A financial advisor is someone who helps clients meet their financial goals. In general, the advisor looks at a client’s current financial picture, from debt to savings and investments; discusses financial goals; and then creates a plan to help the client reach the stated goals. Some financial professionals simply offer guidance; others may completely manage a client’s portfolio, while still others may offer services that fall somewhere in between.
Because of the range of services that may be offered, the first step in determining how to choose a financial advisor can be to decide what services are needed. One person’s list might look like this:
• Education on strategies to meet short-term and long-term financial goals
• Financial coaching to develop good habits
• Portfolio management
Another person’s list, meanwhile, could look somewhat different.
Benefits of Using a Financial Advisor
Financial advisors can help their clients create a financial plan that allows them to save and invest for future goals while still meeting the obligations of today. In other words, they can help craft a comprehensive plan to guide people through multiple stages of life in a way that dovetails with their unique goals and dreams for the future. Typically, the plan has some degree of personalization. Many can be highly personalized.
Plus, advisors can help their clients stay the course, saving and investing for the long term. Creating a financial plan is a key step, but then it’s crucial to stick with the plan. This isn’t always easy when, for example, the market is volatile and emotions are triggered. But that’s when an experienced advisor may really come in handy, able to provide perspective and help clients stay focused.
Some financial advisors provide a significant amount of valuable information to their clients, educating them to become more financial savvy. Some may make trades for their clients, while many monitor investments made to help ensure that all is remaining on track. Some help with tax issues as well, and more complex financial matters. By looking at these benefits, which seem most important? Keep that in mind when thinking about how to choose a financial advisor.
Seeking an Advisor
To get a list of advisors to consider:
• Ask friends and family for recommendations if they’ve used or are using an advisor. If so, what services are they receiving? How happy are they? Are there any concerns about any of the advisors they’re using?
• Do the same with business colleagues and people who belong to the same organizations that you do.
By looking at the websites of these advisors, do they seem like a potential match?
Another option in how to find an advisor is to browse through the website of The National Association of Personal Financial Advisors . ZIP codes can be entered to find professionals in specific areas around the country. Another place to check for advisors is the Association for Financial Counseling & Planning Education website. A Google search might turn up additional possibilities.
Questions to Consider
Some people may find that the same names keep cropping up when asking for recommendations and exploring online sites. It can therefore make sense to create a short list of financial advisors from those findings and explore those options in more depth.
Questions to ask those advisors can include:
• What specific services do you offer?
• What processes do you use to create a plan for me?
• What qualifications do you have?
• How often would we meet or otherwise communicate?
• What is your overall investment philosophy?
If you’re a beginning investor, it can help to ask about the financial advisor’s experience in getting new people started with planning and investing.
Plus, is a financial advisor on the short list a fiduciary? If so, the advisor must work in the best interests of a client and either disclose conflicts of interest or avoid them. If an advisor is not a fidicuiary, he or she is required only to make recommendations that are considered suitable.
In 2013, the U.S. Department of Labor tried to mandate that all financial advisors needed to follow a fiduciary standard with retirement accounts. But in 2018, the Fifth Circuit Court overruled the standard. Although this issue may be revisited, for now, investors who want a fiduciary must find out what standard a particular financial advisor follows.
Advisors who follow a fee-based payment structure are, by definition, fiduciaries. Those who get paid a commission when clients make certain investments may or may not be. When an advisor isn’t a fiduciary, then investments could be recommended because they’re right for the clients but they could also be recommended because the advisor gets paid when they’re used.
Also, when comparing advisors, what will services for each of them cost?
Common Financial Advisor Charges
Financial advisors charge in a variety of ways, including:
Some advisors charge fixed retainer fees, due monthly, quarterly, or annually. The fees can range significantly; annually, the low end may be $2,000, with the high end at $7,500. Investors can ask an advisor why the retainer is priced how it is.
In this scenario, advisors receive pay that’s based on the products sold. Some advisors may receive a percentage of the assets of a client before the investments are made. Others can be paid by a financial institution after the transaction has occurred, while others may charge clients each time that a stock is bought or sold. A commission on mutual funds, for example, might range between 3% and 6%.
This can be a percentage of the assets being managed by the financial advisor. U.S. News & World Report says that paying 1% annually is reasonable under this structure when including both the fees of a financial advisor and any investment fees. When considering an advisor who charges these fees, it can make sense to ask for a breakdown and the reasoning behind the fee structure.
This could be an upfront fee for a financial plan or for ongoing advice. There can also be a subscription-based fee structure. Specifics can vary, with an average fee for a comprehensive financial plan ranging from $1,000 to $2,000, and retainers for ongoing advice often a couple hundred dollars each month.
This would involve a straight hourly fee for services provided. Fees might range from $200 to $400 per hour.
When deciding which financial advisor to use, the fee structure (and what that translates into dollars) is a factor to consider.
Robo Advising vs. Financial Advisors
It may also make sense to consider robo advising. Also called automated investing, this is an algorithm-driven digital platform that provides clients with financial investment advice. First, relevant info is gathered from a client through a survey. Typical questions are those about one’s financial situation and goals, as well as risk tolerance. (Here’s a helpful risk tolerance quiz.) Recommendations are then provided with little to no direct human effort involved.
Robo advising often involves a monthly maintenance fee, perhaps 0.25% to 1% of the account’s balance. Or it could be a small monthly dollar amount.
Benefits of robo advising can include lower costs, the ability of recommendations to often match market returns, and functions to improve returns while lowering volatility. Some allow investors to also receive advice from human advisors.
Robo advising may not be the right choice for people who need advice for complex financial situations, such as when tax advice is also crucial. It also wouldn’t fit the needs of investors who want to sit down with a human advisor, of course.
Just like with human advisors, different robo advisor programs offer different services. So if the idea of robo advising sounds appealing, it can help to check more than one option.
What about free financial advice? Does that exist?
Free Financial Advice
SoFi offers complimentary financing planning. Topics discussed can include how to:
• Set and reach financial goals, based on the current financial landscape.
• Create a budget and practice good spending habits.
• Leverage debt strategically by balancing repayment of debt with saving for long-term goals.
• Build an emergency fund and save for the future.
• Create an investment strategy that dovetails with personal risk tolerance and goals.
This is just a sampling of what can be discussed. SoFi’s full-time planners have years of expertise and have worked with thousands of clients. As professional fiduciaries, SoFi planners maintain an objective viewpoint, required to keep clients’ best interests at the forefront.
Steps are simple:
• Set up a call with a planner.
• Have an exploratory conversation to discuss options.
• Schedule follow-up calls to talk about progress, as desired.
With SoFi Invest, you can invest with ease, no matter your level of experience, and all members have access to complimentary financial planners. We make it easy to diversify, and portfolios are rebalanced to keep them in line with personal financial goals.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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