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A financial advisor is a professional who can help you create a plan to reach your money goals, whether that's saving, investing or paying down debt. If you're not sure how to manage your money (or you want assurance that you're making the right moves), a financial advisor can help you get on track.
What Do Financial Advisors Do?
Financial advisors help clients manage their money and make decisions to help them reach their financial goals. Many different kinds of financial advisors exist. Some focus on specific areas of personal finance, while others provide 360-degree oversight to advise you on your entire financial plan. Types of financial advisors include:
- Certified financial planner (CFP): CFPs can help you come up with a budget and offer long-term planning advice covering all aspects of your financial life. To become a CFP, these advisors must pass an exam that tests their knowledge of insurance planning, investment planning, tax planning, retirement and income planning, estate planning and more.
- Investment advisor: An investment advisor offers advice about investing in securities, such as stocks, bonds, exchange-traded funds (ETFs) and mutual funds.
- Chartered financial analyst (CFA): CFAs provide investment advice to help clients manage and grow their investment portfolios. To receive the CFA charter, or designation, these professionals must pass an exam that tests their investing knowledge in areas such as valuing assets, managing portfolios and using investment tools.
CFPs, CFAs and investment advisors registered with the Securities and Exchange Commission or a state securities regulator are all fiduciaries. A fiduciary financial advisor is required to make financial recommendations solely for the client's benefit and not their own. However, not all advisors are required to meet this standard. That's why it's always a good idea to ask an advisor about their fiduciary duties to identify any potential conflicts of interest—especially if they earn a commission when you sign up for products they recommend.
What Is the Average Fee for a Financial Advisor?
The average cost for a financial advisor can vary depending on whether they are commission-based or fee-based. Fee-based advisors earn an income mainly by charging you, the client, for their service. In general, there are three fee-based payment structures:
- Flat-rate or retainer: In this case, the financial advisor charges a flat fee for their service depending on what's provided. For example, the median price for a standalone financial plan is $2,500, according to a Kitces.com study that surveyed financial planners. Meanwhile, the annual retainer fee for ongoing services could range from $6,000 to $11,000 per year, according to AdvisoryHQ.
- Hourly rate: Instead of charging a flat rate for a single service or ongoing services, advisors may charge an hourly rate, which typically ranges from $200 to $400 per hour.
- Fee for assets under management: If a financial advisor is managing your investments, you may be charged a percentage of the assets under management instead. A typical fee could range from 1% to 2% of assets managed, which means you might pay $1,000 annually for every $100,000 you hold in your portfolio.
On the other end of the spectrum are commission-based advisors, who are compensated by earning a commission when you sign up for financial products, like insurance or mutual funds. In some cases, advisors earn money from both fees and commissions.
Working with a fee-only advisor could give you greater peace of mind because you'll know they aren't suggesting one product over another because of the commission it provides.
How to Find a Financial Advisor
The steps for finding a financial advisor are similar to finding any other service provider. But since this person may be helping you make long-term plans for your hard-earned money, it's important that you trust and properly vet anyone you hire. Here are steps to find an advisor:
- Ask for recommendations. Reach out to friends and family to see if they can suggest a financial advisor. If you aren't able to get recommendations from them, consider searching databases for local certified professionals. For example, the CFP Board has a website where you can search for a financial planner, and the CFA member directory could help you find a financial advisor as well.
- Read reviews. Check online reviews to see what people have to say about the financial advisor's service.
- Schedule interviews. Get a feel for the financial advisor during an interview. Ask about their approach to planning to see if they're a good fit. Also, consider asking for case studies or testimonials to see their results for other customers.
- Compare fee structures. Review the fees financial advisors charge to find a payment structure and cost that fits your budget.
- Make a decision. Choose a financial advisor to work with and complete the onboarding tasks necessary to become a client.
Do You Need a Financial Advisor?
Today, many money management tools exist online, so you may not need an advisor to start getting your financial life together. For example, you can track your day-to-day expenses and net worth with various budgeting apps. Robo-advisors can automatically invest your money for you based on your risk tolerance and time horizon. And Experian credit monitoring can help you track your credit report and score.
If you are not sure what financial and insurance products you may need, you have extra money to invest or recently came into a windfall, or you want to make sure you're on the right path to retire by a certain age, working with a professional is worth considering. A session or two with a financial advisor could be a good investment if it'll put you on the right track to meeting your financial goals.