Many investors see a financial advisor not merely as a helpful investment device, but rather as a desired destination. There is a common misunderstanding that only the wealthy enlist the services of financial advisors. No matter what your financial targets are or how much cash you are investing, a financial advisor can be incredibly beneficial for anybody.
“Do I need a financial advisor?” you ask. And what services does a financial advisor provide? Here’s an investor’s perspective on financial advisory services.
The Many Roles of a Financial Advisor: What Does a Financial Advisor Do?
A financial advisor is your financial planning partner. If you plan on retiring in two decades or sending your child to a private college ten years from now, you need to be prepared. To realize your objectives, you might require the aid of a highly experienced and qualified professional with the necessary credentials; this is where a financial consultant is of service.
You and your advisor will work together on a vast array of topics, encompassing the amount you should keep aside, the sorts of accounts to open, the sorts of insurance policies necessary (which include long-term care, term life, and disability, for instance), and planning for estate taxes.
The financial advisor is also an educator. One of the duties of the advisor is to aid you in grasping what is necessary to accomplish your future objectives. Instructions on dealing with financial matters may be part of the learning experience. Early on in your partnership, discussing topics like money management and setting aside funds might be relevant. As you gain more expertise, your consultant can help you comprehend intricate investments, insurance, and taxation issues.
Services Provided by Financial Advisors
- Investment advice: Financial advisors offer advice on those investments that fit your style, goals, and risk tolerance and goals, developing an investing strategy and making adjustments as needed.
- Debt management: Financial advisors can create strategies to help you pay down your debt and avoid debt in the future.
- Budgeting: A financial advisor will provide tips and strategies to create a budget that helps you meet your goals in the short and the long term.
- Saving for college: Part of a budgeting strategy may include strategies that help you pay for higher education.
- Retirement planning: Likewise, a financial advisor will create a saving plan crafted to your specific needs as you head into retirement.
- Estate planning: Financial advisors will create a plan and help you identify the people or organizations you want to receive your legacy after you die.
- Long-term healthcare and insurance: A financial advisor will provide you with the best long-term solutions and insurance options that fit your budget.
- Tax planning: Financial Advisor Tax Planning Services include:
- Tax return preparation.
- Maximizing tax deductions.
- Scheduling tax-loss harvesting security sales, usually around year-end.
- Ensuring the best use of the capital gains tax rates.
- Planning to minimize taxes in retirement.
Financial Advisor Vs. Financial Planning
A financial advisor is someone offering advice and guidance on financial matters such as investments, taxes, and planning for retirement. They may also provide services such as portfolio management and risk management. Though they are not substitutable, one may be misheard for the other. Financial consultants cover a variety of financial matters and may be more concentrated on conducting business rather than providing client services. In essence, some financial advisors are consulted on specific occasions or carry out duties that are not solely related to offering counseling. A personal financial advisor provides individualized advice concerning one’s finances. Financial planners are usually consulted for an extended period of time, assisting people with managing all aspects related to achieving financial stability, not simply creating investment strategies.
When Do You Need a Financial Advisor?
Investors typically wonder if they require the assistance of a financial adviser. It would be helpful to ask oneself if one’s circumstances necessitate specialized financial guidance.
Here are some common investment and life situations that cause people to seek out financial advice:
- Having difficulty managing money.
- Major life changes.
- Overwhelmed by financial stressors.
- Opening a business.
1. Having Difficulty Managing Money
There’s nothing to be embarrassed about if you are having problems dealing with your money. It’s something that very few people are experts at. Smart investors seek guidance when they need it.
It can be challenging to gauge your total investment status when you possess multiple distinct possessions. This applies particularly to those people who buy and sell real estate. Making and expending are practically parallel in the real estate sector—you pay for services of contractors, later you take in rent, then you expend money on a property management team, etc. If you don’t pay strict attention to finances, you could end up draining money from your accounts.
Financial consultants can assist you in arranging your possessions to give you a definite notion of your income and expenses. They will determine which of your possessions are productive or not and will suggest that you discard the unprofitable ones. They will also aid you in getting the most out of the resources you wish to keep.
2. Major Life Changes
If you have experienced a significant change in your life, it might be beneficial to consult a financial expert for advice.
