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What is a Financial Advisor? The Ultimate Guide

What is a Financial Advisor? The Ultimate Guide

What is a financial advisor? Do I need one? Are fiduciaries worth the expense? How can a financial advisor help with retirement? Will they be careful with my investments? Can I even trust them?

Consumers have many questions about financial advisors, and these experts can often seem like mystical beings who speak in percentages and spreadsheets.

But there’s more to financial advisors than you might think. From the potential to help you grow your assets, secure your retirement, and invest in smarter ways to preserving your wealth no matter what direction the market takes, here’s everything you need to know about financial advisors.

What is a Financial Advisor?

Knowing what a financial advisor is and what they do is essential if you’re considering hiring one. Beyond the basic definition, you need to know about the different types of advisors. Plus, other professionals with various titles may offer similar services.

What is a Financial Advisor: Definition

The short definition of a financial advisor is a person (or firm) that helps you manage your finances. But the broader answer is that a financial advisor takes an in-depth look at your assets, expenses, accounts, and debts.

Many types of advisors specialize in a range of financial products and services. Some possess formal certification or licensure, while others do not. Some work under regulatory agency guidance, while others adhere to no such guidelines.

Regardless, in exploring your wealth and financial challenges, an advisor helps you strategize for the future.

How they accomplish this can vary widely, especially if you choose an advisor without formal qualifications.

What Do Financial Advisors Do?

What does a financial advisor do? Financial advisors work with your financial portfolio to maximize your wealth, reduce expenses, and feel confident about your financial future.

But financial advising is a nuanced profession. Advisors do more for their clients than write up budgets or suggest investment options.

Financial advisors offer a range of services to their clients from planning for retirement to making sound investments.

Investment Advice

Regardless of where your investment portfolio stands, a knowledgeable financial advisor can help make the most of it. You can see an advisor for investment advice that enhances your wealth and reduces risk.

Retirement Planning

While all Americans hope for a stress-free retirement, planning ahead makes all the difference. Unfortunately, 64 percent of Americans aren’t prepared for retirement.

An advisor can help you navigate a retirement strategy that ensures your comfort and wealth well into your golden years.

From IRAs and 401(k) accounts to annuities and tax breaks, your financial advisor can help you with a retirement income strategy you can feel comfortable with.  

Budgeting

When you are balancing a financial portfolio with a variety of contributions, deductions, and expenses, budgeting becomes a necessity. A financial advisor can help you navigate budgeting for now and for the future.

Tax Planning

Fluctuating tax schedules can be frustrating when you’re planning for retirement or investing your wealth. With tax planning help from a financial advisor, minimizing your expense is the priority.

Financial professionals have in-depth knowledge of tax structures and exemptions. They can help you make strategic moves when it comes to handling your wealth and investments.

Debt Management

When you’re facing any level of debt, it can be stressful and draining. A financial professional can help ease your mind and assist in planning for debt elimination.

If you find it difficult to go it alone, a financial advisor could offer solutions for managing your debt and minimizing its effects on your future—and retirement.

Investment Planning

Investment planning is a common area of expertise for many financial advisors. A well-managed portfolio optimizes your investment dollars and protects your returns.

No matter the size of your investments, portfolio management addresses your risk tolerance while balancing market conditions and historical performance.

Inheritance and Estate Planning

For anyone who plans to leave an inheritance for their loved ones, estate planning is essential. Your advisor can help you navigate inheritance planning to preserve funds for your beneficiaries.

If you feel stressed about leaving enough money behind for your children or loved ones, a financial advisor’s expertise may alleviate some of those worries.

What Types of Financial Advisors Are There?

While the term “financial advisor” can refer to many types of professionals, it’s important to go to the right one for your financial needs. It’s also essential to verify your advisor’s expertise and credentials to protect yourself and your wealth.

Investment Advisors

An investment advisor is a job title to many. But an “investment adviser” is a financial professional who possesses registration as per the U.S. Securities and Exchange Commission (SEC).

This type of professional advises clients on bonds, stocks, mutual funds, market trends, a range of investment types, and asset allocation.

In general, fee-only investment advisors can both provide advice and directly manage client assets. With this structure, consumers pay a fee for services, rather than the firm taking a portion of their investment value as payment.

It’s important to note that “investment advisers,” under the SEC’s definition, can also include money managers, financial planners, hedge fund general partners, investment consultants, and other roles.

Broker-Dealers and Brokers

Brokers and broker-dealers handle securities. Securities include bonds, stocks, mutual funds, and more. Broker-dealers must register with the SEC and are also affiliated with the Financial Industry Regulatory Authority (FINRA).

A broker-dealer sells a range of financial products, but this depends on their licensing level. Fortunately, it’s easy to verify a broker’s license online before you agree to pay for their services.

Certified Financial Planners

Certified Financial Planners (CFPs) are another type of financial professional that must earn certification. CFPs also have a fiduciary duty (more on that later) to their clients.

A CFP typically helps individuals budget, pay down debt, and plan for retirement. However, these professionals cannot offer advice on services that require regulation, like many types of investments.

You can verify a CFP’s certification through the Certified Financial Planner Board of Standards.

Financial Consultants

What is a financial consultant in the context of financial advising? Financial consultants can hold specific credentials, but anyone can use the title without taking an exam or earning any type of education. You may find chartered financial consultants, or ChFCs, who have earned credentials through continued education.

ChFCs have to follow The American College code of ethics, so if you choose a financial consultant, you’ll want to confirm their credentials before hiring them.

Financial Advisors and Tax Planning

Many financial advisors are qualified to offer tax planning advice. Some also choose to become registered tax preparation professionals.

Your financial advisor/tax planning professional may offer insight into tax reduction and other savings. Their scope may be limited, however. This is especially true if their focus is on taxes rather than broader financial advisor duties.

Financial Coaches

Unlike financial consultants, financial coaches have no formal education or training requirements. A good example of a financial coach is the well-known Dave Ramsey. Ramsey is a financial counselor with a bachelor’s degree in finance but no professional certification to speak of.

For many consumers, a financial coach can assist with budgeting and forming a strategy to pay down debt. However, financial coaches are not certified to provide investment advice.

