A financial advisor helps people decide where to invest their money, their finances and provide insight on estate management, taxes, insurance, and more. A financial advisor will help his or her clients make the most informed financial decision and provide guidance on how to do so. Financial advisors must have a series of different types of licenses, which are overseen by the Financial Industry Regulatory Authority (FINRA), a self-regulating private organization authorized by the U.S government. In this guide we talk about what financial advisors do.
What Do Financial Advisors Do?
A financial advisor or planner analyzes a client’s personal finances and situation to give tailored financial recommendations. Advisors also operate in non-investment areas as well such as in estate planning, tax consultation and debt management. There are different types of advisors, depending on their expertise and licensing. Below are some of the specific functions of a financial advisor.
Financial Advisors Help You Retire
The most well known reason to go to an advisor is to help plan for your retirement. Planning for retirement is much harder than saving 5% of your salary and putting it into a 401k. Your retirement can last upwards of 30 years. If you haven’t started making careful considerations by the time you are 40, the time you are retired may be longer than the time you have to actually prepare for it.
A financial planner will give you the calm guidance you need to lay down a financial plan and stick to it. They can assess your situation objectively, understand your financial and life goals to determine how aggressively you should save until you reach your desired age of retirement.
Develop a Financial Plan
Your financial advisor will ask you about your personal finances and topics such as cash flow, income, insurance coverage, tax status, risk tolerance, or other information to help come up with a financial plan that meets your needs. That can include stock suggestions, tax advice, recommending insurance plans, or giving recommendations on other types of investing. A financial advisor will review your account and objectives on a regular basis to make sure any life changes or economic conditions will have the favored impact on the plan you both agreed to. If needed, he or she will make changes to your portfolio or other investing products.
Prepare Financial Summaries
Making sure their clients are informed on the performance of any investments is a key part of any financial advisor’s job. They will prepare and sometimes interpret financial documents, including performance reports and income projections. It is their job to make sure you understand how your money is performing and answer any questions you might have about your finances.
Financial planners are also specialists in estate planning. While not the easiest subject to discuss, having your affairs in order is exceptionally important. Without a proper will, ownership of your estate can become mired in legal issues for your next of kin. Financial advisors will help you write a will, name an executor of state, and even help you talk to your loved ones about their inheritance.
It also works the other way as well – if you receive an inheritance from a deceased loved one, a financial advisor will be your best tool for dealing with a sudden windfall. They can help you navigate the tricky tax landscape of an inheritance, as well as how to budget a large sum of money.
What’s the Difference Between a Financial Advisor and Financial Planner?
While looking for a financial advisor, you might also come across someone who calls themselves a financial planner. While every financial planner is also a financial advisor, not all advisors are planners.
The biggest difference is that a financial planner will help you create a long-term program to meet your financial needs, while an advisor is broader and usually a term applied to those who help you manage investments and other types of accounts.
A financial planner can come from lots of different backgrounds, so it’s important to do some research before and find out what they specialize in. Find out what types of certifications they have, such as a Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Certified Investment Management Analyst (CIMA), among others. It’s important to make sure any financial planner or advisor has the right qualification, as these licenses often require a specific type of education, exams and work history.
What’s the Difference Between a Financial Advisor and Investment Advisor?
A financial advisor can also sometimes be confused with an investment adviser, which is a legal term that refers to an individual or company registered with the Securities and Exchange Commission or a similar state regulator. The main difference between the two is that only those who are registered as Registered Investment Advisors with the SEC are held to a fiduciary standard, meaning they have a legal obligation to act in the best interest of their client.
5 Signs You Need a Financial Advisor
As you get older, your financial goals and strategies change. Having a financial advisor on your side can help you make informed financial decisions. Below we list five life scenarios where we believe a financial planner is helpful.
You’re Getting Married or Planning to Have Children Soon
Getting married or having kids is not just a big life decision, it can also have an impact on your finances. Do you manage accounts together with your spouse? Does one of you have debt? What about setting aside money for your child’s college fund? These are the types of things a financial advisor can help you plan and set goals for.
You Want to Plan for Retirement But Don’t Know How
We all know we need to plan for retirement but all the options out there can be overwhelming. It can be difficult to know how much money you need to save, how to save or invest, or what is the safest investment. A financial advisor can tell you how much you need to set aside to make sure you can retire in comfort when the time comes, no matter what stage of life you are at.
You’re Struggling to Manage Your Debt
It’s not uncommon to have debt, whether it is student loans, a mortgage or auto loans. But sometimes when you have so much debt that you’re struggling to make monthly payments, it can be wise to seek the help of a professional who can help you make a payment plan and figure out which debt to tackle first. An advisor can help you consolidate your loans to make it more manageable or could even recommend you refinance. Either way, they will have the knowledge to help you get your debt under control.
Your Tax Bill is Too High
If your tax bill from Uncle Sam just seems too high, it might be time to seek a financial advisor who can help you minimize your income tax obligation. He or she can help you figure out all the deductions you can claim and inform you of any legislation that might impact your situation. They could even help by setting up a budget especially for tax savings. They can work with you throughout the year to make sure you understand the tax implications of any business decision you make.
You Don’t Have Time to Plan Your Finances
Investing can take a lot of time, especially if you are just starting out. An advisor can help you avoid making common mistakes and give you knowledge about what to prepare for in the future. Instead of spending countless hours researching the best exchange traded funds or when the best time to buy a house is, rely on a financial advisor who has the education and time to do the research for you. They will also be on top of any recent tax law changes or legislation that could impact your financial situation.
Financial Advisors Can Help Everyone
There are many different reasons to seek the help of a financial advisor. Having a financial expert is not just for wealthy people. Working with an advisor can give you an edge even if you just make an average income. They can help you make sound financial decisions, make a budget, pay off your debt and plan for retirement.
Before hiring a financial advisor, make sure to find out if they are licensed by FINRA or is registered with the SEC. It’s also a good idea to find out if they are certified with the CFA or CPA. Regardless of your financial situation, there is an advisor out there who is qualified to help.