The term “financial advisor” may send a shiver of apprehension down your spine. For some, the finance world can be seen as a tricky, perilous place that is difficult to navigate — and even more so when it comes to your own finances.

There’s no shame in having no idea what you’re doing — a measly 17 out of the 50 states require finance to be taught in high school, according to a survey by The Council for Economic Education.

Whether you’re struggling to plan for the future, or even if you have a firm grasp on your personal finances, there may be times when you need a helping hand along the way. Enter stage right: the financial advisor. But what is a financial advisor?

Lack of comprehensive financial knowledge costs each American $1,200 in 2018, revealed a survey by The National Financial Educators Council. Unsurprisingly then, the demand for professional help continues to grow — employment of financial advisors is set to expand by 7 percent between 2018 and 2028, higher than the average for all occupations according to the Bureau of Labor Statistics.

What Is a Financial Advisor? What Is a Financial Advisor?

For all intents and purposes, a financial advisor does exactly what she says on the tin: advises you on how best to manage your finances. While that’s a core truth of the role, if it were that simple, your mom would be a financial advisor every time she chastised you for spending all your money on coffee. (I’ll never stop!)

Sadly, there is no universally accepted definition of a financial advisor. Oftentimes stockbrokers, insurance agents, and other experts in the financial field may adopt this title. And though financial advisors do consult with their clients on a range of topics including mortgages, investments, taxes, and estate planning, there’s a bit more to it.

A true financial advisor is someone you hire who, although they might specialize in one area — such as education planning — should be qualified and in a position to guide you on all aspects of your finances. You’ll meet with them in person or communicate remotely (as more and more companies are offering virtual financial advice for a lesser fee) and receive comprehensive financial advice specific to you.

What Does a Financial Advisor Do? What Does a Financial Advisor Do?

As mentioned above, a good financial advisor is invested (pun intended) in your financial well-being. They assess your current financial situation, try to understand your personal needs and goals, and then make recommendations or lay out a plan on how best to achieve them.

Here is a typical rundown of what a financial advisor does:

  • Meets with clients in person or virtually to evaluate the client’s current financial health and establish financial goals
  • Determines the risk tolerance of their clients to help recommend a suitable plan
  • Gives a thorough explanation of the services available in relation to those goals
  • Educates and answers clients’ questions relating to their financial goals and needs, as well as the risks involved
  • Recommends investments or invests on the client’s behalf with prior approval (this is known as discretionary trading)
  • Researches or reports on investment opportunities for the client
  • Establishes a plan —short- or long-term — for specific events such as education expenses, property ownership, and retirement
  • Consistently monitors client’s accounts and adjusts the plan as goals and markets shift and as the client’s priorities change

Once a relationship between client and advisor has been established and a plan put in place, the advisor will continue to monitor accounts, investments, and so on. The client and advisor should meet at least once a year to update and adjust the plan, which may happen due to new investment opportunities or a change in the client’s circumstances.

It is important to note that many financial advisors are licensed to buy and sell financial products, such as stocks, bonds, and insurance. As such, if your advisor isn’t a fiduciary, they may try to sell you products that could benefit them more than you, as they receive a commission on what they recommend.

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Not all advisors partake in discretionary trading, as mentioned above. “Discretionary trading is limited to securities traded on the secondary market — stocks, bonds, funds,” says Peter Neeves, Ph.D. “Things that you would be locked into wouldn’t be held in a brokerage account and wouldn’t be part of discretionary trading. You have to delegate that power to your advisor, who would be acting as your broker. Common for brokers (but not universal), less so for advisors (without being uncommon).”

WTF Is a Fiduciary? WTF Is a Fiduciary?

A fiduciary is a financial advisor who is legally required to put your financial best interests first. Yes, that means what you think it means — a person you put in charge of your money may be in it… for the money. All fiduciaries are financial advisors, but not all financial advisors are fiduciaries.

The term fiduciary came into being in the 1940 Investment Advisors Act. Brokers, however, serve the broker-dealers they work for and are required to believe only that recommendations are suitable for clients. This suitability standard is set by the Financial Industry Regulatory Authority.

There are many qualifications financial advisors can have that do not enforce a strict code of ethics (see glossary of terms below). For example, a non-fiduciary financial advisor adheres to the suitability standard, in which they can recommend a product or service that may not be the best or most cost-effective for you, as long as it can be deemed “suitable.” As such, they’re not giving you incorrect advice per se, but their advice may be skewed more toward their own interest than yours.

