What Type of Financial Advisor Do I Need?

Choosing the right financial advisor is a crucial step in managing your financial future. With a variety of advisors available, each offering different services and expertise, it can be challenging to determine which type best suits your needs. Whether you’re planning for retirement, investing in the stock market or simply looking to manage your day-to-day finances more effectively, understanding the distinctions between different types of financial advisors is essential.

When you’re looking for a financial advisor, it’s important to find one who can help with your personal needs.

What Is a Financial Advisor?

A financial advisor is a professional who provides expert guidance on managing your finances. They help individuals and businesses make informed decisions about investments, retirement planning, tax strategies, and other financial matters. By assessing your financial situation, goals, and risk tolerance, a financial advisor can create a personalized plan to help you achieve your financial objectives. Their expertise can be invaluable in navigating complex financial landscapes and ensuring that your financial future is secure.

Financial advisors wear many hats, offering a range of services tailored to meet the unique needs of their clients. They may assist with budgeting, debt management, and estate planning, ensuring that all aspects of your financial life are aligned with your goals. Advisors also monitor your financial progress and make adjustments to your plan as needed, keeping you on track to meet your objectives. Their role is not just about providing advice but also about educating clients, empowering them to make informed financial decisions.

Within the field of financial advisors, there are different specializations that each advisor may choose. You can generally tell an advisor’s specialty from his or her financial certifications. For example, an accredited estate planner (AEP) is an advisor who specializes in estate planning. Selecting the right financial advisor is crucial for achieving your financial goals. It’s important to consider their qualifications, experience, and areas of expertise.

What Type of Financial Advisor Do You Need?

If you’re unsure exactly what you need help with, it’s a good idea to meet with an advisor who can look at your whole financial picture and help set you in the right direction. An advisor who is a certified financial planner (CFP) or chartered financial consultant (ChFC) is generally a safe choice. Both of these are among the most common certifications.

The result of the certification process is that CFPs and ChFCs are well-versed in topics across the field of personal finance. They can assess your whole situation and help you to create a plan to meet your short- and long-term goals. It could also include help with managing an investment portfolio. You can work with one of these advisors regardless of your financial or life situation.

Want to work with a more specific type of advisor? Here is a rundown of the most common types of financial advisors and certifications, along with their specialties.

Types of Financial Advisors

Comparing Financial Advisor Fees

Another thing to consider in your financial advisor search is the advisor’s pay structure and cost. There are two main ways that advisors earn their money: management fees and commissions. An advisor who makes money solely from this management fee is a fee-only advisor. The alternative is a fee-based advisor.

They sound similar, but there’s a crucial difference. Fee-based advisors charge a management fee, but they also earn money from other sources. This usually means earning commissions from a third party for opening accounts and selling particular funds or products to their clients.

There is nothing illegal about earning commissions, and a fee-based advisor can still be a fiduciary. However, earning a commission may pose a conflict of interest. The brochures that accompany an advisor’s Form ADV will mention the potential conflicts of interest that an advisor has.

An advisor’s management fee is charged as a percentage of the money the advisor is managing for you – also known as your assets under management (AUM). Advisors set their fees. Fee schedules use marginal rates, which means the fee doesn’t apply to the full value of your account. It only applies to a certain range of asset values. For example, the fee could be 1.5% for AUM between $0 and $1 million but 1% for all assets over $1 million. Fees usually decrease as AUM increases.

Some advisors also charge other fees. For example, an advisor’s management fee may or may not cover the costs associated with trading securities. Some advisors also charge a set fee per transaction. Make sure you understand any of the fees an advisor charges. You don’t want to put all of your money under their control only to deal with hidden surprises later on.

Another fee structure to be aware of is a wrap fee program. This is a service where the advisor will bundle all account management costs, including trading fees and expense ratios, into one comprehensive fee. Because this fee covers more, it is usually higher than a fee that only includes management and excludes things like trading costs.

Wrap fees are appealing for their simplicity but also aren’t worth the cost for everyone. Make sure you consider the pros and cons of wrap fees before signing up for anything.

Why You Need a Fiduciary Financial Advisor

Regardless of your specific needs and financial situation, one criterion you should strongly consider is whether a prospective advisor is a fiduciary.

It may surprise you to learn that not all financial advisors are required to act in their clients’ best interests. Just about anyone could call themselves a financial advisor. To protect yourself from someone who is simply trying to get more money from you, it’s a good idea to look for an advisor who is registered as a fiduciary.

A financial advisor who is registered as a fiduciary is required, by law, to act in the best interests of a client. In some cases, an advisor will receive compensation for getting a client to use certain funds, account types, or financial products (such as annuities or life insurance plans). Fiduciaries can only advise you to use such products if they think it’s the best financial decision for you to do so.

The U.S. Securities and Exchange Commission (SEC) regulates fiduciaries. Fiduciaries who fail to act in a client’s best interests could be hit with fines and/or imprisonment of up to 10 years. Before working with an advisor, ask if they’re a fiduciary.

