You don’t need to be already wealthy to benefit from a financial adviser. Anyone who is planning to purchase a home, save for retirement or create more financial freedom can benefit from a financial adviser’s recommendations. You pay a financial adviser to help you reach specific financial goals. Financial advisers can create a customized plan that takes into account investments, savings, insurance and tax strategies within your budget. Read on to understand what does a financial adviser do and how they could help you build a stronger financial future.
What is the Main Purpose of a Financial Adviser?
A financial adviser is a paid expert with a unique skill set to create strong financial planning. These professionals build clients’ personalized financial plans to help them reach various financial goals. While some financial advisers’ job descriptions might look slightly different — some specialize in one asset class or area of financial planning — the basic roles and responsibilities are the same.
Financial advisers may execute trades in the market or provide investment guidance to clients to build short- and long-term wealth for clients. But they also combine budgeting and spending advice, tax savings strategies, savings targets and alternative investment opportunities to help clients build wealth.
How do financial advisers make money? They charge either a set fee or a percentage of assets under management (AUM). Understand a financial manager’s fee structure to know how much you’ll be charged and whether those fees justify ongoing services. Keep in mind that you can use a financial adviser to make a comprehensive plan that you execute independently, or you can work regularly with a financial adviser.
Explaining What a Financial Adviser Does
Financial advisers act as your knowledge resource and objective adviser in all aspects of financial planning. Here’s what you can expect from a financial adviser.
1. Financial Planning
Financial advisers assess their clients' financial situations, including income, expenses, assets, liabilities and goals. They create comprehensive financial plans tailored to clients' specific needs and objectives. These plans may cover budgeting, saving, retirement planning, tax strategies, insurance coverage and estate planning.
2. Investment Advice
Financial advisers provide guidance on investment strategies based on the client's risk tolerance, time horizon and financial goals. They analyze investment options, such as stocks, bonds, mutual funds, real estate and retirement accounts, and recommend suitable investment portfolios. They may also monitor investment performance and suggest adjustments as needed.
3. Retirement Planning
Financial advisers help clients plan for a secure retirement by estimating future income needs, evaluating retirement savings options and creating strategies to maximize retirement contributions and potential returns. They also advise on Social Security benefits, pension plans and other retirement-related considerations.
4. Risk Management
Financial advisers assess clients' insurance needs, such as life insurance, health insurance, disability insurance and long-term care insurance. They analyze existing policies and recommend appropriate coverage to protect against potential risks and unforeseen circumstances.
5. Tax Planning
Financial advisers assist clients in developing tax-efficient strategies to minimize tax liabilities and maximize deductions. They stay updated on tax laws and regulations, advise on tax-efficient investments and collaborate with tax professionals to optimize clients' financial situations.
6. Estate Planning
Financial advisers help clients create estate plans, including wills, trusts and power of attorney documents. They provide guidance on transferring assets, minimizing estate taxes and ensuring smooth wealth transfer according to clients' wishes.
7. Education and Guidance
Financial advisers educate clients on financial concepts, investment principles and market trends. They provide ongoing guidance and support to help clients stay on track with their financial goals and make informed financial decisions.
8. Regular Portfolio Reviews
Financial advisers conduct periodic reviews of clients' investment portfolios, assessing performance, risk levels and alignment with financial goals. They provide updates and recommendations based on market conditions and clients' changing circumstances.
9. Behavioral Coaching
Financial advisers provide emotional support and behavioral coaching to help clients navigate financial challenges, maintain discipline and avoid making impulsive or irrational financial decisions. As much of investing success comes down to riding out market downturns, a financial adviser can offer coaching crucial for long-term financial success.
10. Compliance and Ethics
Financial advisers adhere to industry regulations and ethical standards, such as fiduciary duty, which requires them to act in clients' best interests and disclose potential conflicts of interest. Check on a financial advisers’ fiduciary duty and only work with a professional who has a signed fiduciary duty to work for your best interests.
Financial Advisers vs. Financial Planners: 4 Key Differences
There are key differences between financial advisers and financial planners. Here’s how each professional functions:
1. Scope
Financial advisers often specialize in investment management and provide guidance on specific financial products and strategies. Financial planners, on the other hand, take a broader approach, considering all aspects of a client's financial life and providing comprehensive financial planning services. However, this varies. Check each professionals’ scope to understand the services offered.
2. Focus
Financial advisers primarily concentrate on investment-related advice, portfolio management and maximizing investment returns. Financial planners focus on developing a holistic financial plan that encompasses multiple areas of personal finance, including investment management, retirement planning, tax planning, insurance and estate planning.
3. Credentials
Both financial advisers and financial planners can hold various credentials and certifications. Common certifications for financial advisers include Certified Financial Planner (CFP), Chartered Financial Analyst (CFA),or Certified Investment Management Analyst (CIMA). Financial planners often hold the CFP designation, indicating expertise in comprehensive financial planning.
4. Client Relationship
Financial advisers often have an ongoing advisery relationship with clients, regularly monitoring investments and making adjustments as needed. Financial planners typically establish long-term relationships with clients to create and monitor a comprehensive financial plan, providing guidance and advice throughout the client's financial journey. However, financial advisers and planners can also offer one-time or short-term consultation services.
Creating a Personalized Plan
A financial adviser can help you make a personalized strategy to reach your financial goals. However, not all financial advisers exercise fiduciary duty or have a proven track record of success. Carefully research the track record, history, reviews and qualifications of any financial adviser to find one that has the experience and expertise to help you reach your financial goals. To get started, look at the best financial advisers, find some of the best online financial advisers or consider robo advisers for investing.
Frequently Asked Questions
How does a financial adviser make money?
Financial advisers either charge a flat fee from clients or make a percentage of assets under management, called a management fee.
What does a financial adviser do on a daily basis?
Financial advisers work with clients to assess their financial needs and help them with investment decisions and planning for both short and long-term goals. They also monitor clients’ investments and portfolios and suggest adjustments as needed.
Is it worth having a financial adviser?
The cost of a financial adviser isn’t worth it for everyone. However, if you don’t have investment experience or are unsure about long-term financial planning, these professionals can help you set financial goals and create a realistic path to accomplish them.
About Alison Plaut
Alison Plaut is a personal finance writer with a sustainable MBA, passionate about helping people learn more about financial basics for wealth building and financial freedom. She has more than 17 years of writing experience, focused on real estate and mortgage, business, personal finance, and investing. Her work has been published in The Motley Fool, MoneyLion, and she is a regular contributor for Benzinga.