As you grow older and your finances get more complicated, you may find that you need some extra help managing your money and deciding what to do with it. That’s where a financial advisor or a financial planner can come in.
Financial advisors not only provide investment advice and help you manage your savings, they can also help you navigate a wide variety of financial challenges.
For example, if you’re a young professional just starting your career, you may need help balancing your savings goals with paying off student loans and other debt.
Similarly, if you’re engaged or are about to have a baby, your financial roadmap could change a lot over the next few years. A financial advisor can help you figure out how to merge your partner’s finances with your own and create a shared financial plan that works for both of you.
The Big Ideas You’ll Learn
- Financial advisors can help you with key areas of your financial needs, like budgeting, debt management, investment management, tax planning, and estate planning.
- You can choose whether you want to work with a financial advisor for specific topics, for a comprehensive financial plan, or for investment management.
- Find a financial advisor or planner that fits your needs and budget.
- You should always look for a fiduciary. They can save you over 2% of your portfolio value per year.
What You Can Expect When You Sign Up for Financial Planning
The amount of help a financial advisor gives you will vary based on the type of advisor and how much you’re willing to pay. In general, you can expect a good financial advisor or planner to give you detailed advice on how to successfully grow your savings and investments, manage debt, and prepare for the future.
A financial advisor may help you:
Strategize Your Savings Goals, Like Retirement
Your advisor will help you settle on a savings strategy that makes sense for your personal situation and long-term goals. In addition to helping you plan out your retirement savings, your advisor may also help you figure out how to meet other savings goals, such as financing a wedding, saving for a down payment, building an emergency fund, or sending your kids to college.
In addition, an advisor can help you identify the best savings vehicles for a particular goal — such as an IRA account for your retirement savings or a 529 plan for your kids’ college fund — and advise you on the best places to park your money.
Draft a Realistic Budget
Setting up a workable budget and saving for a variety of goals can be difficult no matter what your income. Enlisting the help of a professional can make a big difference.
A financial advisor may help you analyze your spending habits, guide you towards a practical budget and savings strategy, or think more creatively about how to save money — even when you’re faced with limited income and big expenses.
Manage or Eliminate Your Debts
If you’re dealing with a lot of debt, a financial advisor may also help you come up with a strategy to shave your balances so that you can minimize borrowing costs and put more of your money toward savings. A financial advisor may be able to help you determine how much money to put toward retirement, savings, and other goals while paying down debt.
Handle Your Investments, in Good Times and Bad
At your direction, you can expect your advisor to manage your investments for you so you don’t have to worry about doing it yourself. They may also give you expert advice on how to tailor your investment strategy to your personal goals, life stage, and risk tolerance.
An advisor can also help you weather changes to the stock and bonds markets, and navigate whether or not to alter your investment strategy. That can be a big help when reading the news or economic forecasts is making you feel antsy and you aren’t sure how to react.
If you’ve received a big financial windfall or have seen your net worth grow dramatically, an advisor can help you revise your investments based on your goals, and optimize the related taxes.
Strategize Your Taxes
A financial advisor can help you identify a smarter tax strategy. For example, they may guide you toward financial products that can help you reduce your taxes today or in the future. Or they may provide you with advice on other tax strategies, such as gifting money to loved ones or to charity.
Recalibrate Your Finances When Life Takes an Unexpected Turn
Life will surely swerve from one direction to the next. For example, if you or your partner loses a job or you have one more child than you expected, you may need to seriously re-assess how and where you’re allocating your money.
A financial advisor can help you reevaluate your financial plan, including revising your savings and investment strategy if necessary when you’re undergoing a major shift.
Protect Your Family
A financial advisor can recommend reliable insurance and other products that will help ensure your family is taken care of, so you can worry less about the future. Insurance products (such as property & casualty and liability or life insurance) help you pay a small, certain amount now for protection against potentially large and uncertain costs in case of an accident, disaster, or just plain bad luck. A financial planner can help you determine affordable policies that provide adequate protection based on your situation.
Safeguard Your Legacy
A financial advisor can also help you determine what’s going to happen to your money when you’re gone, so that you can be reassured that your family members or favorite charities are endowed with your hard-earned assets. Along with an estate planning attorney, your financial advisor or planner can help come up with a plan that provides your loved ones with more security.
How to Pick the Best Advisor for Your Budget
Not all financial advisors offer the same services, and the cost will vary based on how you work with them. So, how do you choose one? The answer depends on the complexity of your personal situation and the extent to which you want to do it yourself. Let’s break it down.
