When most people hear the term “Financial Advisor”, they often picture a professional giving advice on the stock market. Even though a financial advisor does so, this is not the only aspect he deals with. People often confuse Financial advisors with a broker, a broker is simply someone who deals with your interest in stocks whereas a financial advisor covers a much larger picture.
In simple words, a financial advisor is someone whose job is to provide clients with financial planning and assist them to achieve their desired financial goals. In contrast, to a broker, a financial advisor covers all the aspects of one’s financial life. Whether it be budgeting for a
future goal or a retirement plan. Financial advisors give you a roadmap to walk on, which will minimize the financial risk and help you achieve your financial goals with the least efforts.
Think of Financial advisor as your educator, he can help you deal with all your finances. He can help you with both your long term and short term goals.
Financial Advisors for Companies
Financial advisors are not only for individuals, but they also work for companies. Companies hire them to get an independent second opinion of their business. Suppose a company is planning to expand their business by building a new factory, financial advisors can assess the “risk to reward” ratio and give their neutral opinion on the project.
Their neutral second opinion can help the company’s leaders to decide whether carrying out the project is a viable option or not. And if not, financial advisors can even advise on how to safely expand the business.
If you are a small business owner, you must be managing a lot of departments yourself. This can be tiring as well as inefficient. If you can afford, hiring a financial advisor can be a good option as he or she can do multiple tasks for your business. As financial advisors are experts in managing finance, they can increase your profit-making capabilities, help you find new investment opportunities, or reduce your production cost. They can even prepare your business for upcoming growth and development.
All these actions are performed by a financial advisor with adherence to ethics, laws, and preexisting financial plans.
The job of a financial advisor is not as easy as it may appear at the first glance, they spend a lot of their time researching and analyzing optimal investment opportunities and looking for ways to minimize risk. Here are some responsibilities of a financial advisor.
- Researching and Analyzing market
- Identify new investment opportunities
- Recruit clients
- Assess clients’ goals and desires
- Assess clients’ risk tolerance
- Monitor accounts and finances
Although most financial advisors offer advice and consultancy on a broad range of spectra, some financial advisors specialize in one single field and become experts. Some of the unique financial advisors you may come across are.
- Tax Professionals
- Financial Counselors
- Retirement Specialists
- Wealth Managers
- Investment Advisors
- Debt Counselors
Not only these, but some financial advisors are even licensed to directly buy and sell financial equipment such as stocks, bonds, currencies, and insurances.
What is financial advisor’s do?
As we mentioned, a financial advisor assists you with all your financial goals, but what exactly he does. Let us discuss in detail the exact tasks a financial advisor can help you with.
When most people make the mind of investing, they start researching and get bogged down with the information. This is where a financial advisor comes into play. Financial advisors possess deep knowledge of investing opportunities. Each client is different and therefore before giving them any advice, they assess a client’s desires and risk tolerance capabilities.
Some clients are willing to take more risk if there is a prospect of higher returns whereas some clients prefer a safer approach towards investing, where they want minimum risk, even if the returns are slightly less.
After assessing the client, the financial advisor selects a suitable portfolio of investments, these investments can be mutual funds, real estate, or even precious metals.
Financial advisors also monitor your investments regularly to make sure that investing your money in the selected place remains the best financial move.
2) Debt Counselors
It is never recommended to invest your money when you have a big debt to pay. Although you can get rid of your debt yourself, a financial advisor, particularly a debt counselor can help you to do so. They often help clients who are overwhelmed by the debt due to their financial instability. Whether clients need minor help, or they need extensive help in managing their debt, a debt counselor can be of help in both.
Financial advisors give a roadmap to walk on to get rid of the debt and in some extreme cases even an escape plan. An Escape plan is generally selling your assets to get rid of the debt quickly. Once they help their clients get rid of debt, clients can start shifting their focus on the future rather than on past expenses.
3) Retirement Plans
Depending on your condition, retirement can be either a fun part of your life or just a time pass. Do you have a dream of doing a world tour? Or you want to do some social work? Whatever you wish to do after your retirement, you are required to be in a good financial condition.
On average, a person retires at the age of 60 and the average life expectancy is around 80 years. You have more than two decades to do whatever you want. You can tell your financial advisor that you want to send your kids to a university in the next 5 years and still have a comfy retirement. Financial advisors can make a portfolio based on your retirement plans especially for you, so you don’t have to struggle in the last decades of your life.
