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What does a financial advisor do?

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What financial advisors do

A financial advisor can help you develop a personalized strategy to achieve your goals, build wealth and make financial decisions that support your progress. In fact, recent research from Empower shows that 76% of Americans say receiving helpful financial advice makes them more confident in their ability to achieve financial wellness.1

Advisors can help with: 

  • Investment portfolio management
  • Estate planning
  • Tax planning
  • Legacy planning
  • Retirement planning
  • Debt management
  • Education saving planning

What is a fiduciary financial advisor

A fiduciary financial advisor is a professional who is held to a fiduciary standard. This means they are legally and ethically required to act in your best interest.

Financial advisors vs. wealth managers

Wealth managers are a particular type of financial advisor. They typically specialize in serving high net worth individuals, and can implement more sophisticated investment, philanthropic, tax, estate and legacy planning strategies that can benefit those with higher income and asset levels.

Financial advisors vs. accountants

A financial advisor and an accountant may have similar skills, but they have different credentials and focus areas. Certified public accountants, or CPAs, are trained to provide tax advice and stay up to date on IRS mandates, but they don’t typically help clients with investing and comprehensive financial planning.

A financial advisor is often trained as a CERTIFIED FINANCIAL PLANNER™ professional, or CFP® professional. They can advise you on investments and help develop a comprehensive financial management plan that may include retirement strategies, philanthropy, and estate planning as well as tax planning.

In complex financial situations, a financial advisor and an accountant may collaborate on behalf of their shared client. Certain levels of financial complexity may require a team of professionals, inclusive of a financial advisor and CPA. It is rare to have both specialty areas of advice come from the same person.

How do financial advisors get paid, and how much do they cost?

Some financial advisors charge flat hourly or annual rates that usually depend on the services they provide. The cost can equate to a couple thousand dollars a year or more. Others charge a percentage of the money they manage for you. Those fees, called assets under management (AUM) fees, can depend on the level of help provided, and average about 1% per year.

Keep in mind some advisors prefer a hybrid approach that includes fee and commission-based compensation.

How to find a financial advisor

Before you decide on a financial advisor, it’s a good idea to map out the type of professional help you need, and whether you’re comfortable with fee or commission-based payments. For example, if you primarily want assistance with retirement planning, you may want to look for a financial advisor who specializes in this area.

You might have access to advisors through your 401(k) (or other employer-sponsored retirement plan). If you don’t, you may be able to acquire their services directly through your retirement plan provider. Another option is to ask for recommendations from friends or perform an online search.

Some industry associations, including the National Association of Personal Financial Advisors and the Alliance of Comprehensive Planners, offer searchable databases to help you find the right advisor to fit your needs. Once you narrow down your search by comparing each advisor’s specialty areas and fees, you may want to consider using an online tool like FINRA BrokerCheck or the SEC Investment Adviser Public Disclosure website to see a snapshot of their background, credentials, regulatory actions, arbitrations or complaints.

Questions to ask a financial advisor

The financial professional you choose will ideally be a trusted advisor, with whom you’ll discuss your hopes, fears, and goals. As a result, it’s important to feel comfortable with whomever you hire – someone whose knowledge you trust and whose approach is consistent with your beliefs and goals. In your first conversation, ask advisors about topics, including:

  • Their qualifications
  • Fee structure
  • Fiduciary responsibility
  • Specialty areas
  • Investment philosophy
  • How they build portfolios (managed accounts, separate accounts, model portfolios, exchange-traded funds (ETFs), etc)
  • Investment products they use
  • What it’s like working with them, including how often you should expect to meet

What to expect when you meet with a financial advisor

Once you have selected an advisor, expect them to gather more information on your goals, desires, and past financial experiences. They’ll want a big picture view of your current finances and where you hope to go in the future. In subsequent meetings, you will typically craft and discuss your financial plan and have follow-up monitoring and maintenance sessions.

A financial advisor can help you develop a holistic financial plan and serve as a trusted counselor as you implement and amend your strategy over the long term. This guidance can create a smoother financial journey, and help you better manage life’s inevitable ups and downs.

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