What to Know About Financial Advisors
What to Know About Financial Advisors
Here's an explanation of what a financial advisor is and what they can do for you.

What to Know About Financial Advisors

Do you intend to retire someday? Should I get married or go to college? Consider paying off some debt. All of these are reasonable and attainable financial objectives. Many of us, however, are unsure of what we need to do to make our dreams a reality. That is when it is a good idea to seek professional assistance.


If you have financial goals but don't know how to achieve them, a financial advisor can be a valuable asset. They can also educate you on financial products, tax breaks, and insurance options that you may not have been aware of that can help you build and protect wealth. Here's an explanation of what a financial advisor is and what they can do for you.

Types of Financial Advisors 

1. Robo-advisor

A Robo-advisor is a platform that generates investment recommendations based on the information you enter into the system. It uses algorithms and, in some cases, artificial intelligence to determine your risk tolerance and potential investments. These services are typically low-cost but limited in their capabilities.

2. Online financial-planning services 

These services go beyond Robo-advisors, frequently providing a broader range of options. Online financial-planning services are typically automated and can assist you in developing financial plans and budgets, as well as portfolio development, goal setting, and reporting. 

3. Traditional financial advisors 

Certified Financial Planners (CFP), brokers, Registered Investment Advisors (RIA), and wealth managers are examples of these professionals. Traditional financial advisors typically provide comprehensive, personalized financial advice. They can make product recommendations based on your specific situation and goals, invest on your behalf, and assist you in staying on track.

Services Financial Advisors Offer 

1. Portfolio building 

Portfolio construction is all about ensuring that you have a good mix of investment assets that are growing well while posing a little risk. Financial advisors can help you understand what assets you already own, your options for making additional investments, and the risks associated with your investment choices.

2. Tax planning 

Many financial advisors offer tax preparation services. This does not imply that they will assist you in filing your tax returns or that they are fully trained in tax law, as a certified public accountant (CPA) is. Instead, they can assist you in managing the tax liability that arises from your investment strategies and in building wealth by utilizing rules that can reduce your tax liability. Not every financial advisor provides or is qualified to provide these services, but some do.

3. Estate planning 

A financial advisor can assist you in planning what you want to leave to your heirs when you die. They may be trained in estate planning or willing to collaborate with your estate attorney to determine what type of insurance you require, what financial products you might want to set up to pass on what should be done with your investments, and so on.

4. Long and short-term financial planning 

Financial advisors collaborate with clients to develop and implement plans to achieve long-term and short-term goals. For example, you could consult with a financial advisor to review your debt and devise a plan to pay off your debts this year.


At the same time, you may want to set up college savings account for your new child. A financial advisor could help you develop a monthly budget that focuses on debt reduction while also contributing to a 529 college savings plan.

Questions to a Financial Advisor Before You Hire Them 

1. Are you a fiduciary? 

To begin, make certain that your financial planner or investment advisor is a fiduciary. A fiduciary is legally obligated to prioritize their client's interests.


If they are not a registered fiduciary, they may adhere to a loosely monitored "suitability" standard that allows them to make recommendations for investments and services as long as they are appropriate for their client's goals, risk tolerance, and financial situation.

2. How much do you charge?

Financial advisors are classified into two types: fee-based and fee-only. To meet with a fee-only financial advisor, you will pay a flat fee, an hourly fee, or an asset under management fee equal to between 1% and 3% of your total assets.

3. Do you earn commission?

If they say "yes," they are a fee-based financial advisor. Fee-based financial advisors earn commissions based on where your money is invested and may also charge a fee for their time or an asset under management fee.


This is not to say that a fee-based financial advisor will always work against your best interests. It simply means that they are more likely to recommend products and services for which they are compensated, which may or may not be the best option for your financial planning needs.

4. What services are included?

A good financial planner should be able to advise you on all aspects of your financial situation, though they may specialize in one area, such as retirement planning or wealth management. Make it clear from the start what the cost includes and whether they will devote more time to any one area.

5. How often will we communicate?

If you want more than a one-time meeting, you'll probably have to pay a retainer fee to your financial advisor. Find out exactly what this fee entails — for example, one face-to-face meeting and one phone call per month — and inquire about any additional fees that may apply to overtime.


It can be frightening to put your money in the hands of someone else, so an open line of communication is essential. In both urgent and non-urgent matters, ask the financial advisor how they prefer to be reached — by text, email, or phone. 

6. Can you describe your typical client?

Inquiring about an advisor's typical client can help you determine whether they're a good fit for you. Some financial planners specialize in working with high-net-worth families, business owners, and first-time investors in their twenties and thirties.


If you are similar to their typical client, chances are they have the tools and expertise to assist you as well.

7. What is your investment approach?

If you're giving up control of your investments, make sure the advisor's investment philosophy matches your risk tolerance. An advisor, for example, may prefer an aggressive growth strategy to preservation. That usually means they'll put more of your money at risk in order to (hopefully) make a bigger profit.


Finally, a good financial advisor should be as concerned about your investments as they are about their own, taking care to avoid excessive fees, save money on taxes, and be as transparent about your gains and losses as possible.