4) Tax Management
Let’s be honest, nobody likes paying taxes. But still, taxes are inevitable, you can not escape them. As you grow your wealth, the taxes grow side by side as well and if not managed, taxes can be overwhelming.
A financial advisor, particularly a tax professional can help you with your tax burden while giving the best returns for your investments. Although they also can not completely cut your
taxes, they can help you minimize them. Further, they can even educate you on how taxes will affect your financial growth. So, in the future, you know what is coming in your way.
Apart from giving regular advice, financial advisor educates clients on various topics. When starting, these topics could be as simple as savings and budgeting, but as you advance your knowledge a financial advisor can help you understand complex matters like the stock market, investment opportunities, or tax policies.
Do I need to find a Financial Advisor for my family?
Even though the question “Do I need to find a financial advisor for my family?” completely depends on the person, there are some signs that you need to consider hiring a professional. These signs can sometimes be very obvious and sometimes indirect, some of these signs are.
- You are struggling to understand the concept of investing and hence becoming unable to decide the best investments for you.
- And you are unable to decide whether you should invest your money or not, you are afraid of the risk involved in investing.
- You already have a lot on your plate and you can not afford another headache.
- Then you are unable to repay your debt and you are getting overwhelmed by it.
- You do not understand the concept of taxes and how they are going to affect your financial growth or you are looking for ways to escape inevitable taxes.
- So, you know you will require a large sum of money in few years down the road for something important. Let’s say a marriage or babies or you want to pay your kids’ university fees. But, you have no idea how you are going to manage all this.
If your answer to any of these questions is yes, or your answer is yes to multiple questions, you may need to hire a financial advisor.
One thing to note here is that financial advisors do not come in a one-fit-for-all package. You can hire different financial advisors as per your needs. Hiring a financial advisor mostly depends on your budget and goals.
If you are wealthy you might consider an experienced financial advisor who already works for people similar to you whereas if you are an average guy, an intermediate level financial advisor will work for you.
People with the lowest budget often opt for a Robo advisor. As the name suggests, Robo advisors are a class of financial advisors that offers financial advice based on their complex algorithms and involves moderate to minimal human interference. They are generally the least expensive financial advisors you can hire. We have discussed exact pricing later in the article.
Before you find your financial advisor, there are some other factors you must be clear on. For instance, you must know what you need help with. Also don’t be afraid to meet them in person, if you hire a decently experienced financial advisor, chances are you have to meet them in person.
Why should I hire a Financial advisor?
There are primarily two reasons why people do not hire financial advisors. First, some people prefer the “do it on your own” approach, they think if they don’t understand something then they should learn and master it. Second, people are afraid that hiring a financial advisor might not justify their value, or they may not understand their situation.
Let us tell you that both of these reasons are wrong in most cases. Firstly, you may learn on your own but a financial advisor has a degree or certification in this field, and they have immense experience which can not be easily replicated. Second, you can be transparent with financial advisors and their value will be justified by their actions.
When you hire any financial advisor, the first step they will do is take you through a questionnaire. This questionnaire will help them know about your financial condition, your income sources, your any pending debt, your goals and desires, and your risk tolerance capabilities.
Based on the analysis of this questionnaire, your portfolio will be designed. If you hire a person as a financial advisor, he or she will further keep asking you questions throughout your financial journey.
Finding a family financial advisor
So, if you have finally decided that hiring a financial advisor is a good move, you should consider the following steps.
Step 1. Find your type of financial advisor
As we have mentioned earlier if you are going to hire a financial advisor, make sure you know what you need assistance with.
Step 2. Find someone with Credentials and Experience
When you find a financial advisor, looking for experienced and reputable credentials is key. Look for someone with Certified Financial Planner (CFP) or Personal Finance Specialist (PFS) designations. If someone does not have these designations, ask them to show degrees and certifications they have done in their field.
Step 3. Understand how financial advisors are paid
Financial advisors are generally paid by two means: Commission based or fee-based.
In commissions, when the advisor sells you something like funds or annuities, they take receive commission amid 2% to 6%.
Fee-based financial advisors generally charge 1 – 2% of the total value of assets they manage. However, fee-based advisors itself charge in three ways: Hourly fee, flat fee, and retainer fee.
Step 4. Search for advisors online
Online searches can narrow down the advisors in your ZIP code with the right credentials and suitable billing methods.
Step 5. Interview your Financial advisor
Before your financial advisor interviews you, it is your turn to interview him/her. Ask them for credentials and experiences in the field. If you find anything suspicious, back off because that financial advisor can be a potential fraud.