If you’re saving too little, investing too late, or simply unsure where to begin, professional guidance can make all the difference. In this post, you’ll discover what financial advisors do, when to engage one, and how they can help you budget, invest, and plan for the future with confidence. Let’s get started!
What Are Financial Advisors
A financial advisor helps individuals and families make smart choices about their money. They work with many people, like young professionals who want to start saving, parents planning for their child’s education, or employees getting ready for retirement.
You can think of a financial advisor as a money guide. Their job is to look at your overall financial situation—how much you earn, spend, save, and owe—and help you create a plan that fits your goals.
It’s important to note that anyone can use the generic title financial advisor, but giving tailored, fee-based advice on securities typically requires registration as an investment adviser under federal or state law.
To avoid hiring potentially fraudulent financial advisors, look for those who hold the following certifications, each of which reflects a particular area of specialization:
- CFP (Certified Financial Planner): Focuses on comprehensive financial planning.
- CFA (Chartered Financial Analyst): Specializes in investment management and portfolio analysis.
- ChFC (Chartered Financial Consultant): Covers holistic financial planning with an emphasis on insurance and estate planning.
You can also choose an advisor affiliated with a Registered Investment Adviser firm (RIA). RIAs are firms registered with the SEC or state regulators that provide investment advice. The individuals who give advice on behalf of these firms are legally known as Investment Adviser Representatives (IARs), but they are often referred to as financial advisors in everyday conversation.
One key advantage of working with RIAs is that they are fiduciaries, meaning they are legally required to act in your best interest when providing advice.
What Can You Do With Financial Advisors
Once you hire a financial advisor, there are a few things you can request of them to help your finances. Here are some specific ways you can work with financial advisors:
- Creating a Budget: They assist you in developing a budget that aligns with your income and expenses, helping you manage your finances effectively.
- Saving for Goals: Financial advisors can help you set and achieve savings goals, whether it’s for a vacation, a home, or education.
- Paying Off Debt: They provide strategies for paying off debt efficiently, helping you reduce financial stress.
- Understanding Investing: Advisors explain investment options and strategies, making it easier for you to grow your wealth.
- Planning for Retirement: They help you create a retirement plan that ensures you have enough savings to maintain your desired lifestyle in your later years.
Some financial advisors offer free consultations to attract new clients. These sessions typically provide only general guidance rather than in-depth, personalized advice.
Keep in mind that true financial planning usually begins after you sign an advisory agreement and agree to fee terms. While you can benefit from these free consultations, don’t expect ongoing help without cost. Instead, use these to find the best financial advisor for your needs.
Also, note that you don’t need to be wealthy to hire a financial advisor, but it’s a good idea to have a minimum amount of cash or assets for it to be worthwhile.
Some advisors—especially at larger firms—may prefer clients with $250,000 or more in investable assets, while others may have no minimum at all. Always ask about minimums before committing.
Meanwhile, Some RIAs—particularly at larger firms—may require $500,000 or more, especially if you want to be assigned a dedicated advisor at a large firm. In contrast, automated services called robo-advisors can help even if you have as little as $100—or in some cases, no minimum at all.
Keep in mind that these minimum amounts can vary by individual advisor and firm, and there is no official minimum requirement. However, if your assets fall below these suggested amounts, some financial advisors may choose not to work with you, as they might believe that a professional relationship would not be helpful for either party.
Financial advisors typically charge for ongoing advice using one of three models: AUM fees (0.5–1.5%), hourly rates, or flat annual fees.
AUM stands for Assets Under Management. If your financial advisor charges an AUM fee of 1%, it means you will pay them 1% of your total assets each year. For example, if you have $100,000 in assets, you would pay them $1,000 annually for their ongoing services.
In addition to AUM fees, financial advisors may charge hourly rates ranging from $100 to $450. Alternatively, they might offer specific services for a flat fee, which can range from $1,500 to $7,500, depending on the type of service you need. The cost can vary based on the advisor’s certifications and experience.
How Can You Start Investing With Financial Advisors
Starting your investment journey with a financial advisor can be a smooth and informed process. Here are the steps to get started:
- Assess Your Financial Situation: Before meeting with a financial advisor, take stock of your current financial situation. This includes your income, expenses, debts, and savings. Understanding where you stand will help the advisor tailor their advice to your needs.
Define Your Investment Goals: Think about what you want to achieve through investing. Are you saving for retirement, a home, or your child’s education? Clear goals will guide your investment strategy.
Choose the Right Financial Advisor: Research and select a financial advisor who specializes in investments and aligns with your financial goals. Look for credentials, experience, and client reviews to ensure they are a good fit.
Schedule a Consultation: Set up an initial meeting with your chosen advisor. During this consultation, discuss your financial situation, investment goals, and any concerns you may have. This is also a good time to ask about their investment philosophy and strategies.
Develop an Investment Plan: Based on your goals and risk tolerance, your advisor will help you create a personalized investment plan. This plan may include asset allocation, types of investments (stocks, bonds, mutual funds, etc.), and a timeline for achieving your goals.
By following these steps and working closely with a financial advisor, you can start investing with greater confidence and clarity.
Conclusion
Financial advisors serve as a bridge between where you are now and where you want to be financially. While you may not have all the answers or a perfect plan, you don’t have to figure everything out on your own. By partnering with a trusted advisor and following a tailored plan, you’ll move from financial uncertainty to confidence.
Interested in learning more about growing your wealth? Explore our other beginner-friendly guides and subscribe for more tips on building your financial future. You can also watch our videos on our YouTube channel, follow us on social media, and subscribe to our newsletter.