Investment/Portfolio/Wealth Managers

Portfolio managers—AKA investment managers or wealth managers—are another type of advisor with a focus on your financial future. Portfolio management falls under investment management and can involve guidance on investing and financial planning.

Investment managers must also possess a license, though some use the title without proper certification. Finding a trusted advisor will always involve fact-checking their claims, including whether they possess a valid license for their profession.

Retirement Planners

Though many types of financial advisors can guide clients on retirement planning, experts in retirement planning have a wealth of knowledge to share.

Many consumers who are swiftly approaching retirement feel anxious about their prospects. Visiting with a retirement planner or financial advising firm can help you formulate a smarter plan for retirement—one that you can feel confident in.

A retirement planner also develops strategies to preserve your wealth throughout retirement. If preserving your standard of living is a top priority, a retirement planner has your best interests at heart. 

Independent Advisors

Independent advisors are financial advisors who opt for registration alone rather than as part of a firm. Hiring a registered investment advisor (RIA) involves similar fiduciary protections as other financial advisor roles. You can also verify an RIA’s credentials via FINRA.

Traditional Human Advisors vs. Robo-Advisors

Traditional human advisors are the kind you meet with in an office or over a virtual meeting. An in-person financial advisor uses their knowledge, background, and training to make recommendations that benefit your financial portfolio.

In contrast, a robo-advisor is what it sounds like: an automated investment management service. A robo-advisor is a program that relies on algorithms to make investment recommendations.

Robo-advisor options are typically inexpensive, but they don’t offer the type of customized service that a human advisor can.

However, if you have fewer assets to manage, a robo-advisor could be an affordable alternative to hiring a professional.

Credit Counselors

While most financial advisor roles center on keeping debt low and optimizing investments, credit counselors focus on other financial topics. Namely, they help with financial factors that influence your credit.

A credit counselor often provides budgeting and money management services. The idea is that if you have poor credit, you can rebuild it by paying down debt and managing your money better.

However, individuals who consult with credit counselors do not receive advice on retirement or investments. In most cases, this isn’t the best option for consumers who aim to enhance or protect their wealth.

Financial Planners vs. Consultants vs. Advisors

With so many types of financial advisors, things can get confusing. For the best investment advice, you need the right professional.

A financial planner is typically certified, though you should be wary of professionals who use the title without offering their credentials. Financial planners can help with wealth management, but they typically cannot advise on investments.

Financial consultants are another job title that can come with or without a formal credential. These professionals may have limited expertise when it comes to investments and retirement planning.

While many financial professionals call themselves financial advisors, only an SEC-registered financial advisor is truly a “financial adviser.”

Ideally, when searching for a financial advisor, you should choose one that most closely aligns with your financial needs. At the same time, choosing a professional with credentials, accreditation, or licensure should be a priority.

Types of Financial Advisors Based on Fee Structure

There are two major distinctions when it comes to hiring (and paying) financial advisors. Some firms or professionals operate as fee-only advisors. Others use a commission-based model, often in conjunction with a fee structure.

Fee-Only Advisors

Fee-only advisors are exactly what they sound like: you pay a flat fee to receive financial advice and guidance. You might prefer a fee-only structure if you worry about commissions affecting your advisor’s attitude toward your portfolio.

Fee-only advisors don’t stand to benefit from your investments. This means there is no conflict of interest as they make financial recommendations.

A fee-only structure means you receive the services you need, pay a flat amount for them, and then keep all the returns your investments earn. For many consumers, this can be the lowest-cost way to manage their portfolios without paying out extra dividends to their fiduciary.

Commission-Based Advisors

Commission-based advisors make a commission off of your investment success. This could be a decent tradeoff if your portfolio enjoys plenty of growth. But in some cases, it can also mean a financial advisor who makes unscrupulous moves to secure a higher payoff.

Many consumers feel nervous about commission-based products due to dishonest advisors. In general, a fee-only structure is the most recommended by experts to protect your assets and reduce your risk.

Fiduciary vs. Suitability Advisors

Another important distinction when hiring a financial advisor is whether the professional is a fiduciary vs. suitability advisor. Credentials aside, there are certain standards financial advisors must abide by—and limitations to the responsibilities of suitability advisors.

Fiduciary advisors adhere to a standard that requires them to put client interests ahead of their own. In contrast, suitability advisors must make recommendations that are in the client’s best interest.

What’s confusing is that these terms sound nearly interchangeable. The overall difference is that suitability means that an investment must merely be “suitable” for a client—which does not mean the best possible outcome for said client.

For that reason, fiduciary advisors are often deemed as more trustworthy because of the standard they must adhere to. At the same time, the suitability standard is often less favorable to consumers.

Suitability may feel like the “minimum” rather than a maximum level of protection for fiduciary clients.

Adviser vs. Advisor

While researching financial advisors, you might come across the variant “adviser.” While this can be confusing, the spelling difference is purely semantics.

The terms advisor and adviser are interchangeable. So, various firms might use one spelling or another depending on their background or preference.

Some organizations even adopt one version or the other, while most publications use them both.

Want to talk with a financial advisor?

Set up a free consultation with one of our fiduciaries.

What is Financial Planning?

What services do financial advisors offer their clients when it comes to financial planning? There is a range of financial planning activities, and you may need some, all, or none of them.

The most common types of financial planning services include:

  • Online financial planning services
  • Online advice services
  • Wealth management services
  • One-time financial advice

Online Financial Planning Services

Online financial planning services can involve robo-advisors, or you might connect with a professional advisor virtually. Online financial planning might be the first step toward meeting in person with a financial advisor.

Online Advice Services

Many professionals give pro bono advice to potential customers. In some cases, you might find websites or FAQ sections composed by professional financial advisors.

However, since anyone can write an article with advice on financial planning, you should verify that you have the correct information before making any financial moves.

Wealth Management Services

Wealth management services are the highest tier of financial advisor services. Clients who require this service tend to have high assets and broad investment portfolios.

Wealth management services typically center on investment management and related financial advice. A “wealth manager” can help coordinate with other experts to provide their clients with a suite of financial services.

For example, your wealth management advisor might work with your accountant or a lawyer to handle your financial portfolio.

One-Time Financial Advice

Many financial advisors are happy to offer one-time financial advice to help clients navigate specific financial challenges. Whether you have questions on diversifying your portfolio or confirming you’re on track for retirement, a one-time visit with a financial advisor can be prudent in many cases.

