Intermediate Level
Do you need help managing your money? If you're like many Americans, you might need a hand. According to the National Financial Education Council, a lack of personal finance knowledge costs the average American $1,200 a year.
Finding a good financial advisor can help you avoid these costs and focus on goals. Financial advisors aren't just for rich people — working with an advisor is a great choice for anyone who wants to get their personal finances on track and set long-term objectives. Follow these steps to find the right financial advisor for your needs.
Before you speak to a financial advisor, decide which aspects of your financial life you need help with. When you first sit down with an advisor, you'll want to be ready to explain your particular money management needs.
Keep in mind that financial advisors provide more than just investment advice. The best financial planner is the one who can help you chart a course for all your financial needs. This can cover investment advice for retirement plans, debt repayment, insurance product suggestions to protect yourself and your family, and estate planning.
Depending on where you are in life, you may not need comprehensive financial planning. People whose financial lives are relatively straightforward, like young people without families of their own or significant debt, might only need help with retirement planning.
People with complex financial needs, however, may need extra assistance. They could be looking to establish college funds or trusts for their children, navigate aggressive debt payment situations or solve tricky tax problems. Not all types of financial advisors offer the same menu of services, so decide which services you need and let this guide your search.
There's no federal law that regulates who can call themselves a financial advisor or provide financial advice. While many people call themselves financial advisors, not all have your best interest at heart. That's why you have to carefully evaluate potential financial advisors and make sure they are good for you and your money.
Part of learning about the different types of advisors is understanding fiduciary duty. Some, but not all, financial advisors are bound by fiduciary duty, meaning that they are legally required to work in your financial best interest. Other people who call themselves advisors are only held to a suitability standard, meaning they only must suggest products that are suitable for you — even if they're more expensive and earn them a higher commission.
Regardless of which kind of advisor you choose, you should make sure you know how they earn money. This helps you determine if their recommendations are actually better for you — or for their wallets.
Here's the different types of financial advisors: Fee-Only Financial Advisors, Financial Advisors Who Earn Commissions, Registered Investment Advisors, Robo-Advisors.
Services offered by financial advisors vary from advisor to advisor, but advisors may provide any of the following: investment advice, debt management, budgeting help, insurance coverage, tax planning, retirement planning, estate planning, college planning.
In addition to investment management and financial planning, financial advisors also offer emotional support and perspective during volatile economic times. During the beginning of the coronavirus pandemic in March of 2020, for instance, client demand for financial advisor contact increased by almost 50% .
It used to be that financial advisors charged fees that were a percentage of the assets they managed for you. Today advisors offer a wide variety of fee structures, which helps make their services accessible to clients of all levels of financial means.
Commission-only advisors may seem free on paper, but they may receive a portion of what you invest or purchase as a payment. These "free" financial advisors typically are available through investment or insurance brokerages. Remember, these advisors may only be held to suitability standards, so they may end up costing what you would pay for a similar financial product suggested by a fiduciary financial advisor — or more.
Fee-only and fee-based financial advisors may charge fees based on the total amount of assets they manage for you (assets under management) or they may charge by the hour, by the plan, through a retainer agreement, or via a subscription model.
Because financial advisors come in many forms with many different specialties and offerings, you need to thoroughly research potential advisors. You want to make sure the person guiding your financial decisions is trustworthy and capable.
You can find good financial advisors a couple of ways. Ask friends, family and peers for recommendations. Alternatively, look for financial advisors online. Many professional financial planning associations provide free databases of financial advisors: NAPFA (The National Association of Personal Financial Advisors), Garrett Planning Network, XY Planning Network, ACP (Alliance of Comprehensive Planners).
When evaluating advisors, be sure to consider their credentials as well as research their backgrounds and fee structures. You can view disciplinary actions and complaints filed against financial advisors using FINRA's BrokerCheck. And remember, just because someone is a part of a financial planning association, that doesn't mean they're a fiduciary financial advisor.
In your first meeting with a financial advisor, make sure you learn the answers to these questions and that you're comfortable with their responses.
Are you a fiduciary? Are you always acting as a fiduciary? How do you make your money? What is your approach to financial planning? What financial planning services do you offer? What kind of clients do you normally work with? Do you have any account minimums? Do you have any conflicts of interest in managing my money? What information do I need to bring for you to look at when developing my financial plan? How many times and how often will we meet? Will you collaborate with my other advisors, like CPAs or attorneys?
Because of the ambiguity in the industry, you have to exercise caution to make sure you get the right financial advisor who meets your fiduciary and financial needs. That said, when you find the right financial advisor for you, they can help you achieve your financial goals and financially protect your loved ones and their futures.
