A financial adviser assists clients in managing their finances and achieving their financial objectives. Advisors can offer a variety of financial planning services, including investment management, money management, and advice on creating a budget.
Certain financial advisers can assist with intricate financial matters like estate planning, insurance requirements, or tax preparation because they possess extra credentials or areas of specialization. Finding the correct financial adviser for your circumstances is crucial because of the variety of services and areas of expertise advisors provide. By doing this, you may avoid paying for unnecessary services or working with a professional who isn’t a good fit for your financial objectives.
1. Determine What You Need Financially
Consider what you want from that connection before you start searching for the perfect counselor. Knowing what you need help with before you start your search is a smart idea because financial advisers provide a wide range of services. While some advisers may offer comprehensive assistance, advising you on everything from savings objectives to retirement and estate planning, others may specialize in certain areas of finance, such as debt management or investing guidance.
Asking yourself the following questions can help you determine why you need financial assistance:
- Need assistance creating a budget?
- Would you like assistance with investing?
- Do you want to put together a budget?
- Do you need assistance achieving any savings objectives?
- Do you need to set up a trust or organize your estate plan?
- Do you require assistance with taxes?
- Do you have any interest in comprehensive money management?
You can identify the best type of financial counselor for you by answering these questions. Additionally, it could assist you in determining if you actually need one. For example, a robo-advisor may invest for you for a little charge if all you want help with is investing. On the other hand, you could want to look for an online or conventional financial counselor if you have a complicated financial life with several financial issues that you would want to address.
2. Recognize the Different Kinds of Financial Advisors
There are several titles for financial advisers, including investment advisor, portfolio manager, financial coach, professional financial planner, and broker. Even financial therapists exist. Don’t assume that someone who uses an official-sounding title has any particular training or qualifications because some of the most frequent titles used by advisers, such as the word “financial advisor,” aren’t associated with any particular credentials.
a) Investment Advisor
Although the SEC uses the phrase “investment adviser” to refer to a registered financial professional, it is also extensively used as a job title and is more typically spelled “advisor.” A person or business that receives payment for advising customers on investments is known as an investment advisor. Advisors on investments may also oversee client funds directly.
b) Broker-dealers and Brokers
A broker-dealer is a person or business that purchases and sells securities, including mutual funds, stocks, and bonds. Broker-dealers may trade buying and selling for their own account (functioning as dealers), on behalf of customers (functioning as brokers), or for both. Broker-dealers often have FINRA membership in addition to SEC registration. A broker-dealer representative’s ability to offer financial products is governed by their licenses. For instance, a broker-dealer qualified for the Series 6 exam can only provide variable annuities, mutual funds, and associated products.
c) Chartered Financial Planner
CFPs are financial planners who have passed the certification test, fulfilled the demanding experience and training criteria set by the CFP Board, and adhered to strict ethical guidelines. CFPs owe their customers a fiduciary obligation.
d) A Financial Consultant
Anybody can use the broad phrase “financial consultant.” However, some financial advisors are certified as chartered financial consultants, or ChFCs. Comparable educational requirements have been fulfilled by chartered financial consultants and CFPs. ChFCs are required to follow the American College’s code of ethics and have a fiduciary obligation. Here, you may check the credentials of a ChFC.
e) Coach for Finances
The most approachable financial experts for beginners are frequently financial trainers. The fundamentals of financial literacy, such as how to cut expenses or save money, are the main emphasis of financial trainers. Financial coaches can assist their customers in accumulating money that they may later manage with the assistance of an investment adviser.
f) Asset, Investment, and Portfolio Managers
These experts handle client investment portfolios, regardless of whether their business card reads “asset manager,” “investment manager,” or “portfolio manager.” In addition to handling a client’s investment portfolio exclusively, a portfolio manager or investment manager may also provide other financial planning services.
3. Examine the Variety of Financial Adviser Alternatives Available
You can find financial advisors at places other than your local bank or advising office. Getting financial guidance may be done in a variety of ways. Your budget, the services you require, and your personal tastes will probably determine which choice is best for you.
a) Robo-Advisors
A robo-advisor is an online platform that provides affordable, streamlined financial management. After you respond to online questionnaires, computer algorithms create an investing portfolio based on your objectives and risk tolerance.
b) Online Advisers and Services for Financial Planning
An online financial planning service that provides virtual access to licensed financial advisors is the next best thing after a robo-advisor. For the same price as a robo-advisor, a simple online service may provide automated investment management along with the added benefit of question-and-answer sessions with a group of financial experts. Generally speaking, online financial planning services are more expensive than robo-advisors but less expensive than traditional financial advisors. While some services have a minimum commitment requirement of $25,000 or more, others have very high investment requirements.
c) Traditional Financial Advisors
Conventional financial advisers are available for in-person meetings and can assist you with all aspects of financial planning. A lot of conventional advisers charge a fee of around 1% of your managed assets. Additionally, some advisers have significant minimum balance requirements—as much as $250,000 in assets. Your situation is complicated, you desire specialist services, and you hope to establish a lasting connection with your financial adviser through in-person meetings.
4. Determine Your Budget for Hiring a Financial Advisor
Financial advisers used to collect fees based on a percentage of the assets they handled on your behalf. Advisors may now provide their services to customers with a wide range of financial means because of the diversity of fee structures they provide.
Although commission-only financial consultants could appear to be giving their services for free, they might be paid a percentage of the money you invest or buy. Investment or insurance brokerages are usually the source of these “free” financial counselors. Keep in mind that these advisers could only be subject to appropriateness requirements, which means their fees might wind up being the same or more than what you would pay for a financial product recommended by a fiduciary financial advisor.