For long-term support with your finances, however, it helps to cultivate a relationship with your advisor. The better your advisor gets to know you, the more relevant services and advice they can offer.

Do I Need a Financial Advisor?

Determining whether you need a financial advisor can be tough, especially when you’re entrusting valuable assets to a company or professional.

There are a few points to consider when deciding whether you need a fiduciary. Understanding at what life stages a financial advisor is most beneficial, and the signs that you do (or don’t) need one is a good start.

Plus, there are some resources that can help if you’re not ready to hire an advisor.

At What Stage Should I Have a Financial Advisor?

As upcoming generations become more money-conscious than ever, it’s common for younger people to wonder whether they need financial advice.

The short answer is that if you’ve just begun saving for retirement through an employer contribution fund or are building savings to start a family, you may not need a fiduciary just yet.

Do I Need a Fiduciary in My 30s?

It is always smart to be vigilant about your finances. And, starting out strong in your career and savings plan is an excellent first step. That said, unless you are hoping to begin investing in stocks or other assets, you may want to skip the visit to a fiduciary firm.

Do I Need a Fiduciary in My 40s?

Generally, consumers who are more established in their careers and already possess an investment portfolio benefit the most from expert fiduciary advice.

If you’re in your 40s and are growing a retirement fund and want to invest, speaking with a financial expert could offer insight.

Do I Need a Fiduciary in My 50s and Beyond?

If you are approaching (or departing) your 50s, this can be the life stage where finances become more stressful.

You might feel apprehensive about the balance in your retirement account, but you aren’t sure how to grow the asset. Or you may be interested in diverting assets so you can travel during your golden years. Or, maybe you are hoping to find the tax breaks that your high earner status no longer seems to afford you.

Many consumers find that near-retirement is the best time to reexamine their savings, investments, and entire portfolio. Then, you and your fiduciary can navigate the necessary changes so you can plan for a less stressful and more productive retirement.

Who Needs a Financial Advisor?

Not everyone needs a fiduciary, and many consumers go without because they don’t want to risk working with someone who’s not trustworthy. But if you’re in a financial stage that could use a bit of fiduciary expertise, consider doing your homework and scheduling some consultations.

While finding a financial advisor can require a bit of work—both to find an honest representative and form a relationship—it might be worth the effort.

Some of the signs you need a financial advisor are:

  • You are in a top tax bracket (and are a high earner)
  • You owe taxes, but the details are unclear
  • You have a retirement fund but have concerns about your progress
  • You don’t want to spend excess time on navigating finances
  • You have multiple investment accounts with high net worth

Consulting with a knowledgeable advisor can help you feel more confident about your path to retirement and conserving your wealth. It can also help you maximize your portfolio without spending hours poring over spreadsheets and paperwork.

Who Doesn’t Need a Financial Advisor?

Many consumers are hesitant to seek investment advice but have questions about their earnings, retirement, or other aspects of finances. Whether you’re closer to college graduation than retirement or have a limited portfolio range, you might not need a fiduciary just yet.

You may not need a finance advisor if:

  • You’re just starting out saving for retirement
  • Your tax situation is straightforward, and you aren’t in a top tax bracket
  • You don’t owe back taxes
  • You have few (or no) investment accounts

However, just because you don’t need an expert for assistance doesn’t mean you shouldn’t care for your financial wellbeing. Fortunately, there are alternatives to hiring a fiduciary—including sourcing free financial advice.

Free Resources for Financial Health

While free financial advice should always be accepted with caution, there are trustworthy sources to obtain finance information. If you’re not ready to talk to a financial advisor, consider these 5 sources for free or cheap financial advice.

Establishing a Budget

Budgeting to reach financial goals is a smart first step when navigating debt or the initial stages of planning for retirement. Knowing what is going into and coming out of your accounts is crucial.

Starting out with budgeting can involve something as simple as a pen and paper, but you can also find free budgeting tools online.  

Trying an App

You might try an app for finance advice if you’re struggling with budgeting or understanding your ingoing and outgoing finances. Intuitive applications offer tracking functions, notifications, and maybe even the motivation you need to break out of a financial rut.

Try one of these finance apps for a new perspective on your accounts, credit, and even investments:

  • Personal finance apps like Mint, from financial giant Intuit, help track your input and output and summarize spending trends. With this app, you can see where your money goes—and change your spending habits accordingly.
  • Credit-tracking apps like Credit Karma offer free updates on your credit score. This application is ideal if you want continuous access to your credit score and payment history. Plus, Credit Karma promises its monitoring won’t negatively impact your score.
  • If you’re new to investing, an app like Acorns can help you set aside funds for investing and recommend stocks and bonds to suit. You’ll be investing small amounts, which can help you get a feel for managing a portfolio of any size.

Considering a Robo-Advisor

Unlike applications, a robo-advisor is an automated investment management service. These services require a fee, but it’s typically a low amount.

For beginners, a robo-advisor can help you set goals and choose investments to suit your risk tolerance and investing style. Choosing a robo-advisor helps you test the waters of investing to see what works for you.

The risk is relatively low, your up-front cost is also minor, and you can play around with low-level investments to learn the ropes.

Sourcing Information from Trustworthy Organizations

Sometimes, a bit of education can help shed light on your financial challenges.

If you’re not ready to hire a financial advisor but have questions about investments, budgeting, taxes, and more, seeking free information from trusted sources is a must.

Consider these reliable sources of information to help you get started:

Seeking Community Support

Finding local financial resources can help keep your budget low and provide guidance on saving, budgeting, and retirement planning.

Try a quick online search—including your city and state—to see what local options might be available. Many libraries, community centers, and even tax preparation service organizations offer free financial advice.

You may also be able to find free virtual services so you can jump-start your financial planning. Pro bono financial consultations are more common than you may imagine, and many professionals dedicate their time to helping those who may not be able to afford a retainer-based fiduciary.

How to Find a Financial Advisor

When it comes to how to find a financial advisor, a simple Google search may not be adequate. Instead, consider your unique financial needs, the fee structure for your fiduciary, and questions to ask to avoid making a misstep.

It’s also worth knowing what common mistakes people make when navigating how to choose a financial advisor.

