For payment, a financial advisor offers clients financial assistance or recommendations. Financial advisors, sometimes spelled advisers, offer a wide range of services, including estate planning, tax preparation, and investment management. Financial advisors are increasingly serving as a “one-stop-shop” by offering everything from insurance products to portfolio management.
To transact business with the general public, registered advisors are required to hold a Series 65 license. Various more licenses and certificates might be necessary based on the services a particular financial advisor offers.
“Financial advisor” is a generic term with no precise industry definition. As a result, this title can describe many different types of financial professionals. Stockbrokers, insurance agents, tax preparers, investment managers, and financial planners can all be considered financial advisors. Estate planners and bankers may also fall under this umbrella.
Still, an important distinction can be made: that is, a financial advisor must actually provide guidance and advice. A financial advisor can be distinguished from an execution stockbroker that simply places trades for clients or a tax accountant who simply prepares tax returns without providing advice on how to maximize tax advantages.
Furthermore, what may pass as a financial advisor in some instances may simply be a product salesperson, such as a stockbroker or a life insurance agent. A true financial advisor should be a well-educated, credentialed, experienced, financial professional who works on behalf of their clients, as opposed to serving the interests of a financial institution by maximizing the sales of certain products or capitalizing on commissions from sales.
Generally, a financial advisor is an independent practitioner who operates in a fiduciary capacity in which a client’s interests come before their own. However, only Registered Investment Advisors (RIAs), who are governed by the Investment Advisers Act of 1940, are held to a true fiduciary standard. This fiduciary standard mandates that an RIA must always unconditionally put the client’s best interests ahead of their own, regardless of all other circumstances.6
There are some agents and brokers who elect to practice in this capacity, as a fiduciary, as a way of attracting clients. However, their compensation structure is such that they are bound by the contracts of the companies where they work.
A financial advisor is your financial planning partner. Let’s say you want to retire in 20 years or send your child to a private university in 10 years. To accomplish your goals, you may need a skilled professional with the right licenses to help make these plans a reality; this is where a financial advisor comes in.
Together, you and your advisor will cover many topics, including the amount of money you should save, the types of accounts you need, the kinds of insurance you should have (including long-term care, term life, disability, etc.), and estate and tax planning.
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The financial advisor is also an educator. Part of the advisor’s task is to help you understand what is involved in meeting your future goals. The education process may include detailed help with financial topics. At the beginning of your relationship, those topics may include budgeting and saving. As you advance in your knowledge, the advisor will assist you in understanding complex investment, insurance, and tax matters.
Services Provided by Financial Advisors
Financial advisors provide a variety of services to clients, whether that’s providing general investment advice or assisting in reaching a financial goal like investing in a college education fund. Below, find a list of the most common services provided by financial advisors.
- Investment advising: A financial advisor offers advice on investments that fit your style, goals, and risk tolerance, developing and adapting investing strategy as needed.
- Debt management: A financial advisor creates strategies to help you pay your debt and avoid debt in the future.
- Budget assistance: A financial advisor provides tips and strategies to create budgets that help you meet your goals in the short and the long term.
- College savings preparation: Part of a budgeting strategy may include strategies that help you pay for higher education.
- Retirement planning: Likewise, a financial advisor creates a saving plan crafted to your specific needs as you head into retirement.
- Estate planning:A financial advisor helps you identify the people or organizations you want to receive your legacy after you die and creates a plan to carry out your wishes.
- Long-term healthcare and insurance assistance:A financial advisor provides you with the best long-term solutions and insurance options that fit your budget.
- Tax planning: When it comes to taxes, a financial advisor may help you prepare tax returns, maximize tax deductions so you get the most out of the system, schedule tax-loss harvesting security sales, ensure the best use of the capital gains tax rates, or plan to minimize taxes in retirement.
Follow these simple steps in order to choose the right financial advisor that provides strategies and services that fit your goals and needs.
- 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.
- Seek out 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 not only matches your style and beliefs, but also understands your emotions. You want an advisor that is well aware of your risk tolerance and encourages you to take wise decisions.
Not all financial advisors have the same level of training or will offer you the same depth of services. So when contracting with an advisor, do your own due diligence to make sure the advisor can meet your financial planning needs.
Check out their certifications as well, and be sure you understand, agree with, and can afford their fee structure. Also, investigate their regulatory history with your state regulatory agency, FINRA’s BrokerCheck, and the SEC’s Investment Advisor Public Disclosure database.
Finally, be aware that finding an advisor who is the right fit for your personality is key to developing a successful, long-term relationship.