What Does a Financial Advisor Do?
Financial advisors are professionals who assist individuals in managing their finances. While some may focus on investment management services, others may specialize in financial planning or a combination of both.
However, the expertise of a financial advisor can cover a wide range of topics, though. This could be everything from general planning to more specialized advice like tax planning, estate planning and additional services tailored to affluent clients.
Financial Advisor Credentials and Standards
Financial advisors come from various professional backgrounds and may hold different certifications. Some popular options include the Certified Financial Planner™ (CFP®), Chartered Financial Analyst® (CFA®), or Chartered Financial Consultant® (ChFC®) designations. These credentials indicate differing levels of expertise in financial planning, investing, and other areas within finance.
Advisors may work independently, for a larger firm, or within a bank or brokerage. Firms that are registered with the Securities and Exchange Commission (SEC) have a fiduciary duty to act in clients’ best interests, and this covers many advisors. Other advisors may be registered with state-level regulatory bodies.
How Much Financial Advisory Services Can Cost
The cost of hiring a financial advisor varies and can be structured in several ways, including asset-based fees, hourly rates, fixed fees, and/or commissions. It’s crucial to understand an advisor’s fee schedule, which can typically be found in their firm’s Form ADV that’s filed with the SEC and updated at least annually.
Deciding If You Need a Financial Advisor
Whether you need a financial advisor can depend on your financial situation, assets and comfort with managing money. Advisors can be particularly helpful if you’ve received a windfall of cash, have a substantial amount of assets or need specialized financial guidance around certain topics.
For those who may not be able to afford a traditional financial advisor, robo-advisors could offer an alternative. These platforms provide varying levels of automated investment management and financial advice, with some offering access to human advisors as well.
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