Know Your Financial Needs

Figuring out how to find a good financial advisor starts with knowing your financial needs. If you have concerns about retirement, for example, you’ll want an expert who is knowledgeable on that topic.

If you have a diverse portfolio, you might need a professional advisor with a wider scope of knowledge.

Source the Right (Fee-Only) Fiduciary

Various financial experts recommend finding a fee-only fiduciary. With all the changes to fiduciary rules, it is most prudent to choose a fiduciary who does not stand to gain from your investments.

That means skipping over commission-based professionals and choosing one (or a firm) with a fee-based structure.

This way, regardless of your firm’s credentials, you know that their motivation does not lie in boosting their commission. Still, verifying your fiduciary’s background, licensing, and legitimacy is still crucial for avoiding financial losses.

Always Check Credentials and Background

Though there are many reputable financial advisors out there that you can trust, there are also some who are dishonest. Therefore, you should always check on an advisor’s credentials and background before hiring them.

Know What Your Financial Advisor’s Credentials Are

A simple way to begin investigating a fiduciary is by looking up their credentials. You can consult the FINRA Professional Designations tool to find out what the professional credential means.

Next, you can use FINRA’s BrokerCheck to look up the investment professional or their firm to ensure proper registration. Alternatively, you can perform a search on Investor.gov to confirm a firm or individual’s registration status.

Ask for Referrals and Recommendations

While a friend or family member’s financial advisor isn’t always the perfect fit, it’s an excellent place to start. Chances are you know someone who relies on a trusted fiduciary to manage their accounts.

Start asking around to see who your friends and family use for retirement planning, financial consulting, and other services. Then, dive deeper into the firm or individual’s credentials, affiliations, reviews, and reputation.

Ask Your Financial Advisor These Questions

Meeting with a financial advisor—especially for the first time—can feel intimidating. You likely have many questions, and most will center on your financial portfolio.

But you may also feel nervous about trusting a new fiduciary. Asking these questions in your first meeting can help you feel more at ease with your advisor. The answers can also help you determine whether the advisor is a good fit for your needs.

Are you a fiduciary?

Asking a financial advisor whether they are a fiduciary will elicit a response that tells you what their certification or licensing is. Many financial advisory roles are fiduciaries, but not all are.

Thus, this question is prudent for determining whether you’re signing up for services from a certified fiduciary or someone without any formal qualifications.

What are your qualifications?

A professional’s qualifications are always relevant when you are entrusting your financial portfolio. Along with their certifications or license, your financial advisor might share what additional training or experience they have.

They may have an impressive track record with long-term clients, or they might manage portfolios of high earners, specifically. These unique qualifications can help you decide whether the advisor is the right fit for you (and your portfolio).

What are my all-in costs?

Knowing how much a financial advisor costs is essential. You want to protect your wealth, not wonder about how much it will cost you over time.

An up-front figure is the best way to balance the cost of the financial advisor services with the potential value.

Ideally, you will seek a fee-based fiduciary who does not act on commissions. This way, your expenditures will remain consistent based on the services you receive and the products you invest in.

In contrast, commissions often mean fluctuating amounts paid to your financial advisor. And, as noted, commissions can muddy the waters when it comes to fiduciary responsibility.

How do you get paid?

This is a great follow-up question after inquiring about all-in costs. It may feel personal, but it’s crucial that you understand your financial advisor’s stake in your meetings and transactions.

Whether it’s an hourly wage or a salary per month, the type of pay (not necessarily the rate) can shed light on how your financial advisor will handle your accounts, communication, and investments.

What’s your investment philosophy?

Knowing your fiduciary’s investment philosophy can reveal whether you are a match—or if someone who’s more risk-averse may be a better fit. Or, you may decide that playing it safe isn’t ideal and instead seek an advisor who will make smart but higher-risk investment decisions.

How will our relationship work?

Knowing how you and your advisor will work together is another important element of the advisor-client relationship.

  • Will you meet regularly, or only when you want to make changes to your portfolio?
  • Is your advisor available to you on short notice, or will you always need an appointment?
  • Will your advisor reach out with suggestions or changes, or do you need to initiate the conversation?
  • Is their management style more passive, or are they always scouting new opportunities for you and your portfolio?

Determining how the relationship will work can help you feel more confident in your collaboration, too.

How will we communicate?

Communication is vital for all forms of business. But when it comes to your finances, you want timely updates and near-instant communication.

Inquire about methods of communication as well as your advisor’s availability. You might chat via email, phone, text, or virtual meeting. Outlining the details of how you’ll communicate sets the stage for your working relationship.

While it’s not always possible to eliminate miscommunication, bringing the topic up early can minimize the chances that you and your advisor will wind up on different wavelengths.

What asset allocation will you use?

Asset allocation involves a balance of risk versus reward within your portfolio. Your advisor’s strategies and approach to asset allocation dictate how your portfolio will change and grow.

For example, common asset strategies include:

  • Strategic—Setting target allocations and rebalancing periodically
  • Tactical—Actively shifting assets to take advantage of market changes
  • Constant-weighting—A continuous rebalancing of a portfolio based on value
  • Dynamic—Adjusting the variety of asset classes with market fluctuations
  • Insured—Establishing and maintaining a base asset value and acting to avert risk
  • Integrated—Optimizing net worth through various means

You may not know what answer is ideal for your portfolio just yet. But learning more about your advisor’s style and strategies can help build a bigger picture of your partnership.

Who is your custodian?

When you ask your financial advisor who their custodian is, what you’re asking is who oversees their business. An agency (or multiple agencies) will oversee their activities in most cases.

However, if you’re seeing a financial coach, there may not be a regulatory agency to verify their status.

Typically, either FINRA or the SEC oversees financial advisor activities. Once you learn whether your advisor is licensed under FINRA or SEC, you can search those agencies’ databases to confirm their license.

What do you enjoy about your job?

Part of learning how to find a financial advisor you can trust is getting to know them.

While a single sit-down meeting with an advisor won’t mean you become the best of friends immediately, asking ice-breaker questions can offer ample insight.

Knowing what your financial advisor enjoys about his or her job may indicate whether that professional is a good fit for your expectations. It also reveals a bit of their personality, which is helpful in building a trusting relationship that benefits your portfolio over the long term.

