Advantages Of A Financial Advisor – Forbes Advisor


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A recent survey from intelliflo found that while 59% of Americans want financial advice, only 32% of them turn to registered financial advisors. At the same time, more than 40% of Gen X, Millennials and Gen Z turn to digital sources for advice.

However, while TikTok and your favorite podcast may be great resources for learning new life-hacks or vicariously watching the Renaissance and Eras tours, the financial advice on these platforms rarely comes from qualified advisors.

The people creating content and profiting from your views are incentivized to keep you watching, clicking and using their services, even if what they’re recommending isn’t in your best interest. Working with a credentialed, fiduciary financial advisor doesn’t have to be expensive and can make a massive positive difference in your financial life.

What Is a Financial Advisor?

A financial advisor is a professional who works with clients to help them make decisions about their investments, debt, taxes and long-term financial goals. It’s a broad industry, and there are many different types of advisors, including wealth managers, investment advisors and financial planners.

The credentialing, education and licensing requirements can vary between advisor types, but two of the most well-known and reputable certifications for financial advisors are certified financial planners (CFPs) and chartered financial analysts (CFAs):

  • CFP: A CFP is a professional who assists clients in a variety of financial topics, including retirement, investing and estate planning. The advisor earns a CFP credential by completing rigorous requirements, including earning a four-year degree, completing coursework on financial planning, providing financial planning services to the public, passing an exam and participating in continuing education courses.
  • CFA: A CFA is an advisor who provides investment analysis and wealth management services. The CFA distinction is the gold standard for the investment industry; to earn the credential, advisors must pass a three-part exam, complete work experience requirements and submit references.

5 Advantages of a Financial Advisor

No matter what stage of life or income bracket you’re in, a financial advisor can be beneficial. The advantages of a financial advisor are numerous. Depending on the type of financial advisor you choose, here are five ways you may benefit from working with an experienced and reputable advisor:

1. Accountability

When you hire a financial advisor, they will work with you to develop a plan for your money and investments so you can achieve your goals. However, the plan will only work if you stick with it, following the contribution and savings guidelines that your advisor outlines.

Meeting with an advisor and setting periodic check-ins will hold you accountable and ensure you’re on track to meet your goals. And if your circumstances change or you make mistakes, they can help you adapt.

2. Asset Allocation

If you are new to investing, deciding which securities to invest in—and how much of your portfolio should be invested in various categories—can be challenging. A financial advisor will review your finances, goals and risk tolerance to create an investment portfolio for you. In fact, portfolio management is the most common service that financial advisors provide.

Based on your age and financial situation, your advisor will build a portfolio that’s a mix of stocks, bonds, mutual funds and exchange-traded funds (ETFs). Your advisor will also make periodic adjustments to your asset allocation, changing what percentage of your portfolio is invested in different types of investments to maximize growth and minimize risk.

3. Debt Management

Debt management is an often overlooked advantage of working with a financial advisor. If you are struggling with debt, such as student loans, credit cards or medical bills, an advisor with debt management expertise will create a debt management plan so you can prioritize and accelerate debt payoff the most efficient and painless way possible.

The financial advisor will review your finances, including bank and credit card statements, to create a budget that suits your needs. They will work with you to identify areas where you can reduce your expenses, and they can also share strategies to help you accelerate debt repayment, such as transferring credit card balances to a card with a promotional 0% APR, refinancing your mortgage or refinancing your student loans.

4. Financial Goal Planning

A common misconception is that financial advisors only work with high-net-worth individuals or those that are near retirement age. But a financial advisor can be beneficial to individuals of all ages and income levels.

No matter what your goals are for your money, a financial advisor can design a plan to save and invest your money so you can reach those milestones. For example, a financial advisor can give you advice for the following goals:

  • If you want to retire early. For those focused on retiring early, a financial advisor will help you determine if your goal is feasible. If it’s realistic, the advisor will create a roadmap you can follow to save and invest so you can retire comfortably.
  • If you want to pay for a child’s college education. If you have children and want to help them pay for college, a financial advisor will identify tax-advantaged savings options, such as 529 college savings plans. They can also recommend particular investments.
  • If you want to buy a home. For those who want to buy a home, a financial advisor will go over your finances and work with you to determine a budget for a new house and discuss ways to boost your credit so you can qualify for the best possible mortgage rates. A financial advisor can also be invaluable in pointing out key considerations, such as budgeting for the upkeep of your home.
  • If you want to donate to charity. Whether you want to start a scholarship fund while you’re still living or leave your estate to a favorite charity after you pass away, a financial advisor can help you structure your donation in the most tax-efficient and sustainable way.

5. Tax Optimization

Although a financial advisor is different from a certified public accountant (CPA) or tax preparer, they understand tax laws and regulations and can make recommendations to minimize your tax bill. They can give you suggestions on how to structure your savings, what kinds of investment accounts to use and deductions to claim that can boost your savings significantly while reducing your tax burden.

If you invest in the market in taxable accounts, the advisor will likely recommend tax-loss harvesting too. Tax-loss harvesting is a strategy involving the sales of securities at a loss to offset how much you have to pay in capital gains taxes from selling securities at a profit.

Costs of Working With a Financial Advisor

The advantages of working with a financial advisor are substantial, and the cost of an advisor may be lower than you think. How advisors are paid varies based on the type of advisor they are, but there are four common pay structures:

  • Assets-under-management (AUM) fee. According to a study released by the Investment Adviser Association, 95% of advisors registered with the U.S. Securities & Exchange Commission are paid via a percentage of the client’s AUM. The percentage varies by advisor and their firm, but it typically ranges from 0.50% to 2.00% of AUM.
  • Hourly fee. In addition to the AUM fee, some advisors charge an hourly fee for their services. The hourly rate is often charged if you reach out to an advisor for advice on a specific situation or a single goal. Hourly fees for financial advisors range from $150 to $400 per hour.
  • Fixed fee. Some advisors charge fixed rates—a one-time lump sum—for specific services. For example, you may pay a one-time fee for a financial plan that outlines the path to retirement. Typical fees range from $1,000 to $3,000.
  • Commission. Some financial advisors earn money by earning commissions on the sale of certain products—such as insurance policies—or securities. These advisors are not fiduciaries, so keep that in mind when reviewing your options and an advisor’s recommendations.

Now that you know about the advantages of a financial advisor and typical costs, you can start researching what advisors are available near you. You can find credentialed financial advisors through the CFP Board or the CFA Institute.

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