Asresident expert at CentSai Peter Neeves once said, “People are people, whether they’re fiduciaries or not.” So even a non-fiduciary advisor may still have your best interests at heart.

How Do I Know Who Is a Fiduciary (And Who Isn’t)? How Do I Know Who Is a Fiduciary (And Who Isn’t)?

Financial advisors who can claim to be fiduciaries are certified financial planners (CFPs) and registered investment advisors (RIAs). Their fiduciary status is underwritten by the Certified Financial Planner Board of Standards and the Securities and Exchange Commission (SEC), respectively.

If a financial advisor is registered with the SEC, they are legally bound to operate under the fiduciary standard. You can request this information from a potential advisor should you wish. In order to choose the best financial advisor for your needs, this may be crucial.

Why aren’t all financial advisors required to follow the fiduciary standard of working in their clients’ best interests? There was a rule proposed by the Department of Labor that would have required all financial advisors to follow the fiduciary standard as opposed to the suitability standard. Unfortunately, this rule has not yet been enforced, and so many financial advisors are not legally required to follow the fiduciary standard. This doesn’t mean that fiduciaries are guaranteed to be honest. Thorough research should still be done even if potential advisor is a fiduciary.

Do I Need a Financial Advisor? Do I Need a Financial Advisor?

Well, yes I might … but enough about me. There are many things to ask yourself when thinking about hiring a financial advisor.

If several of the following statements describe you, it might be high time to consider it:

  • You are struggling to prioritize financial goals
  • You aren’t sure when, where, how much, or how often to save
  • You want to invest, but have no idea where to start
  • You want or need help with investment management
  • You have money, but don’t want the responsibility of managing it

If you are considering an advisor because you are in financial trouble, however, you may want to look for other resources. Financial advisors can be expensive, and while they may help you with a plan to manage your debts, the money you have dished out for this information may not be worth it.

Where your money is concerned you should take your time, do your research, and ask about what services you will receive in return for any fees. Decide if you are comfortable with what you are being offered.

Financial advisors can help with debt, but consider the cost of hiring one versus putting that money toward paying off your debt. If you’re still not sure what applies to you, Andrew Chen, CFA and founder of Hack Your Wealth, gives a breakdown of the pros and cons:

Review Our List of Best Financial Advisor Companies to Find Your Match >>

The Pros of a Financial Advisor The Pros of a Financial Advisor

For those with average net worth (under $1 million):

  • Your advisor will educate you on major investment vehicles and their trade-offs, like taxable brokerage accounts, tax-deferred retirement accounts, health savings accounts, etc.
  • Will advise how to make sure your investments stay tax-efficient. This way, you don’t have to spend a lot of time getting yourself up to speed before you start making smart moves with your money.
  • Will offer basic asset allocation and portfolio rebalancing principles.
  • Will help you articulate your short- and long-term financial goals, and help clarify how to structure a plan to achieve them.

For those with high net worth (over $1 million):

  • Your advisor will help with all aspects of your financial life, not just portfolio management, and you will have access to far more of your advisor’s time and resources.
  • Will coordinate with any other personal advisors you may have, such as a lawyer, bookkeeper, etc.
  • There may be more value-added services: not just financial planning, but also estate planning and tax planning. Plus, you might get access to bespoke investments constructed for you personally, which may involve a relationship your advisor has with a private client bank.
  • The more money you give them to work with, the more often they’ll work with and check in with you.
  • You’ll get charged a lower percentage fee. See below for more on fees.

The Cons of a Financial Advisor The Cons of a Financial Advisor

For those with average net worth:

  • Some knowledge provided by a financial advisor can usually be acquired for free by researching reputable resources online. Some of what you’re paying for is the human component.
  • If you hire an advisor who is paid a percentage fee (typically 1 percent) of your assets under management (AUM), it can be a real drag on your long-term returns.
  • Sadly, the lower your net worth, the lower the incentive to manage your portfolio to the best of their abilities. They may not be as invested in your goals as you are.
  • If you hire an AUM financial advisor, the bigger your portfolio, the more expensive the advisor becomes for doing the same amount of work.

