A good advisor provides personalized guidance and advice to help you build long-term wealth. But before hiring one, it’s important to understand what different types of financial advisors do, and what your goals are.
A financial advisor is a professional who can help bridge the gap between where you are today and where you want to be financially. If you haven't enlisted the help of one yet, this guide provides insights on when and why a financial advisor might be a good fit for you.
For those who take a proactive approach to managing their finances, it's essential to be aware of specific annual deadlines, including important dates for individual retirement accounts (IRAs) or 401(k)s.
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Financial advising frequently asked questions
What types of financial advisors are there?
There are various types of advisors you could work with to help manage your finances, depending on your specific needs and goals. Some common types of advisors include:
Certified Financial Planners (CFPs): These advisors have completed the rigorous education and experience requirements set by the Certified Financial Planner Board of Standards. They have expertise in various areas of financial planning, such as retirement planning, tax planning, and estate planning.
Registered Investment Advisors (RIAs): These advisors are registered with the Securities and Exchange Commission (SEC) or state securities regulators. They provide personalized investment advice and manage investment portfolios for clients.
Brokers: Also known as financial consultants, brokers work for brokerage firms and earn commissions for recommending and selling financial products such as stocks, bonds, mutual funds, and insurance products.
Tax advisors: These advisors specialize in tax planning and preparation. They can help you minimize your tax liability and ensure that you're complying with tax laws and regulations.
Estate planning attorneys: These advisors specialize in helping clients plan for the distribution of their assets after they pass away. They can help you create a will, establish trusts, and minimize estate taxes.
Insurance advisors: These advisors specialize in insurance products, such as life insurance, health insurance, and long-term care insurance. They can help you choose insurance policies that align with your financial goals and protect you and your family from unexpected events.
Debt counselors: These advisors can help you manage and pay off debt. They can provide guidance on budgeting, negotiating with creditors, and consolidating debt.
It's important to understand the specific services that each type of advisor offers and to choose an advisor who can best meet your needs. As always, research the advisor's qualifications, credentials, and experience before making a decision.
How can a financial advisor help me with retirement planning?
A financial advisor can be a valuable resource when it comes to retirement planning. Here are some ways they can help:
Assess your current retirement savings: A financial advisor can help you assess your current retirement savings and estimate how much you'll need to save to reach your retirement goals.
Develop a retirement savings plan: Based on your retirement goals, a financial advisor can develop a customized plan to help you save for retirement. This could involve choosing the right retirement accounts, setting up automatic contributions, and selecting appropriate investments.
Manage your retirement investments: A financial advisor can help you choose investments that align with your risk tolerance and retirement goals. They can also monitor your investments and make adjustments as necessary to ensure your portfolio stays on track.
Maximize your retirement income: A financial advisor can help you develop a plan to maximize your retirement income, including when to start taking Social Security benefits and how to create a sustainable withdrawal strategy from your retirement accounts.
Provide guidance on healthcare and long-term care costs: A financial advisor can help you plan for healthcare and long-term care costs in retirement, including exploring options for long-term care insurance and estimating your potential healthcare expenses.
Overall, a financial advisor can provide valuable guidance and support when it comes to retirement planning, helping you make informed decisions and stay on track to achieve your retirement goals.
What should a financial plan include?
A comprehensive financial plan should include several key components that reflect your financial goals and circumstances. Here are some important components that a financial plan should typically include:
Goals and objectives: Your financial plan should start by identifying your short-term and long-term goals and objectives, such as saving for a down payment on a house, paying off debt, or planning for retirement.
Budget and cash flow: A budget is a key part of any financial plan. It helps you manage your expenses and ensure that you're living within your means. A financial plan should include a detailed analysis of your income and expenses, as well as a plan to manage your cash flow effectively.
Investment strategy: A financial plan should also include an investment strategy that aligns with your goals and risk tolerance. This could involve choosing specific investment vehicles — such as stocks, bonds, or mutual funds — and developing a plan to manage your portfolio over time.