Getting married may be a situation in which seeking the assistance of a financial advisor is advisable. When you tie the knot, it’s likely you’ll be combining your funds with your partner. It might be a complicated task, particularly if you and your significant other hold substantially different credit rates, salaries, and ways of spending money. A financial advisor can offer assistance to you and your partner in constructing a monetary plan that will guarantee your financial prosperity as a duo.
3. Overwhelmed by Financial Stressors
Living can definitely be difficult, and one may feel overwhelmed due to all the financial costs associated with it. Maybe you’re having a difficult time having enough money to pay for all your costs or possibly caring for aged parents is a struggle for you. No matter what the circumstances, an economic consultant can help you arrange your debt in order of importance, devise an expenditure plan, or build up an income which you don’t need to actively work for. Financial consultants could also advise you on government initiatives that can furnish you with monetary aid or tax credits.
4. Opening a Business
If you are thinking of setting up a business, it is advisable to seek the help of a financial expert. Prior to obtaining financing from a creditor, you ought to formulate a fiscal plan which outlines how you intend to make money—a monetary advisor can give assistance in preparing such a plan. A financial advisor can be of assistance in the development of an alternate course of action in case there is a delay in making your business lucrative.
A financial advisor can be a key asset when running a business as they can give you important information on expenditure and how to become more productive. Many times, financial counselors can identify fresh investment prospects or other methods to cultivate earnings. It’s worth paying for these services as they could help to save you money over time. Additionally, financial advisors can aid in the management of cash flow, securing extra money and dealing with other ongoing expenses.
The 3 Types of Financial Advisors
It makes no difference if you’re a particular type of investor or not – there is likely an investment consultant who is designed to meet your requirements. Here, we will cover the several types as well as what they do so you can better answer the questions “Do I need a financial advisor?” The 3 main types of financial advisors are:
- Traditional financial advisors
- Online financial planning services
1. Traditional Financial Advisors
An advisor that one can consult face-to-face is referred to as a conventional financial advisor. There are a few different types of financial advisors, including:
Someone who has been approved by the Certified Financial Planner Board of Standards is referred to as a Certified Financial Planner (CFP). You will gain advantageous financial counsel concerning multiple monetary matters through a CFP. CFPs can provide assistance if you’re requiring support with your financial situation.
A broker can aid you in acquiring investments such as stocks and bonds. Generally, they get a payment and/or a portion of the proceeds from every transaction. Securities and Exchange Commission In order to work as a broker, one must hold certification from and be listed on the United States Securities and Exchange Commission’s list of approved individuals. Securities and Exchange Commission.
A Financial Adviser with expertise in managing high amounts of wealth may be sought out by those with significant wealth. They can support you to take control of holdings such as real estate, cars, and fiduciary assets.
A Registered Investment Advisor provides advice and makes recommendations on what securities or assets to invest in. RIAs must be registered with the U.S. Securities and Exchange Commission.
Robo-advisors are usually the lowest-cost option for financial advice. The provider will normally ask you to fill in a form in which you indicate your desired investment outcome, risk tolerance level, and any other applicable information.
A robotic financial advisor will examine the data you provide in order to create a customized financial strategy or lineup of investments that typically includes low-cost index funds and ETFs.
A robo-advisor can be in charge of your investments without you having to do it personally—for instance, you can ask it to reinvest your dividends itself.
3. Online Financial Planning Services
An internet-based monetary arranging administration will give a similar fundamental administrations that you would get from a customary budgetary consultant, however you would have online video calls or conversation with your budgetary consultant instead of face to face. Everything is done virtually.
Using online financial planning tools is advantageous due to their convenience and affordability in comparison to physical financial advisors. However, the quality of advice is still the same.
How to Choose a Financial Advisor
To pick a financial consultant that provides services and tactics that agree with your objectives and requirements, these basic instructions must be adhered to.
- Interview a few different advisors and compare their services, style, and fees. Don’t forget to be prepared with a questionnaire to help you decide if they are a good fit.
- Look for an advisor who focuses on educating. A good financial advisor shouldn’t just sell their services, but provide you with the tools and resources to become financially savvy and independent, so you can make informed decisions on your own.
- Look for an advisor who is educated and well-informed. You want an advisor who stays on top of the financial scope and updates in any area, and who can answer your financial questions about a myriad of topics.
