Most people find investing & financial planning difficult to understand. Do you know what a financial advisor do? In simple words, a financial planner can be involved in anything including managing investments or totaling finances. Payments vary from planners to planners.
What is a Financial Advisor?
The word Financial Advisor is used for people and services which help their customers to manage finances & achieve their financial goals.
There is no particular qualification to become a financial advisor. But one should clear some tests and also he/she should have skills in order to fit in the shoes of a financial advisor. Finance advisors not only give financial advice but they also sell investment products.
As a financial advisor, if you are done with all the required tests, then you can definitely become registered investment advisors or broker-agents.
- Certified Financial Advisor-
Technically speaking, there is nothing as a “Certified Financial Advisor (CFA)”. But without any doubt, CFA is a thing in the investing world. All Certified Financial Advisors are financial advisors but the fun part is that not all financial advisers can be CFPs.
To become a Certified Financial Advisor, a person must enroll in an exhausting education process including some courses and a tough examination. After completing the education requirement, you need to own a 3-year experience in personal financial planning (full time) or gain 2 years of studentship experience. Only then an advisor can get the designation of a Certified Financial Advisor.
According to the Certified Financial Planner board, every CFPs need to finish 30 credit hours of continuing education every 2 years. This helps them to be well-versed in financial planning.
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Fiduciary Financial Advisor-
Fiduciary financial advisor (FFA) is the person who acts in the interest of the clients. Not every financial advisor acts this way.
Do you know that nearly all financial advisors follow an “appropriate” requirement? Well, it means they only give investment suggestions that perfectly fits a client’s age, his risk tolerance as well as his financial circumstances.
Meanwhile, Fiduciary financial advisors are known for their higher standard policies. FFAs always consider their client’s interests more than their own. They suggest a strategy or investment product which is suitable for the client. Fiduciary financial advisors render the best service even with less money or zero money form their clients.
How can you search for a fiduciary financial advisor? Well, the answer to this question clearly explains the differentiation between a regular broker-agent and a Registered Investment Advisor (RIA). Registered Investment Advisor acts as fiduciaries for their clients by law, while broker-agents do not require to.
- Fee-only Financial Advisor-
The main categories of financial advisors are as follows:
- Commission: These advisors earn all their funds through commissions. They acquire these commissions from the sales of the investment product.
- Fee-Based: These advisors do charge certain fees for the services and also acquire commissions from product sales.
- Fee-Only: These advisors cannot make any commission from selling a product. As their name clearly defines, their primary source of income is the fee.
There is no conflict of interest in the fee-only financial planners as they don’t acquire any commissions. Fee-only financial planners make money by just giving people good advice. If the client isn’t happy with the service, he/she can go to another fee-only planner providing a better service. To avoid losing clients, the fee-only financial planner used to be closely aligned with the client’s interests.
Look for the following things in a financial advisor:
- A Certified Financial Planner Professional with experience of at least 10 years.
- Not employed by a large financial institution such as bank, brokerage fund, or life insurance company).
- Fee-only which means paid directly by the client & do not receives any commission
Following guidelines will help you to discover an excellent financial advisor, who works considering your interests only.
Financial Advisor’s Fees
Talking about fee-only financial advisors, there Assets Under Management (AUM) are mainly 3 types of fee structures:
- One of the well-known fee structures for fee-only advisors is basically a percentage of the assets (around 1%) that are being handled for the client.
- Flat Retainer Fee: Some fee-only financial advisors also charge a flat retainer, which is not linked to account size. Many companies in the market use flat retainer as their pricing mod
- Face Wealth: This rejects the AUM pricing model as they believe that a client should do payment for service instead of how much funds he/she has. Face wealth realizes that the client’s account size does not certainly indicate how much time he/she will need to spend with a Certified Financial Advisor.
- SmartAsset: SmartAsset is a simple and free service that permits people to discover an appropriate financial advisor.
- Hourly Fee: Many financial advisors also allow to make a payment on an hourly basis for their guidance. For instance, $150- $300 for an hour
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Alternatives For Financial Advisor
Firstly, you need to examine your requirements before finding an alternative for a financial advisor. Honestly, talking to a Certified Financial Advisor is a good move when you need to get a complete financial plan.
But if you only want help with managing your asset allotment or selecting investment products, you may avail of your required service from a robot-advisor.
Prices of robot advisors start at approx. 0.25% of assets (under management). Some robot advisor even offers plans including accessibility to Certified Financial Advisors when required. But then the client will have to pay a higher % to acquire access to these plans along with account minimums.
It is always advisable to speak to a financial advisor. But remember, it is more important to self-learn about different ways to invest & save more smartly. No other person, not even a fiduciary Certified Financial Advisor, will be as serious about your financial objectives as you are.