What is a financial advisor and what does he do?

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  • A financial advisor is a professional who provides advice on managing your money to achieve your financial goals.
  • Financial advisers are unregulated, although those who provide investment advice and services must register with their state or federal regulators.
  • Financial advisors offer a wide variety of services, such as portfolio building, tax and estate planning, budgets, and more.
  • Visit Insider’s Investment Reference Library for more stories.

Are you planning to retire someday? Maybe get married or go to college? What if you paid off a debt? These are all reasonable and achievable financial goals. For many of us, however, it’s not always clear what we need to do to make these dreams come true. And that’s when it may be wise to call in a professional.

A financial advisor can be a great asset if you have financial goals you want to achieve, but aren’t sure how to get there. They can also tell you about financial products, tax benefits, and insurance options that you may not know about and that could help you build and protect your wealth. Here’s a closer look at what a financial advisor is and what it can offer you.

What is a financial advisor?

A financial advisor is a professional who provides advice to clients regarding financial goals, mortgages, insurance, retirement, investments, and general financial management. The term is often used interchangeably with “financial planner” and can cover a very wide field of expertise. While some financial advisers offer a variety of services, many specialize only in making and managing investments.

“I became a financial advisor to coach my clients in all financial aspects of their lives,” says John Stoj, Investment Counselor Representative and Founder of Word for word financial. “This can include investments, but also questions about careers, business ownership, estate planning, insurance and taxes… basically anything that can benefit from planning.”

Types of financial advisers

These days, you will find a variety of types of financial advisers available to you. Some of the most common are:

  • Robot-advisor: A robo-advisor is an automated platform that makes investment recommendations based on the information you enter into the system. It uses algorithms and often artificial intelligence to determine your risk tolerance and what investments may be worth making. These types of services are generally inexpensive, but limited in what they can offer.
  • Online Financial Planning Services: These services go beyond robo-advisers, often offering a wider range of options. Online financial planning services are generally automated and can help you establish financial plans and budgets, in addition to portfolio creation, goal setting and reporting.
  • Traditional financial advisers: These include chartered financial planners (CFPs), brokers, registered investment advisers (RIAs) and wealth managers. Traditional financial advisers generally provide comprehensive, personalized advice regarding your financial life. They can provide product recommendations based on your specific situation and goals, make investments on your behalf, and help keep you on track.

What does a financial advisor do?

Financial advisers can offer a wide variety of services. Some focus only on investments and building / managing portfolios. Others offer full services for everything from college and retirement savings to tax strategies and budgeting.

“In an ideal world, a financial advisor should look at your overall financial picture and help you develop a plan to prepare for and move on for retirement,” says Mary Lyons, financial advisor and founder of Reference income group. “This includes managing your investment portfolio, but it also includes reviewing your insurance coverage, working with your estate attorney, communicating with your CPA, helping to determine your structure. mortgage loan and budgeting. A good financial advisor should be able to answer all of your questions. you have on your finances. “

There are no specific licenses or certifications that make a financial advisor. They will usually have some finance-related education, such as a degree in business, economics, or accounting. To negotiate or give advice on investments, financial advisers are required to take and pass the NASAA Investment Advisors Law Exam – also known as the Series 65 exam – and register with state and / or federal regulators. If they wish to sell insurance and other financial products, they may need to hold additional licenses to comply with the regulations.

If you are looking for a financial advisor, it is a good idea to shop around for someone who offers the right services for your situation. Also take note of how they earn money. It is often best to work with a fiduciary, such as a CFP or RIA. These financial advisors typically have a fee-based business model, which means they bill clients directly for their services and receive no commissions.

On the other hand, financial advisers can work on a commission basis. John Hagensen, Founder and CEO of Keystone Heritage Partners, explains that “many financial professionals who claim to be financial advisers are hired by insurance companies and / or brokers and are therefore paid to sell the products of these companies.” This type of compensation can influence the types of products these advisors recommend and the actions they suggest they take.

Just about anyone can benefit from working with a financial advisor. Some of the most common services they offer are:

1. Building a portfolio

Building a portfolio is all about ensuring that you have a balance of investment assets that grow efficiently with minimal risk. Financial advisers can help you understand what you already have in assets, what your options may be for making other investments, and what types of risks you may encounter with your investment choices.

“A financial advisor should help you determine how much fluctuation you can tolerate in your daily balances as well as peripheral events like 2008 or even the first part of 2020,” Lyons explains. “They should cover concepts like the maximum drawdown and the amount of return you can expect for the risk you are taking.”

2. Tax planning

Many financial advisers offer tax planning services. This does not mean that they will help you with your tax returns or that they are fully trained in tax law like a Chartered Accountant (CPA) is. Instead, they can help you manage the tax liability that results from your investment strategies and help you build wealth by taking advantage of rules that can reduce your tax liability.

Not all financial advisors offer or are qualified to offer this type of service, but some are also CPAs. At the very least, a financial advisor should be willing to work with your accountant or tax advisor to make sure your financial plan keeps your tax liability to a minimum and doesn’t create new problems.

3. Estate planning

A financial advisor can help you plan what you want to pass on to your heirs upon your death. They may be trained in estate planning or may be willing to work with your lawyer to determine the type of insurance you need, the types of financial products you might want to put in place to pass on (such as a trust or a donation), what should be done with your investments, etc.

“It’s critical that your entire team – CPA, lawyer, banker, advisor – communicate at least once a year,” Lyons says. “Otherwise, they could work against each other instead of all shooting in the right direction.”

4. Long and short term financial planning

Financial advisors work with clients to create and execute plans designed to achieve short and long term goals. For example, you could work with a financial advisor to review your debt and create a plan to reduce the amount you owe this year.

At the same time, you might also want to set up an education savings account for your new baby. A financial advisor could work with you to create a monthly budget that aims to reduce your debt while funneling deposits into a 529 education savings plan.

The financial report

Consulting a financial advisor is a smart way to move forward in achieving short and long term financial goals. You should always research your options and ask questions about the services offered and how they are paid.

Since there is no education or experience requirement for a person to be a financial advisor, it is also a good idea to review the track record of anyone you plan to work with regarding your money. .

Some advisors will only focus on a handful of services, while others offer more comprehensive planning and management options. New technologies have also given way to automated financial tools. It’s up to you to investigate and determine what is best for your situation.


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