Don’t Make These Mistakes with Financial Advisors

While working with a fiduciary may prove worthwhile, there are some things you shouldn’t do when hiring one.

From determining when to get a financial advisor to cutting ties with a “pro” who isn’t exactly professional, avoid these mistakes when dealing with financial advisors.

Confusing Advisor Titles

Just because a broker oversees your investments, that doesn’t mean they’re qualified to handle other aspects of your finances. If you want an expert in a specific area, you should look for the corresponding job title to suit.

Keep in mind that there are many different financial advisor types, so selecting one who best meets your needs is a must.

Assuming All Financial Advisors Are the Same

Though all financial advisors have a few things in common, they aren’t all the same. Just as job titles—and credentials—vary, personalities range widely, too.

Even if you’ve worked with someone in the past and regretted the partnership, it doesn’t mean your next advisor experience will be as disheartening. Finding an advisor you can trust may take time, but it’s worth the effort to feel comfortable and heard when handling your finances.

Sticking with a Bad Financial Advisor

Continuing to work with a financial advisor you don’t like or can’t trust is another no-no. Keeping the same financial advisor that you’ve always had is a mistake if you don’t get along with the person or don’t trust them.

Similarly, if you feel undervalued by your current advisor, it’s a mistake to keep giving them your business.

A trustworthy and experienced advisor knows that they may not be every client’s perfect match. That said, the best advisors make an effort to help clients feel at ease and highly valued.

If your advisor doesn’t instill feelings of trust or support, it might be time to find a new firm.

Waiting Too Long to Hire a Financial Advisor

When is it time to hire a financial advisor? For many clients, the ideal window has already passed.

Waiting too long to hire a professional can be detrimental to your portfolio—and your net worth. Especially if retirement is coming up fast, you might be overdue for a visit with a financial professional.

Skipping the Background Check

Especially if you “click” with your advisor, you might take them at their word when it comes to credentials. But skipping the background check or investigating references isn’t smart—or financially sound.

You should verify your fiduciary’s credentials, background, and any available client references. That includes scouring Better Business Bureau listings for information or contacting existing clients, if the advisor can share any (or if you find them elsewhere).

Doing a thorough online search—including for the advisor’s license status—will also reveal any complaints or infractions when it comes to compliance.

Not Asking About Rates and Fees

You might have a stack of paperwork to consult, but if you’re unsure what your advisor’s rates are after the initial meeting, that is not a good sign.

Not asking up-front questions about fees and billing is a mistake. You need to know what your fiduciary’s services will cost you and when.

Skimming Over Fiduciary Status

A fiduciary is a specific type of financial advisor who must work under a specific standard. Ignoring this distinction could result in a less than desirable outcome in terms of risk tolerance.

Of course, choosing a fiduciary can also offer clients peace of mind that their advisor upholds high ethical standards.

Assuming Specific Results on an Investment

Regardless of your advisor’s good advice, some investments may deliver lower performance than expected.

Assuming a specific amount or value on an investment or product is unwise because it can cause you to overestimate your assets. But, presuming a set return is also placing unrealistic expectations on your advisor. They’re human, too—and at the mercy of the market, just as you are.

Choosing a “Nice” Financial Advisor

While no consumer wants a rude or impersonal financial advisor, settling for “nice” isn’t ideal, either.

Choosing a financial advisor based on their niceness—or overall personality—is selling yourself short as their client. You can, and should, expect kindness and courtesy from your advisor.

But you should also expect professionalism, sound advice, and actionable recommendations. Settling on an advisor who’s simply “nice” won’t earn you a high return on investment.

It could even cost you in the form of missed opportunities if your advisor’s professional qualifications and expertise aren’t as great as their personality.

How Much Does a Financial Advisor Cost?

There’s no denying it’s worth the investment to hire a financial advisor in many cases. But how much does a financial advisor cost, and how are they paid?

The answer is that prices vary, as does the payment structure that the financial firm uses. Knowing what typical financial advisor fees amount to, plus how advisors get paid, how their fees work, and whether you can deduct the cost on your taxes can help you make a sound decision.

Typical Financial Advisor Fees

You’re likely wondering, what is a financial advisor’s average fee? The answer is that it may vary based on your assets, portfolio range, location, and the expertise of the firm you hire.

In general, fee-only fiduciaries cost less for consumers. That’s because you won’t be charged a commission on your investment growth.

Average financial advisor fees tend to span these ranges:

  • Consulting fees ranging up to $400 per hour
  • Advisory fees between .25 percent and 2 percent of your asset value per year
  • Retainer or subscription fees of up to $5,000 per quarter
  • Administration fees (such as for retirement plans) of up to .15 to 1.5 percent of the plan assets per year

How Do Financial Advisors Get Paid?

Paying for financial advice can feel strange, but you’ll be paying either an hourly or flat fee for services in most cases. 

Depending on whether you choose an independent financial advisor or a firm, the way an advisor is paid can vary.

In a firm, advisors may make an hourly wage. Or, they might earn a set salary per month. For commission-based firms, an advisor might earn a bonus each quarter based on their clients’ portfolio performance.

In still other scenarios, firm advisors may receive pay based on the type of services they provide and the actions they take on your portfolio.

Fee-Only vs. Commission-Based Payment

How much do financial advisors charge? The answer depends on their fee structure. Fee-only payments are either:

  • An hourly rate
  • A quarterly, annual, or other retainer fees
  • A per-project fee
  • A percent-of-asset fee, which ranges widely based on asset value and firm

Commission-based payment centers on your portfolio yield. The higher-performing an investment or product, the bigger payment the financial advisor receives.

Is it worth paying for a financial advisor based on commissions, or is fee-only better? Most experts agree that choosing a fee-based fiduciary is the wisest choice.

The fee-only fiduciary model invokes fiduciary responsibilities (more on that later). Plus, a flat rate, retainer fee, or percentage of asset fee means a predictable expense for the consumer.

Understanding how financial advisors make money on commissions helps highlight the importance of a fee-only fiduciary agreement.

The idea is that if a financial advisor stands to benefit from a larger commission, they may take a significant risk on an investment to earn higher returns. Higher returns mean more fees in their pocket, even if taking that chance could cost the consumer money.

Other Types of Financial Advisor Fees

Financial advisors can also use differing fee structures from fee-only or commission-based. For example, some firms use different payment methods for various account types.