For those with high net worth:

  • Despite having a lower percentage fee, it will still be costly in the absolute number of dollars. While you get more in-depth service, it still may not be worth the high fees.
  • If you are financially savvy, it’s possible your AUM financial advisor may not have much more insight than you.
  • Fee-only financial advisors will likely not be value-added.

Remember: The range and scope of services vary widely from advisor to advisor. You may not receive some of the services listed above, or you may receive more. This list is simply a broad overview of what you might expect. Always do your research.

How Much Does It Cost to Hire a Financial Advisor? How Much Does It Cost to Hire a Financial Advisor?

Like most things in life, it depends. As briefly touched upon above, there are a couple of different ways that you can work with and pay a financial advisor. Your advisor could be fee-only, fee-based, or commission-based. Generally, fee-only advisors are fiduciaries and commission-based advisors are not.

A fee-based advisor can earn a fee for working with you on your financial plan, but can also earn a commission for selling you a certain product. In this way, it’s possible for advisors to earn a combination of fees and commissions.

An AUM advisor usually gets an annual fee based on a percentage of your assets. Depending on the dollar amount of your assets, this percentage usually hovers around 1 percent and gets lower the greater your assets. This is usually incorporated for larger accounts with more hands-on management from the advisor. For a comprehensive breakdown of fees by amount invested, check out Advisory HQ’s estimated breakdown.

You can also pay a financial advisor by the hour. This is based upon the amount of time they spend managing your account, rather than on the value of your assets. This makes it more accessible for those with lower income to access an advisor. The rates vary but tend to be between $120 and $300 per hour according to Advisory HQ’s study.

The hourly option is a great way for those who might only need a nudge in the right direction rather than a full-time advisor. There is also a monthly retainer fee you can pay that can help keep costs low.

Institutions like The Financial Gym provide you with certified financial trainers who work with you like a coach. A monthly fee covers quarterly meetings with your “trainer” and are a more affordable, less hands-on way of managing your finances. Top that off with access to online portals and educational events, and this could be a great answer for many looking to manage their finances on a lower scale.

Some companies offer package fees, in which you pay a once-off fee for a specific service. There is no standard fee for these packages, as each firm designs them for their customers. If you are interested in something like this, ask the advisory firm of your choice if they offer it.

Financial Advisor Fees

Fee-OnlyFee-Based
Commission-Based
Earns money when specific investments are bought
NoYesYes
Earns money when specific insurance products are bought
NoYesYes
Earns a fee based on the performance of your portfolioYesSometimesNo
Potential conflict of interestNoYesYes
Earns money when specific investments are bought
Fee-OnlyNo
Fee-BasedYes
Commission-BasedYes
Earns money when specific insurance products are bought
Fee-OnlyNo
Fee-BasedYes
Commission-BasedYes
Earns a fee based on the performance of your portfolio
Fee-OnlyYes
Fee-BasedSometimes
Commission-BasedNo
Potential conflict of interest
Fee-OnlyNo
Fee-BasedYes
Commission-BasedYes

Remember: A “free” advisor is making money somewhere. If they don’t ask for a fee upfront, be assured there is usually a catch in the form of hefty commission fees or something to that effect.

What to Ask a Financial Advisor What to Ask a Financial Advisor

Your money and personal wealth ain’t no joke. You should treat your assets with care. There are some universal questions you should ask anyone who will be dealing with or helping you to deal with your money. Not all will be applicable to you and your situation, but the following are a good starting point.

Initial questions to see if there will be any conflicts of interest:

  • How are you certified? Do you follow the fiduciary standard?
    (Ask for their qualifications and the standard they follow in writing if you want further proof.)
  • How are you paid?
    (As explained above, the method by which your financial advisor is paid will give you an insight as to how they are going to manage your account.)
  • Do you practice full disclosure for all relevant information? How would I find it?
  • Does the firm you work for create potential conflicts of interest for you as my advisor (if applicable)?

To glean more information on the services your advisor will be providing:

  • Do your plans recommend the purchase of specific financial products, such as mutual funds, annuities, or long-term insurance? (This way you will know when to expect a selling point.)
  • How frequently do you update a plan and what is the cost involved?
  • How do I pay for a financial plan? Is it a separate fee or bundled with an investment fee?
  • Do you provide fee-only financial planning?
  • Will you produce a financial plan without investing my assets or selling me a product?

