisor doesn’t mean that they have any specific certifications or education.

There are some certifications in the industry, however. A Certified Financial Planner (CFP) is a professional who has gone through a rigorous certification process to ensure that they have the skills, knowledge and integrity to benefit clients. 

What services do financial advisors provide? 

What is a financial advisor’s main role when managing your money? Well, these advisors can offer a variety of services, including:

  • Financial planning

  • Retirement planning

  • Investment management

  • Debt consolidation advice

  • Debt payoff advice

  • Help with selecting retirement plans or accounts

  • General financial advice

Some advisors specialize in a specific area, while others are more general. 

When you first meet with an advisor, they’ll likely ask you about your financial situation (salary, debt, investments, net worth, etc.) as well as your financial goals. They will then help you craft a plan for reaching those goals and what tools you might use to help you along the way. 

Types of financial advisors

As mentioned, there are different types of financial advisors. Here are just a few:

  • Financial advisor. This is a general term that can refer to various professionals, and the term doesn’t necessarily mean that the individual has received specific certification or training. 

  • Certified Financial Planner (CFP). A CFP is a higher-tier professional who has received certification from the CFP Board. The CFP process is rigorous, so you can trust that these professionals are experienced and knowledgeable. 

  • Fiduciary financial advisor. A fiduciary is someone who follows fiduciary duty. This means that they are required to act in your best interest. This means that they must avoid conflicts of interest and recommend the best possible products and services for you as a client. 

  • Wealth management experts. These financial advisors specialize in advising clients with a high net worth. 

How much does a financial advisor cost?

There are a few different fee structures that financial advisors use. Here’s an overview of some typical costs you can expect:

  • Hourly: $150 to $400 per hour

  • One-time fee to draft a financial plan: $1,000 to $3,000 one-time 

  • Flat annual fee (retainer): $2,000 to $7,500+ per year

  • Percentage of assets under management: 0.5% to 1.5%+ of assets per year

Hourly and flat-annual-fee costs are simple enough to understand. But many financial advisors charge based on a percentage of the assets they manage for you. 

For instance, a financial advisor may charge a 1% assets under management (AUM) fee. This means that if they help you manage $50,000, you’ll pay $500 per year. But if they manage $1 million for you, you’ll pay $10,000 per year. This fee structure reflects the added complexity of managing larger sums of money for clients.  

Who should use a financial advisor?

Many people could benefit from the services of a financial advisor. Anyone who feels like they could use financial advice or guidance could potentially benefit — but you’ll need to consider the costs, as well. 

What’s interesting about advisors is that they can be helpful for clients with almost any level of wealth. 

  • They can help clients who have a lot of debt figure out a plan to pay it off

  • They can help young professionals set up the foundation to build wealth over time

  • They can help older clients prepare for retirement 

  • They can help high net worth clients manage their investments

While you could ask friends or family for money advice, financial advisors offer a professional alternative. Plus, this removes the awkwardness of talking about money with people you know. 

Of course, financial advisors aren’t free — in fact, their fees can be thousands of dollars per year. It will likely be cheaper to manage your own money — but the question is, do you want to manage your money, and do you have the necessary skills and knowledge to do so?

To determine if it’s worthwhile to hire an advisor, it’s helpful to ask yourself a few questions. Kristen McKenna, Forbes contributor and Certified Financial Planner, explains five key reasons when it might make sense to get a financial planner. 

Questions to ask a financial advisor

If you decide to seek help with your finances, the next step is finding a trusted advisor. Here are some questions to ask potential advisors to find the right fit.

What certifications or training do you have?

Asking an advisor about their training, experience level, and professional certifications is a great place to start. For instance, if they are a Certified Financial Planner (CFP), that means that they have passed a rigorous exam and completed extensive training. 

What are your fees?

Understanding the costs of an advisor is very important. As explained above, there are a few different ways that advisors make money — ask any potential advisors upfront about their fee structure. 

Are you a fiduciary?

A fiduciary financial advisor is required to act in the best interest of their clients. If the advisor is a fiduciary, they can answer with a simple “yes.” 

What is your advising process?

Ask the advisor how their general process works. How often will you meet with them? Will you manage your investments with their advice, or will they manage everything for you?

Can I manage my own money?

With the right knowledge, certainly! While many people can benefit from a financial advisor, others can do just as well on their own — and they will likely save some money on fees, as well. 

Money doesn’t have to be complex, but it does take some time to learn about. Here are some resources to get you started:

For even more, check out the rest of the Tally blog

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