If you have financial goals but are unsure how to achieve them, you might be wondering if you need a financial advisor. These professionals can help you craft a game plan to make your financial goals a reality.
Before jumping into the advising world, it’s important to know how a financial advisor works—and when they’re worth working with.
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What Is a Financial Advisor?
A financial advisor is a professional that offers financial advice and guidance to clients. These specialized professionals help you make a unique plan to achieve your financial goals. Those objectives can be long-term, such as retirement, or short-term, like buying a house or making the most out of charitable giving.
With the assistance of a financial advisor, you can break down your goals, understand your current financial situation and pinpoint what steps you’ll need to take to move forward on your financial journey.
Do You Need a Financial Advisor?
Anyone who has financial goals can benefit from working with a financial advisor. These professionals take care of the planning so you can focus on working toward your objectives.
You may be wondering if you should use a financial advisor or do it yourself. Even if you have knowledge of the market and your assets, there are a variety of reasons why you should work with a financial advisor instead.
Oftentimes, we have emotional attachments to our money. For example, when we are faced with market turbulence and see our portfolios drop, we can get discouraged from staying the course toward our long-term goals. Financial advisors can be a voice of reason in these stressful situations to help remind you of what you’re working toward, rather than being deterred by short-term conditions that may be unfavorable.
Related: Find A Financial Advisor In 3 minutes
Different Types of Financial Advisors
Not all financial advisors are the same. The key to a successful relationship with your financial advisor is knowing which type of advisor is best for you and your overall financial picture.
There are a variety of financial advisors available that can be tailored to your needs, including:
Robo-advisors
- Best for: People who need a little guidance and don’t have the time to meet regularly in person with a financial advisor
A robo-advisor is a brokerage account that automates investing for you. These platforms typically charge lower fees than traditional financial advisors, making them accessible to a large group of investors.
It’s important to note that while a robo-advisor is affordable and accessible, it’s not going to be tailored to your specific needs. The platform will ask you a series of questions about the current state of your finances, your financial goals and your overall risk tolerance, and then recommend a premade portfolio for you. These portfolios typically include pre-selected, low-cost index fund exchange-traded funds (ETFs) and sometimes mutual funds.
Robo-advisors offer a variety of services beyond automated investing, including checking and savings accounts, optimization of your portfolio for tax efficiency and personalized financial planning services for an additional fee.
Though affordable, robo-advisors still come with fees—even the supposedly free ones. These services often charge annual management fees of 0.25% to 0.50% of your assets under management (AUM), while some opt to charge a fixed monthly subscription fee instead. The robo-advisors that claim to be free can also end up charging you if your balance exceeds a certain level.
Investors with complicated tax situations or high net-worths likely will not benefit from the automation and lack of personalization that robo-advisors provide.
In-person Financial Advisors
- Best for: People who prefer meeting in person and can meet the requirements set by an in-person advisor
An in-person financial advisor is a professional you will meet with regularly to discuss your financial goals and overall financial plan.
Before picking an in-person financial advisor, it’s important to pay close attention to whether or not they abide by a fiduciary duty, which means they have an obligation to put your best interests above their own and cannot collect commissions from any investments they offer to you.
A non-fiduciary financial advisor, on the other hand, often earns money from selling investment products to their clients—even when those products aren’t a good fit for their clients’ overall financial goals.
If you’re unsure of whether a robo-advisor or in-person financial advisor is more appropriate for you, take a look at the in-person financial advisor’s requirements. An in-person financial advisor could be the best fit if you can meet account minimums, are comfortable with the annual fees and want a tailored approach to your financial goals.
Wealth Manager
- Best for: High-net-worth individuals (HNWIs) who need specialized financial help
If you already have a large portfolio of financial assets, you may have been presented with the opportunity of working with a wealth manager. But what’s the difference between these professionals and financial advisors?
A wealth manager is a financial advisor, but they specialize in working with high-net-worth clients. These professionals often have asset minimums to qualify for a service and can require an opening balance as high as $10 million to take you on as a client.
The benefit of working with a wealth manager over a financial advisor is they’re often more familiar with the tax and market intricacies that come with having a high net worth. Usually, they offer a breadth of services, including tax planning, foundation management, philanthropy planning and legal services.
Individuals with assets below wealth management requirements often don’t need these types of services.
Is a Financial Advisor Worth It?
If you’re someone who has financial goals, then working with a financial advisor will likely be worth it. It doesn’t matter if those goals are big or small; having guidance with your investments might help you reach those goals faster than doing it alone.
You also don’t need to be rich for a financial advisor to be worth spending your money on. There are various financial advisors available to help, from low-cost robo-advisors to full-service wealth managers. Finding the best financial advisor for your needs will set you up for long-term financial success.
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