- Look for an advisor that matches your style and beliefs, and understands your emotions. For example, you want an advisor that is well aware of your risk tolerance and encourages you to take wise decisions.
The Costs of a Financial Advisor
The Department of Labor has suggested a regulation which would make financial consultants responsible for offering advice that serves the highest interest of their customer (the fiduciary standard), rather than advice that is simply acceptable (the suitability standard). The regulation was adopted, its execution was postponed, and thereafter a court rendered it null and void.
In the period of roughly three years before the end of President Obama’s proposal of the rule, the media revealed information more extensively on the different approaches financial advisors choose to use, how they calculate costs for their services, and how the suitability norm could not be as advantageous to customers as the fiduciary one. A number of financial advisors have determined to shift to a fiduciary standard, or have made it clear that that is the standard under which they practice. Certified Financial Planners™ had already been following this guideline. Even with the Department of Labor’s (DOL) regulation, the responsibility of the advisor to act in the client’s best interest would not have extended to advice concerning non-retirement accounts.
Under the suitability standard, financial advisors usually earn a commission for the items they provide to customers. The client will never be sent an invoice from the financial advisor. Alternatively, they may get services with higher prices than comparable offerings that are available. The advisor may receive a hefty compensation from these same financial products.
Advisors under the fiduciary standard either bill clients on an hourly rate or a percentage basis based on the amount of assets they have control over. Generally, a fee of 1% is the norm, while the hourly charge for fiscal consultation can go from around $120 to $300. Fees vary by location and the advisor’s experience. There are certain consultants who may give reduced fees to help people who are beginning with budgeting and don’t have the funds to pay the high fee each month. Generally, a financial advisor will offer a no cost, initial meeting. This meeting offers an opportunity for the client and consultant to determine if they are compatible with each other.
Combination of Fees and Commissions
Money consultants may receive a combination of payments and compensations. A fee-based financial advisor is distinct from a fee-only financial advisor.
A fee-based advisor may receive a fee for preparing a financial plan for their clients, and may also obtain a commission if they market an insurance policy or investment to them.
A fee-only financial advisor earns no commissions.
The Securities and Exchange Commission (SEC) introduced a concept called Regulation Best Interest in April of 2018 that is aimed at improving the standards of investment advisers. It can be said that the policy, which was regarded as not so strict as the labor department’s fiduciary restriction, answered some of the grievances of those who spoke out against the DOL’s fiduciary rule. Additionally, the SEC regulation would cover a broader spectrum as it would not just be restricted to pension fund investments.
The Bottom Line
It is not uniformly expected that all financial consultants possess the same degree of education or provide the identical level of services. Before entering into an agreement with a financial advisor, it is essential to do thorough research and make sure the advisor can successfully provide the services you require.
Take a glimpse at their qualifications too and make sure you are aware of, consent to, and can pay their rates. Look into the track record of the company with your state regulator, FINRA’s BrokerCheck program and the SEC’s Investment Adviser Public Disclosure system.
It is important to remember that locating a mentor who is compatible with your character is indispensable to establishing a profitable, enduring connection.
Do We Have A Financial Advisor?
With all of the above said, where do we at 40PlusFinance.com stand on financial advisors and do we have one?
The short answer is, no we do not, at least not the traditional sense that we talk about in this article.
We fully believe that investing and wealth creation are team sports and no one can do it alone & that anyone who thinks as such is foolish.
Instead we have what I’d call “wealth advisors”, which include: wealth coaches we can meet with weekly on group meetings or annually in a one-on-one basis, tax advisors (CPAs), mortgage advisors, property managers and a network and group of people we discuss finances with at Cashflow Tactics. We even go to at least one annual “financial” conference each year to up our game and increase our own financial education.
Our own investing philosophy is what I’d call pretty boring and instead of chasing the latest “thing” or trend or hot stock, we focus on buying single family rental properties and utilizing cash value life insurance as a sort of swiss army knife of a financial tool. That’s it!
We do believe that everyone and every situation is different and people should think carefully about which direction and what kind/if an advisor makes sense to them.
Kurt has gone from the financial lows of the ’08 financial crisis to personal financial success. He is a professional real estate investor owning properties in multiple states.
One of his passions is financial education and the pursuit of financial freedom.
You can learn more about Kurt here.