An hourly fee might apply when you receive advisory services. When you schedule an annual portfolio or financial plan review, there may be extra costs, whether hourly or otherwise.

You might pay a flat fee for a particular project, whether short- or long-term.

A firm may also offer bundle or wrap discounts and various fee levels on specific products or services. The best policy is to ask questions on each type of service or product you purchase.

Your advisor should be up-front about any extra costs or fees, regardless of the type of service or package you choose.

Are Financial Advisor Fees Tax Deductible?

Are fees paid to a financial advisor tax deductible? Or, in other words, what tax hit do I face if I invest with a financial advisor?

The answers to these questions have changed a lot in recent years, with the last update in 2017. As U.S. News explains, the 2017 Tax Cuts and Jobs Act (TCJA) “eliminated the deductability of financial advisor fees” between 2018 and 2025.

Short of waiting until 2025 for an answer on the specifics, it’s simpler to answer that in general, fiduciary fees are typically not tax-deductible.

However, there are a few caveats to that blanket statement.

For example, trusts and business accounts may still be eligible for some itemized deductions come tax time. Consumers who are self-employed may also be able to utilize their differing tax schedules for a bit of a break on financial planning advice fees.

Because of TCJA, though, many firms may feel pressured to help clients find savings elsewhere. Instead of lower fees or adjustments, minimizing tax liabilities throughout client portfolios can help recoup the loss of tax breaks.

Are Financial Advisors Worth It?

Ultimately, are wealth management fees worth it? Many would argue that sound investment advice is priceless, making the fees of a financial advisor supremely affordable.

Overall, however, fee-only fiduciaries tend to have the most reasonable costs associated with their financial expertise. If you are in need of professional advice on your finances, seeking paid help may prove more reliable and worthwhile than free or commission-based help.

What is a Fiduciary?

There is a difference between a financial advisor and a fiduciary. So, what is a fiduciary, and what guidelines do they need to follow in the field? Read on for details on fiduciary responsibilities, standards, and whether your financial advisor should also be a fiduciary.

What is a Fiduciary: Definition

What is the meaning of a fiduciary? In short, a fiduciary is a professional who has an obligation to follow a fiduciary standard. Many financial advisors are fiduciaries, but not all.

A broader definition of a fiduciary is that they are a professional who holds an ethical responsibility to a beneficiary (the consumer). The ethical responsibility covers both decisions a fiduciary makes and advice they give to the beneficiary.

One example of a fiduciary is an RIA, though other firms and independent advisors are also fiduciaries.

What is a Fiduciary Relationship?

The fiduciary relationship refers to the obligation of the fiduciary to protect their client’s assets. The legal or ethical relationship requires the fiduciary to always act in the best interest of the client. It also requires them to avoid conflicts of interest.

Many individuals and firms have a fiduciary relationship with their clients. Whether they do or not, however, depends on their level of certification or licensure.

What is Fiduciary Responsibility?

A financial advisor or firm might say they have a fiduciary responsibility toward their clients. This is a way to name the obligation the firm or advisor must follow legal guidelines but also ethical and moral ones when it comes to financial actions.

So, your fiduciary has a fiduciary responsibility to you as their client. They are obligated to make decisions in your best interest rather than what would achieve a bigger return.

Suitability Standard vs. Fiduciary Standard

While the fiduciary responsibility prioritizes the client’s assets and wealth more concisely, the suitability standard is a lesser requirement. That doesn’t mean the suitability standard is a low one—it only means they are different and also differently interpreted.

Organizations or professionals that follow the suitability standard (generally broker-dealers) are held to a lesser standard. However, the suitability standard also dictates that advisors make decisions that are suitable for their clients.

The difference between suitable and fiduciary, however, can be vast. In general, clients who are looking for the most trustworthy advisor opt for one who is a fiduciary. Fiduciaries commit to upholding their client’s financial wellbeing above all else, whether their services are fee-based or otherwise.

Overall, the fiduciary standard holds professionals to a higher level of accountability.

What is the Fiduciary Rule?

In 2017, the Department of Labor (DOL) established the fiduciary rule, which was a set of guidelines that financial advisors were required to follow. However, in 2018, the U.S. Fifth Circuit Court of Appeals vacated the rule, which means it no longer applies.

The DOL intends to revive the fiduciary rule, but currently, there is no enforcement regarding this piece of legislation on financial advisement firms or individually licensed professionals.

What is the Suitability Rule?

Unlike the fiduciary rule, the suitability rule remains in full effect. According to FINRA, firms and “associated persons” have three primary suitability obligations:

  • Reasonable-basis suitability: A recommendation needs to be suitable for some investors (at least).
  • Customer-specific suitability: the recommendation must be suitable for a specific customer.
  • Quantitative suitability: a broker who is in control of a customer’s account must believe in the suitability of a series of transactions to the specific customer’s profile.

In short, the suitability rule enforces many protections to reduce consumers’ fiduciary risk.

Current Fiduciary Regulations

Though the 2017 fiduciary rule is not currently valid, that doesn’t mean it’s a free-for-all in terms of fiduciary responsibilities. According to the SEC, many people who make important decisions on behalf of a beneficiary must still adhere to fiduciary responsibilities.

The 2017 change would have increased the scope of fiduciary duty to additional roles in the financial industry. So while the rule isn’t in effect, previous guidelines and legislation still stand.

Should Your Financial Advisor Be a Fiduciary?

So, what is a fiduciary financial advisor, and should your financial advisor be a fiduciary?

Finance experts tend to agree that yes, your financial advisor should be a fiduciary. Depending on the type of advice you’re seeking, however, it might not be necessary.

Still, many consumers opt for a fiduciary over the alternative because they seek a range of financial services. For example, a financial coach could offer advice on adjusting your budget for retirement.

However, they could not advise on investment decisions, such as what type of retirement account to choose or when to realign your portfolio.

If you’re hoping for retirement planning, wealth management, and other financial advisory services all in one place, choosing a fiduciary is the simplest way to go about it.

This way, you know that your fiduciary has your best interests at heart when making recommendations and offering advice. Should that advice extend to investments, your fiduciary possesses the appropriate certifications and licensing to give quality endorsements.