To get a better understanding of the type of service you should expect from your advisor:

  • What is the average portfolio size of your clients?
  • What is your investing/wealth management philosophy?
  • Who is my principal contact? The advisor? An associate?
  • What is the frequency of our communication?
  • How will we communicate? Reports, meetings, calls?
  • How accessible are you in an urgent situation?
  • Who is the backup if my key contact is not available?
  • If for some reason one of us decides to end the relationship, is there a charge? How will my investments be handled?

Special thanks to Richard Best, personal finance expert at Don’t Pay Full for help with this section.

How to Find a Financial Advisor How to Find a Financial Advisor

There are many resources that will help you find a personal financial advisor near you. Check out the site for The National Association of Personal Financial Advisors (NAPFA), where you can enter your zip code and get more information on the process.

If you want a CFP specifically, check out CFP Board’s site, where you can also find more information specific to CFPs as well as guides on how to become one. How could you not want to be one, after reading this guide? You can also request verification of specific CFPs’ credentials through this site, too.

The Garett Planning Network has lists of financial advisors who are fee-only and cater to those with an average income, so you don’t have to worry about being rejected if you’re not flush with cash. Also check out Fee-Only Network, and of course NAPFA and CFP Board.

Find Your Financial Advisor Match in a Few Simple Steps >>

Ask around: You may have family members or friends who have used a specific advisor before who can vouch for them. Nonetheless, always check out the reviews and recommendations before choosing an advisor.

Finally, consider a robo-advisor.

What’s the Difference Between a Financial Advisor and a Robo-Advisor? What’s the Difference Between a Financial Advisor and a Robo-Advisor?

I’m glad you asked. The most obvious and immediate difference is that one is human and the other is not. (I’ll let you decide which one … just kidding!) We have discussed the roles of a personal financial advisor, so what, if anything, can the “robo” do better than the person?

A robo-advisor is a service, often an app, that makes use of algorithms and AI to manage your investment portfolio or savings. Once you enter details such as your age, risk tolerance, etc., and set parameters such as how much you’re willing to invest, the robo-advisor does the rest without much further input from you. Some robo-advisors do offer access to human assistance, but on a much smaller scale.

Robo-advisors have come onto the scene in recent-enough years, but their impact is expected to be limited, as consumers are projected to continually turn to human advisors for more complex and specific advice over the next 10 years, according to the Bureau of Labor Statistics.

The Pros of a Robo-Advisor The Pros of a Robo-Advisor

  • The low fees. As we have seen, the typical fees for financial advisors can be hefty. With robo-advisors, the fees range from nothing upfront to $1 a month (with Stash), to a zero-commission fee plus interest on uninvested fees over a certain amount (with Public). In short, a robo-advisor is almost always cheaper than its human counterpart. Simply put, they don’t have the brick-and-mortar expense to carry over to their clients.
  • Expanding market. Young investors or those with low to average net worth may not have felt comfortable — or have been able to — take advantage of financial advisors in the past. Now, with robo-advisors on the rise, more and more people are getting involved in personal financial endeavors.
  • No minimum balance. Similar to the point above, many robo-advisors do not require a high minimum balance for you to get started. In fact, many companies allow you to begin with as little as $5. Makes a nice change from traditional advisors who would have you start in the tens of thousands.
  • Time constraints. If you don’t have a lot of time to learn, but want to try your hand at investing, robo-advisors are a good match for you. You can get started quickly and easily.
  • Humans sometimes. Some offer access to human advisors for one-off questions or when getting started. This could be great if you need a nudge but not a heavy hand.

The Cons of a Robo-Advisor The Cons of a Robo-Advisor

  • Not completely personalized. While robo-advisors allow you to state and edit your goals, they can never fully take into account occasional financial setbacks, struggles, or changes in your day-to-day life that may impact your goals. You can’t just have a quick chat and assuage any fears you may have.
  • Flexibility. They aren’t. Most robo-advisors are limited in what they can offer you, and if you want to get more in-depth in the investing or retirement world, there are many restrictions.
  • Cost-effective in general. For beginner investors or savers, robo-advisors will save you money, but the higher up the ladder you go, the more they can cost. Not all human advisors are more expensive — there may be times you can find one for a similar fee.
  • They’re not human. Bottom line: The human element of advisory services can’t be overlooked. Having a human touch could mean all the difference in your comfort level.

