INVESTINGLIFESTYLE & TRAVEL

What You Need to Know About Financial Advisors

Did you know there are professionals whose job is to give you sound advice on how to manage your finances and wealth? Financial advisors do just this! Let’s explore the deeper responsibilities of an advisor and determine if having one is necessary to reach your current financial goals and dreams.

Financial Advisors vs. Wealth Managers

Financial advisors or planners are professionals who assist in making your financial goals and dreams come to life. They can offer advice about what investments fit best into your risk tolerance level, aid in creating a personalized budget, provide debt management resources, as well as assist with retirement, estate and tax planning. Someone who works as a wealth manager has similar day-to-day responsibilities; the main difference is wealth managers work with higher net-worth clients.

The Importance of a Fiduciary

Simply put, a fiduciary is a person who is legally required to act in the best interest of another party, despite their own potential financial gains. So, what does this mean exactly? Someone who is not a fiduciary is allowed to give you portfolio recommendations or insurance policies, for example, that would make them more commission on the sale rather than what logically makes sense for your own financial situation. It’s important to be aware that not all financial advisors serve as fiduciaries. A good indicator is to check to see if an advisor has a Certified Financial Planner (CFP) certification. CFPs are legally required to always serve as fiduciaries, providing both duty of care and loyalty to their clients.

Do I Even Need a Financial Advisor?

This question may not be as straightforward as you think. Typically, people hire financial planners after they already have the basics down. They serve to expand your finances and dig into more specifics catered to your individual needs and goals. There is not a magic age you need to be to work with an advisor, though the main consideration is the cost. Typically, financial planners make their money through commissions, meaning they will take a set percentage from your wealth being managed by the firm. While 1% of your investments may not seem like a lot, it could very quickly add up. Some might even have a monthly fee similar to a subscription service, while others have a flat fee, so it’s important to do your research to understand your costs.

Financial advisors are skilled professionals who can assist you in making your financial dreams come to life. When deciding if you want to incorporate a financial professional into your personal finances, it’s important to reflect on your current situation and analyze if it makes sense given your budget, needs, and goals.

Sources:

https://www.forbes.com/advisor/investing/financial-advisor/what-is-a-financial-advisor/

https://www.fool.com/retirement/strategies/financial-planning/fiduciary/?msockid=329a93afc45269610b4c8591c5476809