How to Identify Fiduciary Financial Advisors

There are a few ways to identify a fiduciary. In many cases, you can ask a financial advisor about their status. You may also request proof.

Your advisor may hold specific certifications or licensing. Or, they may take an oath as part of the Committee for the Fiduciary Standard.

Registration with the SEC or another state securities regulator can mean that a financial advisor is a fiduciary or acts as one some of the time.

Series 65 or 66 licenses from FINRA tend to be held to the fiduciary standard part of the time, at least. However, a Series 66 license also allows the collection of commissions in some scenarios.

A FINRA Series 7 license means the advisor may act as a fiduciary, though it doesn’t mean they practice as one all the time. These professionals can earn commissions on investment sales, which disqualifies them from fiduciary capacity in that event.

A financial advisor can also take the Fiduciary Oath through the Committee for the Fiduciary Standard. However, taking the oath only involves a verbal and written commitment, not any formal training or certification.

How Can You Check a Financial Advisor’s Fiduciary Status and Reputation?

For professionals with specific certificates or licenses, they will work under the guidance of an agency such as FINRA or SEC.

Asking your advisor about their affiliated agency is one way to source this information. You can then use the appropriate agency database to confirm the advisor’s credentials. FINRA’s search function will confirm whether there are complaints against the advisor or their firm.

Checking the Better Business Bureau listing for the agent or firm is another way to uncover any negative feedback or other concerning details about your advisor.

Why the Fiduciary Rule Matters to You, the Consumer

The fiduciary rule was an attempt to further regulate the financial advising industry. Consumers want to feel confident about their investments—and their advisors.

Unfortunately, many financial organizations resisted the legislation, resulting in a vacatur.

Does the fiduciary rule affect retirement? The short answer is that yes, the fiduciary rule had the most significant impact on retirement plans and planning advice.

As it was drafted, the fiduciary rule would have mandated that all professionals handling client retirement accounts follow the rule.

While the mandate would have helped protect consumers, it may have reduced financial advisors’ commissions on many financial products. Currently, changes are under discussion, and many experts in the financial industry expect the fiduciary rule to make a modified debut sometime soon.

Do I Need a Financial Advisor for Retirement Planning?

Retirement planning comes with its own unique concerns. From worries over not having enough resources for a comfortable lifestyle to not leaving anything behind for your children, planning for retirement can prove stressful.

But do you need a financial advisor for retirement planning? It might be a smart choice so that you can make the best retirement plans possible.

Why Asset Allocation Matters in Retirement

What is asset allocation? In short, asset allocation means where your funds are and how they are earning (or not).

When it comes to retirement, balancing risk and reward—such as asset allocation aims to achieve—is important. Especially as you near retirement, you may need to rebalance your portfolio for a more desirable allocation.

Choosing an asset mix for your retirement savings can be challenging. But selecting the “common” allocation may not be the best option.

For example, the “rule of thumb,” according to CNN, is to subtract your age from 100 to determine what percentage of your portfolio should remain in stocks. If you’re 60, that would mean 40 percent of your portfolio should be in stocks.

Of course, times have changed—and people are living longer—so the new rule is to use 110 or 120 to subtract from. Clearly, this is a haphazard way of calculating the ideal asset allocation ratio.

In this case, a financial advisor can offer customized advice that factors in your age, tax bracket, income level, and portfolio diversity. These factors can all impact what asset mix is ideal for your situation.

How Do I Find a Financial Advisor for Retirement?

If you have questions like, When should I rebalance my portfolio? or Do I have enough money for retirement? then it might be time to hire a financial advisor.

Navigating how to choose a financial advisor for retirement can be complicated, however. If you only want retirement planning advice, you may not want to enlist an expert to handle other aspects of your finances.

Learning how to choose a good financial advisor for retirement can be challenging. It involves knowing what your needs are, understanding the different types of advisors available, and selecting a firm or individual with the right qualifications.

Know Your Retirement Planning Needs

First, know where you stand when it comes to retirement. Are you just starting out? You might not need a professional’s advice yet—save this step for when you’re over 40.

But if you have been contributing to a 401(k) or IRA for decades already, you might be feeling nervous about the account balance. In that case, consulting an expert is a smart move.

A financial advisor can help you determine your retirement fund needs. They can help you learn how to maximize your government benefits. A fiduciary can also advise you on when to withdraw from your retirement account (or whether to hold off).

Understand the Types of Advisors That Handle Retirement

Many types of financial advisors can handle retirement questions and investments. But just because an advisor advertises retirement planning services doesn’t mean they’re an expert.

There are also limitations on what types of accounts professionals can handle based on their certification or license.

A CFP, for example, is held to the fiduciary standard by the CFP Board and can offer retirement planning advice. In contrast, a financial coach may advertise retirement help but possess no licensing in the industry.

Finding a firm or professional who primarily handles retirement accounts may be the best option if you have no other financial matters that require attention.

Select a Firm or Fiduciary with the Right Qualifications

Checking your firm or fiduciary’s qualifications is vital no matter what type of financial service you require.

But when it comes to retirement advice, you want to ensure that you’re receiving sound guidance from someone who knows what they’re doing and follows ethical guidelines.

Always double-check your advisor’s qualifications and ask pertinent questions before hiring their services for retirement or any other financial matter.

FAQs About Financial Advisors

Many people have questions about financial advisors that go beyond what advisors do or how much they cost. Consider these FAQs to help you navigate finding and working with a financial advisor.

Who can be a financial advisor?

The short and confusing answer is that anyone can be a financial advisor. The term doesn’t refer to a specific credential, degree, or certification.

However, financial advisors who carry certification, professional affiliations with compliance agencies, and advanced degrees are the type of advisor most consumers seek.

How long does it take to become a financial advisor?

At a minimum, most financial advisors possess a bachelor’s (or four-year) degree in economics, business, finance, statistics, or another relevant field.

However, some financial planners or advisors have no formal education. This is another reason why it’s vital to verify your professional’s background and certification before entering business with them.

In addition to formal education, most financial advisors continue to pursue continuing education. From recertifying at specific intervals to undergoing training on updated laws and guidelines, financial advisors often continue learning after entering the profession.

What is a Robo-advisor?

A robo-advisor is a computer program or, more precisely, an algorithm. Robo-advisors generate investment advice based on trends, facts, figures, and market fluctuations.