Retirement planning: Your financial plan should include a strategy for saving and investing for retirement, including estimating your retirement expenses and determining how much you need to save each year to meet your retirement goals.
Risk management: A financial plan should also include a strategy to manage potential risks, such as disability, illness, or death. This could involve exploring insurance options, such as life insurance or disability insurance, to protect you and your family.
Estate planning: A financial plan should also include an estate plan that outlines your wishes for the distribution of your assets after you pass away. This could involve creating a will, establishing trusts, and minimizing estate taxes.
Overall, a comprehensive financial plan should be tailored to your specific goals and circumstances. It should provide a roadmap for achieving your financial goals, while also accounting for potential risks and unexpected events.
When should I work with a professional financial advisor?
Working with a professional financial advisor can be beneficial in many situations. Here are some scenarios where you may want to consider working with a financial advisor:
You are unsure of how to reach your financial goals: If you have financial goals but are not sure how to achieve them, a financial advisor can help. They can provide guidance and expertise to help you create a plan to reach your goals.
You are going through a major life change: Significant life changes such as marriage, divorce, or retirement can have a consequential impact on your finances. A financial advisor can help you navigate these changes and adjust your financial plan accordingly.
You are managing a significant amount of money: If you have a significant amount of money to manage, such as an inheritance or a large portfolio of investments, a financial advisor can help you make informed decisions about how to invest and manage your money.
You want to minimize your tax liability: A financial advisor can help you develop a tax-efficient investment strategy that can help you minimize your tax liability and keep more of your money.
You want to plan for the long-term: A financial advisor can help you create a financial plan that takes into account your retirement, estate planning, and other long-term goals.
Working with a financial advisor can provide you with valuable advice and guidance to help you achieve your financial goals. If you are facing any of the scenarios mentioned above or simply want to improve your financial situation, consider working with a professional financial advisor.
How much does it cost to hire a financial advisor?
There are generally three types of fees that financial advisors may charge:
Commission-based: These advisors earn their income by selling financial products and receiving a commission on the products they sell.
Fee-based: These advisors charge a fee for their services, which can be based on a percentage of assets under management or an hourly rate.
Fee-only: These advisors only charge a fee for their services and do not earn commissions from the financial products they recommend.
Before hiring a financial advisor, it's important to discuss their fees and how they will be paid. Make sure you understand the fee structure and the services that will be provided in exchange for the fees you'll be paying.
How do I know if I need a financial advisor?
Deciding whether or not to hire a financial advisor can be a difficult decision. Here are some signs that you may need a financial advisor:
You lack knowledge or experience in financial matters: If you are not confident in managing your finances or lack knowledge about financial products, it might be wise to seek the help of a financial advisor. A financial advisor can help you understand financial concepts and provide guidance on how to invest your money.
You have a complex financial situation: If you have a high net worth or a complex financial situation, such as owning a business or multiple properties, a financial advisor can help you manage your assets and plan for the future.
You are planning for a major life event: Major life events such as getting married, having a child, or planning for retirement can benefit from the advice of a financial advisor. A financial advisor can help you create a plan to meet your financial goals and navigate any financial challenges that may arise.
You are experiencing a life transition: If you are going through a significant life change, such as a divorce or the death of a spouse, a financial advisor can provide support and guidance during this difficult time.
You want to maximize your investments: If you want to maximize your investments, a financial advisor can provide valuable advice on where to invest your money and how to diversify your portfolio.
You want to save time: If you do not have the time or interest in managing your finances, a financial advisor can take on this responsibility for you, allowing you to focus on other areas of your life.
You want to minimize risk: A financial advisor can help you manage risk by creating a diversified portfolio that is tailored to your specific needs and goals.
If any of these situations apply to you, it may be worth considering working with a financial advisor. A financial advisor can provide you with valuable advice and guidance to help you achieve your financial goals and improve your overall financial situation.