What Is a Financial Advisor & What Do They Do?

Financial advisors help you create a plan for meeting your financial goals & guide your progress along the way. They can help you save more, invest wisely or reduce debt.

A financial advisor offers assistance with/or, in some cases, complete management of your finances. The catch all term “financial advisor” is used to describe a wide variety of people & services, including investment managers, financial consultants & financial planners. A financial advisor can also be a digital investment management service called a robo-advisor.

What do financial advisors do?

The services provided by financial advisors will vary based on the type of advisor, but generally speaking, a financial advisor will assess your current financial situation, including your assets, debts, expenses & identify areas for improvement.

A good financial advisor will ask you about your goals & create a plan to help you reach them. That may mean calculating how much you should save for retirement, making sure you have an adequate emergency fund, offering tax-planning suggestions or helping you refinance or pay off debt. Financial advisors also help invest your money, either by recommending specific investments or providing complete investment management.

In some cases, you can choose which services you want or need based on the type of advisor you select. For example, a traditional in-person advisor will likely offer personalized, hands-on guidance for an ongoing fee. A robo-advisor is a low-cost, automated portfolio management service, typically best for those who want help managing their investments. Then there are online financial planning services, which marry the lower costs of a robo-advisor with the holistic guidance of a human advisor.

    Do you need a financial advisor?

    If you’re struggling to prioritize your financial goals, need a plan for where & how to save, or want help with investment management, you may want to work with a financial advisor.

    Financial advisors bring an expert and outside view to your finances, take a holistic look at your situation & suggest improvements. 

    Financial advisors also can help you navigate complex financial matters such as taxes, estate planning and paying down debt.

 

Is a financial advisor worth it?

    A good financial advisor or robo-advisor can be worth the cost if you’re able to save more money, cut your expenses or better plan for the future. 

    A financial advisor can also help you feel more secure in your financial situation, which can be priceless.

    But financial advisors can also come with high fees. Depending on the type of advisor you choose, you might pay anywhere from 0.25% to 1% of your balance each year. 

    Some advisors charge a flat fee to create a financial plan, or an hourly, monthly or annual rate.

 Below, an overview of each type of financial advisor and what they do:

1.      Robo-Advisors:

        If you’re looking to invest for retirement or another goal, a robo-advisor can be a great solution. 

        They’re almost always the lowest-cost option & their computer algorithms will set up & manage an investment portfolio for you. 

        You’re probably a good candidate for a robo-advisor if:

        o   You need to save for retirement but aren’t sure where to begin.

        o   You want to benefit from stock market returns but don’t have a lot of time to learn how to invest.

        o   You have a lump sum you want to invest for one or more future financial goals.

        o   You don’t have much money to invest yet robo-advisors typically have low or no-account minimums.

    

    Here’s what to expect from a robo-advisor:

• Your first interaction will most likely be a questionnaire from the company you’ve selected as your provider. The questions help identify your goals, investing preferences & risk tolerance.
• Based on the information you provide, the robo-advisor’s algorithm will recommend an investment portfolio that’s typically built using low-cost exchange-traded funds & index funds.
• The service will then provide ongoing investment management, automatically rebalancing your investments as needed & taking steps to reduce your investment tax bill.
• The low-cost, easy-entry nature of robo-advisors makes them a good choice for many consumers.

2.      Online Financial Planning Services:

    Online financial planning services offer investment management combined with virtual financial planning. 

    The cost is higher than you’ll pay for a robo-advisor, but lower than you’d pay a traditional financial advisor.

    Consider an online financial planning service if:

o       You want to work with a human advisor, but you don’t mind meeting that advisor by phone or video. 

o       You’ll save money by meeting virtually but still receive investment management and a holistic, personalized financial plan.

o       You want to choose which financial advice you receive. Some services charge a flat fee based on the complexity of the advice you need (Investment management is included). Others charge a fee for investment management & offer a la carte planning sessions with an advisor.

o       For many people, this model is the right fit as it combines lower costs with a high level of service.

        

        Here’s what to expect from an online planning service: 

• Some services function like hybrid robo-advisors. Your investments are managed by computer algorithms, but you’ll have access to a team of financial advisors who can answer your specific financial planning questions. 
• At the other end of the spectrum are holistic services that pair each client with a dedicated CFP, a highly credentialed expert. 
• Either way, you should receive investment management and personalized financial guidance to help you meet your goals.

3.      Traditional in-person financial advisors:

 In addition to robo-advisors & online planning services, the term “financial advisor” can refer to people with a variety of designations, including:

1. CFP: Provides financial planning advice. To use the CFP designation from the Certified Financial Planner Board of Standards, an advisor must complete a lengthy education requirement, pass a stringent test & demonstrate work experience. 
2. Broker or Stockbroker: Buys & sells financial products on behalf of clients in exchange for a fee, commission or both. Must pass exams & register with the SEBI. 
3. Registered Investment Advisor: Provides advice and makes recommendations in exchange for a fee. RIAs are registered with the SEBI (Investment Advisors). Some focus on investment portfolios, others take a more holistic, financial planning approach. 
4. Wealth managers: Wealth management services typically concentrate on clients with a high net worth & provide holistic financial management.  
5. Human financial advisors generally cost more than robo-advisors & online services & may have minimum investment requirements in some cases. But you may decide to go for it if: 
• If you’re undergoing or planning a big life change, such as getting married or divorced, having a baby, buying a house, taking care of aging parents or starting a business. 
• Your investments have grown or your financial life has gain complexity beyond what a robo-advisor or online advisor can handle. 
• You want to meet with someone in person & willing to pay more to do so. 
• Here’s what to expect from a traditional in person financial advisor. 
• You’ll likely meet in person at his or your local office/home
• The advisor will provide holistic planning & assistance to help you achieve financial goals
• You’ll have in-depth conversations about your finances, short & long-term goals, existing investments & tolerance for investing risk, among other topics
• Advisor will work with you to create a plan tailored to your needs i.e.  retirement planning, investment help, insurance coverage, etc.
• Hire an advisor you’ll be comfortable working with &  of course, one who’s is qualified or experienced, meaning she’s required to put your interests first.