Instead of a live person interpreting market data and making decisions, Robo-advisement involves computer programs that offer notifications when investment opportunities arise.

Are Robo-advisors fiduciaries?

Many argue that a robo-advisor can be a fiduciary. Yet financial advisory experts disagree on whether a computer program can truly model the human element of choosing investments that are in the best interest of their clients.

It’s also worth noting that a robo-advisor that doesn’t ‘earn commissions’ on your investments may meet some of the ethical requirements to qualify as a fiduciary on that basis alone.

What does a financial advisor do that I can’t do on my own?

If you are capable of obtaining and interpreting statistical data on your financial portfolio, you may wonder why you need a financial advisor.

Like any other task you may outsource, the first benefit of hiring a financial advisor is that you can save time. Instead of spending hours managing your portfolio, you can hire someone else to do it—and likely in less time.

In addition, financial advisors in every niche have industry knowledge that the average person does not. Of course, that doesn’t mean financial advisors have the secret to getting rich quick. But they do know how to maintain their clients’ wealth.

Rather than tracking industry changes and market fluctuations, then allocating assets and hoping for the best, you can have a professional always on the ball for you.

And, if you require the support of another expert—like an accountant or lawyer—your financial advisor can make the necessary connections.

Overall, the freedom, confidence, and built-in support network that come with hiring a financial advisor are some of the biggest perks.

How do I know if an advisor’s fee is reasonable?

Determining whether an advisor’s fee is reasonable comes down to what you’re willing to pay for their services. Considering the amount of time you might spend handling your own affairs, it’s easy to see that a financial advisor is worth the hourly or asset percentage rate they charge.

However, a simple way to see if a fee is reasonable is by comparing rates from multiple firms or professionals. Interviewing a prospective advisor is a smart step before hiring one, and you can ask about rates before making a commitment.

Then, you can weigh the cost versus the benefits you might receive in a fiduciary relationship.

Can you sue a fiduciary advisor?

Many consumers worry about trusting a financial advisor who has access to their accounts, identifying information, and investments. So, it makes sense that many ask whether it’s possible to sue a financial advisor for a range of reasons.

For example, if you feel your fiduciary was negligent in managing your account, could you sue? Or, could you file a lawsuit if you believe your advisor committed fraud?

In general, the answer is yes—it’s possible to sue a financial advisor. You could sue a firm or advisor for things like breach of fiduciary duty, misrepresentation, unauthorized trading, and other scenarios.

Of course, it’s far easier to take the time to find the right—and trustworthy—advisor rather than sue one who has already caused a loss.

How can I check a financial advisor’s credentials?

Yes—you can check a financial advisor’s credentials quickly and online. You can look up a financial advisor or firm using:

Another great source of information is the Better Business Bureau. You can check a firm’s accreditation, which means the company is committed to resolving consumer complaints.

Client feedback is another helpful feature of BBB ratings that can help you determine whether a firm is a good fit.

Are Financial Advisors Worth It?

Managing your wealth means avoiding risky investments. But does that mean you should skip hiring a financial advisor? The truth is that every situation—and individual—is different.

Many consumers hear horror stories about lost funds, crooked advisors, and embezzlement. Unfortunately, those tales can discourage people from seeking financial advice when they truly need it.

Knowing the costs involved, the status of your returns, and what your options are can help you decide whether a financial advisor is worth it.

Know the Fees for Financial Advising

Asking about a fiduciary’s fees—and knowing what the typical rates are—gives you a figure to work with when deciding if the cost is worth it.

Think about the potential return on your investment in terms of the value your advisor can offer. From less stress over financial concerns to portfolio growth that boosts your assets, there are plenty of ways that entrusting a fiduciary with your finances can be beneficial.

At the same time, consider the value of your time with respect to the number of hours you might spend handling financial matters independently. Though it may be possible, it might not be cost-effective nor enjoyable.

Understand the Potential Returns on Your Portfolio

Are financial advisors worth the costs? It depends on the value you get for the fee.

If you assume you’ll earn a ten percent return on every investment in your portfolio, you might be disappointed.

However, if you recognize that diversifying your portfolio can lead to growth, then investing in a financial advisor becomes a simple decision.

That said, truly understanding the ins and outs of your portfolio should be a priority. Here’s another way that hiring a fiduciary can help. Deciphering your returns and asset spreadsheets will be simpler than ever.

Your fiduciary can help save you time and frustration by going over account updates, market fluctuations, and investment changes as they happen. Instead of going it alone, you can have a clearer picture of what to expect from your accounts over time.

Recognize Your Unique Needs

Answering the question of do I need a financial planner depends on knowing where your finances stand. If you have few assets and low tax liability, hiring a financial advisor can seem like an exorbitant expense.

In contrast, if you have a higher net worth and are dealing with tax challenges at a higher tax tier, then a fiduciary may be the ideal expert to address those issues.

Hiring a financial advisor won’t mean you get rich (or richer) quickly. But it does mean you will have a fiduciary in your corner who understands your unique needs and addresses your finances from every angle.

Talk to a Financial Advisor

It might feel intimidating to make a decision about hiring a financial advisor before you ever meet one. So, talking to a reputable financial advisor can help you determine the potential benefits of hiring one. Plus, scheduling a time to talk can help you figure out whether working with a professional financial advisor is right for your needs.

Want to talk with a financial advisor?

Set up a free consultation with one of our fiduciaries.

Final Thoughts on Financial Advisors

It’s no secret that your financial situation will change over the years. No matter what stage of life—or finances—you’re in, caring for your assets and investments is vital for your future. The good news is that a fiduciary can offer invaluable guidance when it comes to protecting and maximizing your finances.

From answering the question of what is a financial advisor to shedding light on the various types of fiduciaries in the industry, we’ve covered every detail consumers need to make the soundest decision when it comes to choosing a professional to handle their investments and retirement planning.

If you decide that hiring a reputable fiduciary to handle your portfolio is the next step on your path toward financial peace of mind, contact Strategic Wealth Designers for a consultation.

2 Comments

  1. Adam Loedy

    Wow! SO MUCH INFORMATION. Thanks for this!

    Reply
    • Matt Dicken

      Glad it was helpful! Thanks for reading, Adam!

      Reply

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