Any investment advisor that manages more than $25 million must also submit a Form ADV to the SEC. It’s a good idea to read an advisor’s Form ADV and the brochures that accompany it. They may seem confusing at first blush, but they provide more information than most advisors will publish on their websites. This includes potential conflicts of interest and any disclosures or disciplinary action the advisor has been subject to. It will also tell you about the fees and commissions an advisor may earn.

Scenarios in Which You Might Need a Specific Type of Financial Advisor

Again, financial advisors are typically unique in that each has their own specialties. But even if you know what kinds of services you’re looking for, you may not know exactly where to start. Below, we break down a few common examples of financial situations you might currently find yourself in and what kinds of advisors can be helpful during them.

1. Building a Financial Plan

If you’re early in your career, you should probably have two major goals: Create a financial plan and start saving for retirement. A CFP can help with both goals. If you can’t find a CFP, most financial advisor generalists will have expertise in basic financial and retirement planning. With a CFP, though, you know you’re getting someone with certified expertise in these areas.

If you don’t have a lot in the bank and you’re just starting to save for your future, you might also consider a robo-advisor. A robo-advisor is a service that uses software to manage your portfolio. All you have to do is answer a short questionnaire about how much you have and what your goals are. The robo-advisor will then create a portfolio and handle all the management. You usually don’t need to have a lot of money to open an account, with many services having a minimum opening investment of $1 or less.

Robo-advisors are great for those just starting to save because they use simple, proven investing methods and come with little or no learning curve. They also charge fees that are well below the advisor fees of traditional human advisors. While a traditional advisor usually charges a fee between 1% and 2% of AUM, the fee for a robo-advisor is usually 0.5% or less.

The big trade-off with a robo-advisor is that you often can’t talk with a human advisor. This isn’t a big concern for those who just want to start investing, but if you need actual advice on complex situations like home-buying, divorce, and tax planning, an algorithm probably won’t cut it.

2. Getting Comprehensive Help With Investing

Most types of advisors can provide information and advice on investing. A chartered financial analyst (CFA) is an expert in investments and securities. Becoming a CFA takes time and is quite challenging, so you know that anyone with the certification has earned his or her stripes. You may also want to consider a chartered Investment counselor (CIC) if you have a large portfolio and need an experienced, high-level expert to manage your investments.

3. Managing a Large or Growing Amount of Wealth

If you have a high net worth, you may also want to look for a wealth manager. A wealth manager is an advisor who works specifically with high-net-worth and ultra-high-net-worth individuals. The services of wealth managers are typically very hands-on. They work closely with clients and take a holistic approach to managing the clients’ finances.

Keep in mind that account minimums vary by advisor. Some wealth managers may work with you if you have $250,000, while others may only take clients with $10 million in AUM. Another thing to note is that many advisors who aren’t strictly wealth managers will also offer wealth management for high-net-worth clients.

How to Narrow Your Search for a Financial Advisor

The first step in deciding what type of financial advisor you need is to consider your financial situation and goals. Are you early in your career and just starting to save money, or do you have a considerable amount of wealth that you want help managing? Are you saving up for any particular goals, such as the down payment for a house? Or perhaps you’re later in your career and want someone to help you with a trust or estate planning?

Do you work in a specific field? Some advisors work only with certain types of clients, such as professional athletes or business owners. Do you need help getting through a unique circumstance? Some advisors focus on particular life situations, including family planning, divorce, starting a business or legacy planning.

You should also consider how much money you have. If you’re looking for an advisor to manage your money or to help you invest, you will need to meet the advisor’s minimum account requirements. Minimums vary from advisor to advisor. Some may work with you if you have just a few thousand dollars or less. Others require you to have $1 million or more to open an account.

Another simple way to find financial advisor options near you is to use a matching service. SmartAsset’s free financial advisor matching tool can help with this, as it will pair you with up to three local financial advisors. You’ll then have the ability to interview your matches to find the right fit for you.

Bottom Line

Choosing the right financial advisor is a crucial step in securing your financial future. Understanding the different types of financial advisors can help you make an informed decision that aligns with your financial goals and personal circumstances. If you’re looking for comprehensive financial planning, a CFP might be the best fit, as they are trained to provide holistic advice on investments, retirement, taxes and estate planning. By carefully evaluating your needs and the expertise of potential advisors, you can confidently select the type of financial advisor that will best support your financial journey.

Tips for Choosing a Financial Advisor

• Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Once you have a few advisors in mind, you should talk or meet with the advisors before actually hiring them. To help you choose the right advisor, here is a list of questions to ask a financial advisor.

Next Steps

Do you want to learn more about financial advisors? Check out these articles:

• Fiduciary vs. Financial Advisor
• Financial Advisor vs. Wealth Manager
• Investment Advisor vs. Financial Planner
• Robo-Advisors vs. Financial Advisors
• Financial Planner vs. Financial Advisor

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