Have you ever felt uncomfortable about making financial decisions? Whether it’s an investment in education or a new home or managing the financial implications of unexpected events, you may have thought about getting professional help.
However, not everyone may need a financial advisor. How to decide?
What is a financial advisor?
A financial advisor is a professional who assists with financial matters. It’s a term that describes a plethora of services and people, including financial planners, financial consultants, and investment managers.
What does a financial advisor do?
The services that financial advisors provide vary depending on the advisor type, but typically they will offer to assess your financial situation to find opportunities for optimization. They can help identify areas of improvement, whether it’s your assets, expenses, or debts.
They will ask you about your goals. And they will prepare options and solutions to help you reach those financial goals. This may include ensuring you have enough emergency funds, savings for retirement, paying off or refinancing debt, and offering tax-planning ideas.
Types of financial advisors
In some cases, you may wish to choose a specific financial advisor based on their type. For example, a robo-advisor will be more affordable, likely to be sufficient if you require investment management assistance. Alternatively a traditional, in-person advisor would be good if you seek more personalized services. Or you could opt for online financial planning services, which are somewhere in the middle.
Let’s look at these options in more detail.
1. Robo-advisors
If your requirements are limited to choosing/managing liquid investments, then a robo-advisor can help you at affordable rates. Their algorithms will effortlessly set up and then manage your portfolio. If you want to invest in the stock market, but don’t have experience or enough time to learn about it, a robo-advisor can be a great solution.
2. Online financial planning services
Online financial planning services combine virtual financial planning and investment management. Although their fees may be higher than for Robo-advisors, this option offers personal guidance at a cost lower than that of a traditional advisor.
Suppose you want an actual person to manage your finances but prefer to connect with them over video or phone (virtually) to receive investment advice. Furthermore, if you wish to have a more tailored financial advice, this option may be better for you.
3. Traditional or in-person financial advisors
A traditional financial advisor can be of different types, and have a variety of designations, including:
- Brokers or stockbrokers. They can buy or sell financial products on your behalf and change commission, fee, or both.
- CFPs (Certified Financial Planners). They provide financial planning advice and – in the US – are certified by the Certified Financial Planner Board of Standards.
- Registered investment advisors: professional body registrations or regulatory requirements vary from country to country, but these professionals all provide recommendations, advice and planning.
- Wealth managers: They generally focus on helping out high net worth clients.
Reasons why you may need a financial advisor?
There are clear signs that you may require a financial advisor’s assistance.
1. If you google for financial strategies
If you find yourself out of answers, don’t quite understand finance and are googling for effective financial management strategies, then it may be time to shift to a professional. Googling for answers doesn’t quite cut it, and how can you know if you would make the right decisions if you lack knowledge or experience? Better to be more thorough when it comes to your life savings.
2. You have disorganized finances
If you have accounts scattered all over the place, and don’t know your financial situation, you may benefit from the assistance of a financial advisor. But the best thing to do first is to understand your financial situation, which you can start doing quickly, easily and independently by tracking your wealth. And that’s what Exirio can offer you – just give it a try and let us know if it helped you!
3. When making life-changing decisions
When it comes to major financial decisions (i.e. buying a new home or taking an early retirement), you can’t put your feet forward with just a hunch. Instead, a financial advisor’s help can provide you with the experience, tools, and objectivity necessary to make the best decisions.
4. If you are under stress and need peace of mind
One of the reasons why some investors look forward to working with financial advisors is getting a stress-free mind. If you are busy and lack the time to manage your investments, you can probably do without the extra burden of worrying about overspending or running out of money. And financial advisors are likely to have better ideas on how you can improve your financial management strategies and investments.
Now that you know if you need a financial advisor, how do you know which financial advisor best suits our requirements?
Tips on how to choose a financial advisor
Finding a good financial advisor can be quite difficult, but following these steps will be help.
1. Define your requirements
Firstly, understand what type of help you need: what do you expect to get out of the relationship? What are your goals, priorities and constraints?
Financial advisors can often do more than provide investment advice: from debt repayment/retirement planning to insurance policy suggestions, or even real estate planning.
2. Decide on your budget
Yes, you would want the best financial advisor you can find. However, you should also ensure that they are within your budget: watch out for commission-only advisors, as their costs can fluctuate considerably depending on your investment activity.
Fee-based or fee-only advisors may (or may not) suit you best: they change a specific fee based on the total assets they help you with, or charge by the hour or by deliverable.
3. Learn about different types of financial advisors
You should learn what options are available to you, and choose based on what matches your requirements and constraints (i.e. budget) the most.
4. Look for financial advisors
You need to do proper research to get fruitful results. You also have to ensure that the person you decide to trust for your financial decisions deserves that trust.
There are several ways to go about your search. You can ask someone (a friend, family member, or peers), or you can look online or in the press. Always ensure to check their experience and background, and understand their fee structure.
5. Check reviews
Once you have a list of potential candidates, you should start researching all you can find about them. Reading the reviews (online or elsewhere) will help you understand the experience of their previous or current clients.
If you want an advisor in the US, you can also check their credentials at AdviserInfo.sec.gov , a free tool that helps you check their experience and background (and inform you about any regulatory disciplinary actions).
Final thoughts
Good financial advisors can act as life coaches in financial matters. Take your time, do your research and then choose. A good choice can of course be to not use one.
But before choosing, do yourself a favor if your finances are all over the place: start tracking your investments (with Exirio, or other investment tracking apps) and/or your expenses. It’s easier (and far safer) to define your goals and make decisions when you know where you stand.
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