Is a Financial Advisor Worth It? The Bottom Line Is a Financial Advisor Worth It? The Bottom Line

In short, you need to take stock of your finances and make an informed decision based on your personal situation. Whether you choose a human financial advisor or a robo-advisor, there is an element of risk — and reward — involved. You will have to spend some money, and put your trust in a person or an algorithm.

There are many free resources online that will help you prepare for tackling your finances, even if you do decide to hire an advisor. You should try to be informed before you commit to an advisor — this will help you make the right decision. CentSai has a plethora of articles that will give you a good start.

As with any service, when choosing a financial advisor, make sure to do your research, and ask as many questions of yourself and of them as you can to make sure you’re doing yourself justice.

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Glossary of Financial Advisor Terms Glossary of Financial Advisor Terms

  • Certified Financial Planner (CFP): To apply to be a CFP, you must have at least a bachelor’s degree. After this, there are rigorous examinations and 4,000 to 6,000 hours of experience required before you become qualified. You must adhere to a strict code of ethics, too. It is one of the most comprehensive and thorough processes.
    Follows Fiduciary Standard: Yes
  • Certified Public Accountant (CPA): While requirements differ from state to state, normally you need to have accrued 150 semester hours, at least a year of work experience, and a bachelor’s degree, not to mention you need to pass the AICPA exam, to become a practicing CPA. Some states require that degree to be in finance or accounting.
    Follows Fiduciary Standard: Yes
  • Personal Financial Specialist (PFS): This is a specialty credential for CPAs who are expert at all aspects of wealth management. You must be a CPA with at least 3,000 hours or two years of full-time teaching experience, and a minimum of 75 hours of personal financial planning education. Every three years, you must complete 60 hours of professional education.
    Follows Fiduciary Standard: Yes
  • Chartered Financial Consultant (ChFC): This designation is granted by the American College after you’ve completed seven required courses and two elective courses and have spent a minimum of three years working in the financial industry. Successful ChFCs are understood to be knowledgeable in financial matters and to have the ability to provide sound advice.
    Follows Fiduciary Standard: Yes
  • Chartered Financial Analyst (CFA): This designation can be given only by the CFA institute and measures the competence and integrity of a financial analyst. There are three levels of exams, with a minimum of 300 hours of study for each exam. It is historically the most difficult set of financial exams to pass. On top of this, you must have a bachelor’s degree, at least four years of professional work experience, or a combination of work experience and education totaling four years. You must also adhere to the CFA code of ethics, and pay annual dues as a member of the CFA Institute.
    Follows Fiduciary Standard: Not always
  • Certified Fund Specialist (CFS): This designation can be awarded only by the Institute of Business and Finance. It is mainly for expertise in mutual funds, and you must have a bachelor’s degree and 2,000 hours of professional work experience to sit for the exam. To continue to hold the certificate, you must complete 30 hours of education every two years. You must be a working professional member of the financial industry to qualify.
    Follows Fiduciary Standard: Not always
  • Registered Investment Advisor (RIA): While an RIA must adhere to the fiduciary standard, the requirements or the certification are not as rigorous as that of a CFP, for example. An RIA is required to register with the SEC or their state equivalent. Being an RIA is not a recommendation or endorsement by the SEC or state securities regulators. It shows only the investment advisor has fulfilled all the requirements for registration.
    Follows Fiduciary Standard: Yes
  • Certified Investment Management Analyst (CIMA): A CIMA must have three years of financial services experience, a satisfactory record of ethical conduct, as determined by Investments & Wealth Institute Admissions Committee. There is also an educational component from one of the approved Registered Education Providers, and an in-class program at The Wharton School, University of Pennsylvania, or online through Yale School of Management.
    Follows Fiduciary Standard: Not Always
  • Chartered Market Technician (CMT®): This designation can be awarded only by the CMT Association, a global credentialing body with nearly 50 years of service to the financial industry. It is seen as the highest award in that field, and comes accompanied by rigorous examination that is self-studied.
    Follows Fiduciary Standard: Not Always
  • Certified Money Coach (CMC) or Certified Personal Finance Consultant (CPFC): Anyone with an Instagram account who wants to help you with your finances can call themselves a money coach with no qualification or certification. If they are certified, however, they will have passed a minimum of 320 hours of training. Always look for the qualification, and ask if you’re unsure.
    Follows Fiduciary Standard: Not Always