1. How Much Help Do You Need?
Answers to Specific Questions: If you only have specific questions around a given financial situation (and otherwise feel like you can manage many aspects of your finances such as budgeting, debt repayment, and insurance), then working with a financial planner on an hourly basis may be your best bet.
Comprehensive Financial Planning: If you want a roadmap to meet your financial goals, whether it’s one time (because you can handle your ongoing money management) or annually (because you want ongoing guidance and support) then working with a financial advisor or planner that offers comprehensive planning is the way to go. They will look at your end-to-end financial picture, including investments, retirement planning, and debt management, and give you a roadmap to follow going forward. These financial advisors tend to charge on an hourly basis or charge a flat fee for the plan.
Investment Management: In the case that you want someone to manage and invest your money, you’ll likely want to find a financial advisor who also does investment and wealth management. They may also do comprehensive financial planning, depending on the scope of your relationship. These advisors typically charge a percentage of the assets that they manage on your behalf.
2. What Is Your Budget?
Financial advisor costs vary widely depending on the type of service you’re seeking and how much personalized advice you need.
Hourly Support: Some advisors will work with you on an hourly or project basis to create your comprehensive financial plan, address a limited aspect of your plan, or resolve a temporary financial issue you might be having. A standard hourly fee is $100 to $300 per hour, and they will provide an upfront estimate based on the proposed project.
Fixed Fee (or Fee-Based) Plan: A fixed fee advisor will typically charge a flat fee of $1,000 to $3,000 per year, to create a financial plan and provide ongoing guidance and support, no matter how large your portfolio has grown. Investment management may cost extra.
Investment Management: Some advisors will charge a flat fee, while most who offer asset management will charge you a percentage of your assets they invest. A 2018 survey by the compliance group RIA in a Box found that the average registered investment advisor charges an advisory fee of 0.95% and a total fee of 1.22%, per year.
A growing number of companies (typically called “robo-advisors”) now offer automated investment services. They are typically less expensive and are easier to access than traditional investment advisors, with minimums under $500. They often charge as little as 0.25-0.89% of your assets under management (AUM) per year.
Robo-advisors work best for those with relatively simple needs. If you don’t need full-service planning, then you can get high-quality investment management at a fraction of the cost. For example, if you’re asking an advisor to help you manage $50,000 worth of investments, you could wind up paying as much as $500 or more for the service. A robo-advisor, by contrast, may only charge $125 — a $375 savings.
As your finances grow or your life becomes more complicated, you may decide that you’re better off working with a financial advisor or financial planner who can provide more comprehensive advice beyond investment management. A financial advisor may be more likely than a robo-advisor to look at all aspects of your financial needs, anticipate different life scenarios, and make recommendations based on a fuller picture of your finances.
For a detailed look at the average cost of a financial advisor and the impact to your portfolio over time, take a look at our deep-dive review of advisory costs.
It’s Important to Work With a Fiduciary, Period
To ensure you’re getting the best possible value for your money, it’s also a good idea to only work with a fiduciary advisor, which is someone who is ethically required to act in your best interest. Some advisors work on commission and are incentivized to sell certain investments or insurance products that are merely suitable for your situation, but not necessarily the best or least expensive options available. We estimate that working with a fiduciary financial advisor over a non-fiduciary can save you up to 2.25% of your investable assets per year.
Before you sign up with a particular advisor, ask them if they adhere to the fiduciary standard and if they’ll commit in writing to doing so. Look for financial advisors registered with the Security Exchange Commission (SEC) or for CFP(R) professionals registered with the Certified Financial Planner Board who are bound by the fiduciary standard.
Choose the Best Advisor for You
The more money you earn and as your wealth grows, the harder it can be to manage your finances. Rather than try to do it all yourself, you may be able to save yourself a lot of grief, and potentially a lot of money, by enlisting the help of an expert advisor.
If your finances are complex or you’re undergoing a lot of big changes that can significantly affect your financial planning, then you may want to budget to work with a financial advisor or financial planner who can give you the personal attention and customized advice you need.
If your finances are simpler and what you want is an easy way to invest, then a robo-advisor might be the way to go. Don’t feel obligated to stick with the same kind of advisor throughout the life of your investments. A robo-advisor may work best for you while you’re still building your life and your career, while a personal advisor may work better for you as the complexity of your financial needs increase.
The best advisor for you will be one that fits within your budget while continuing to offer quality advice that meets your changing needs.