Financial advisers that use fee-only or fee-based models may bill by the number of assets they handle on your behalf (assets under management), by the hour, by the plan, via a retainer agreement, or using a subscription model.
5. Examine the History of the Financial Adviser
It is your responsibility to verify the credentials and expertise of the adviser, regardless of any title, distinction, certification, or license they may claim to hold. Always confirm the legitimacy of any credentials they provide and inquire about any past disciplinary issues, such as fraud. Before agreeing to engage with an advisor, you may check their Form ADV to learn more about their past.
While searching for financial advisers, clients can also look for certifications that are widely recognized, such as certified financial planner (CFP) or chartered financial analyst (CFA). The bearers of these designations must behave in a fiduciary capacity.
According to Robert Johnson, a finance professor at Creighton University, “these individuals possess a complex body of knowledge, have passed an extensive test (or, in the case of a CFA charterholder, a series of examinations), and have agreed to abide by a code of ethics.”
Johnson quotes a section of the CFA code of ethics that urges members to “act in their clients’ best interests and prioritize their clients’ interests over their employer’s or their own.”
The websites of the CFP Board and the CFA Institute allow you to confirm the credentials of an advisor. Although these qualifications don’t ensure that someone is truly working in your best interest, they do show a certain degree of training and expertise, and those are desirable traits.
6. How Do You Identify Scam Financial Advisors?
Every year, thousands of people lose millions of dollars as a result of financial fraud. The FTC received a record-breaking 2.8 million fraud reports in 2021, the most since 2001. In these frauds, the average victim lost $500; 25% of the victims suffered a financial loss.
No additional categories or identity theft reports are included in these numbers. In 2021, an additional 1.5 million Americans lodged complaints pertaining to “other” categories, which included credit reporting firms’ disregard for contested data or debt collectors’ fabrication of debt amounts or conditions. Furthermore, almost 1.4 million Americans claimed to have been identity theft victims. The FTC claims that both amounts constitute records.
a) You’re Assured of Guaranteed Profits
The level of risk involved in any investment will affect your potential rate of return. Generally speaking, you won’t get much money back if you keep it all totally secure. Conversely, high-return investments come with high risk, which includes the possibility of a total loss. Scammers frequently attempt to convince investors that very large profits are “guaranteed.” To put it briefly, this fraud takes advantage of the clients’ greed and hopes for quick money. If an adviser offers you or guarantees profits greater than 12–15%, it’s certainly a fraud. For the past 85 years, the average return on the U.S. stock market has been 9.5%. Given that there have been several years with negative returns, the return is not “safe.”
b) You Feel Under Pressure to Take Prompt Action During Free Events
If you receive an invitation to a complimentary crab dinner at a well-known local restaurant, it could seem like a perfect night out. But you should be prepared to go as soon as you hear the phrase “Act fast!”. Generally speaking, you should never trust a financial advisor who employs pushy sales techniques. However, it should be mentioned that not all free events are frauds. In order to be secure, verify the host’s qualifications before accepting their invitation by visiting FINRA’s BrokerCheck, the CFP Board’s planners, or the National Association of Personal Financial Advisors’ database.
c) A Government Organization You’ve Never Heard of Contacts You
Callers, emailers, and text messages posing as government representatives frequently make unexpected phone calls, texts, or messages. They could provide you with their employee ID number just to look professional. They may also hold personal information about you, such as your name or residential address.
On rare occasions, they will pose as representatives of the Social Security Administration, the IRS, or Medicare and offer you fictitious agency names, such as the National Sweepstakes Bureau, which does not exist. Additionally, they will explain to you why you must send them money or provide them with your personal information right now. If you get a call like this, you should hang up. It’s a fraud. You will never get a call, email, or text message from the government requesting payment. That is just the behavior of a con artist.
d) It is Advised That You Keep All of Your Money in One Location
It goes without saying that diversifying your portfolio makes sense. It might be disastrous, for example, if all of your money is invested in one stock and it collapses. If your financial advisor is advocating a certain investment, there’s a chance they have a hidden agenda. A reliable financial advisor will always suggest a balanced portfolio as a means of safeguarding your assets.
Conclusion
A number of important aspects must be carefully taken into account when selecting a financial counselor. Seek out an individual who possesses the necessary qualifications, such as a CFP or CFA designation, and confirm their background and performance history. Recognize their pricing schedule, including whether it is based on an hourly, fixed, or percentage-based approach to managing assets.
Whether they provide tax guidance, investment management, or retirement planning, be sure their services match your financial objectives and requirements. A person who listens to your worries and clearly discusses methods is someone you should choose, since trust and communication are important. Lastly, use regulatory agencies like the SEC or FINRA to look up any disciplinary actions or complaints.
FAQs
What Exactly is the Role of a Financial Advisor?
A financial adviser is a specialist in investments who can help you develop and carry out a customized strategy to achieve your financial objectives, including retirement and education savings.
What Does a Financial Adviser Do?
An expert who offers strategic guidance on a variety of financial goods and services is known as a financial adviser. They evaluate their customers’ financial status, create individualized financial plans, and assist them in making safe and successful choices.
Is Working as a Financial Advisor a Good Fit?
Wealthy financial counselors provide their customers with insightful guidance. They receive nearly limitless income potential, a flexible work schedule, and the ability to specialize in any field of their choice in exchange.
Who is Referred to as a Financial Advisor?
A specialist in money concerns, investments, and personal finance is what a financial adviser does for a living. Independent agents or employees of larger financial firms are two possible career paths for financial advisers.
Are the Salary Levels of Financial Advisors High?
The average annual compensation for financial advisers in the US is around $75,000, with earnings ranging from $50,000 to $110,000 on average. But this could change depending on your background, where you live, and the kind of advice you get.