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What services do financial advisors offer?
Financial advisors offer a variety of services, ranging from planning and advice to portfolio management. Not all advisors offer investment management, however.
“Many financial planning professionals focus on helping you create structure and strategy as you go through your financial life,” says Chelsea Ransom-Cooper, CFP, cofounder of Zenith Wealth Partners. “Some financial advisors will manage your portfolio, but many focus on providing practical planning and advice and leave the implementation up to you.”
Depending on the financial advisor, you might also be able to get expert insight in the following areas:
- Debt reduction
- Insurance and risk management
- Investing
- Education planning
- Estate planning
- Retirement
- Saving
- Taxes
“Financial advisors offer a holistic view of how your money fits into your life and work with you to create a roadmap that provides a clear path forward to meet your money and life goals,” Ransom-Cooper says.
In some cases, a financial advisor might specialize in a specific area, such as retirement or budgeting.
What are the costs associated with hiring a financial advisor?
In general, you pay an advisory fee when you work with a financial advisor, unless they are paid based on commission. A fee-only advisor earns money only from what clients pay them. A fee-based advisor charges fees to the client, but might also earn a commission from financial products they sell, such as insurance.
When comparing the costs of a financial advisor, consider which fee structure makes sense for your situation:
- Assets under management: Under this model, your financial advisor charges you based on the assets they manage on your behalf. If the financial advisor doesn’t manage investments, they likely won’t use this fee structure.
- Subscription: Some financial planners and advisors charge a monthly or quarterly subscription fee for advice and services. This model is similar to a retainer, but with a subscription or membership, you might get access to self-management tools in addition to a certain number of check-ins and planning sessions.
- Retainer: An annual fee paid based on the services you receive. A retainer might be paid monthly, quarterly or annually. Often, you work with your advisor to predetermine the services you receive and the number of appointments you have throughout the year.
- Hourly: Some financial advisors charge an hourly rate. You pay based on the number of consultation hours. Additionally, if the advisor performs tasks related to your financial plan, they might charge for those hours as well.
- Fixed: This is a flat fee charged for specific services. For example, a financial advisor might charge a flat rate to create a retirement strategy, or they might have a set fee for a 45-minute check-in.
Industry analysis firm Envestnet points out that AUM is the most common fee structure, and the average is 1.05%. The next most common structure is a flat fee, with an average cost of $2,554. Other fee structures are much less common, but it’s common to pay an average of $268 an hour or expect to pay a monthly subscription fee of $215.
Some advisors charge a combination of fees. For example, an advisor might charge you an AUM fee for portfolio management, but then list a flat rate for creating a comprehensive education plan.
Pay attention to tiered fees as well. In many cases, as your account balance grows, you pay a lower percentage of AUM. Perhaps you pay 0.65% on the first million under management, and then pay a lower rate of 0.45% on assets above that amount. Financial advisors can have multiple tiers, so make sure you understand when you reach a new threshold.
Finally, find out if your financial advisor firm has a minimum fee requirement. The AUM percentage might seem reasonable, but if you have a relatively small balance with the firm, and there’s a flat quarterly minimum, your actual percentage might be higher. For example, if a firm charges an annual fee of 1% AUM, with a quarterly minimum of $1,500, you’re not paying $1,000 a year for a balance of $100,000—you’re paying $6,000 a year.
“Most advisors offer a free discovery meeting,” says Zina Kumok, a financial advisor at C.H. Douglas & Gray Wealth Management. “Find out how they charge and how they work, and make sure you understand what they offer for the price you’re paying.”
How to choose the right financial advisor for your needs
One of the frustrations that would-be clients often encounter is the fact that there are so many terms and titles used by financial professionals.
“All these terms—financial advisor, retirement advisor, wealth manager, coach—can be a mess for the consumer to understand,” says Roger Whitney, CFP, founder of Agile Retirement Management. “Figure out what you want from the advisor in the first place. Start with what you need help with and what you want to accomplish.”
Whitney suggests that a good place to start when choosing a financial advisor is finding someone with a certified financial planner (CFP) designation who has the education and experience to provide insight into various aspects of financial planning at different life stages.
The CFP designation is rigorous and requires education in a broad swath of financial planning topics, and candidates must pass an exam. Additionally, there are experience hours and continuing education requirements to maintain the CFP. Other designations also include education and experience, but the CFP offers a solid foundation and shows a basic understanding of financial planning and advising, Whitney points out.
Other credentials also might help you hone in on an advisor who has increased education and experience in a specific area of need:
- Chartered financial analyst (CFA): Advisors must fulfill specific work experience requirements, complete courses and pass three exams set forth by the CFA Institute. This designation includes extra education on investment analysis and portfolio management.
- Accredited financial counselor (AFC): Requires experience hours and an education course, as well as passing an exam. Often, these professionals help clients with financial basics such as debt reduction, saving and understanding the connection between money and emotions. To remain credentialed, an advisor must meet ongoing education requirements set forth by the Association for Financial Counseling and Planning Education.
- Chartered financial consultant (ChFC): Generalized and specialized courses are required to receive this designation, as well as ongoing education and adherence to the ethics standards set forth by the American College of Financial Services.
- Registered investment adviser (RIA): Registered investment advisers are those who meet specific requirements set by the state or the Securities and Exchange Commission (SEC). This is the only registration that comes with regulatory stipulations, and it can apply to individuals as well as firms.
- Certified private wealth advisor (CPWA): Advisors who meet the education and experience requirements put forth by the Investments and Wealth Institute and adhere to ongoing requirements receive this designation, which indicates advanced knowledge of wealth management for high-net-worth individuals.
- Retirement income certified professional (RICP): This credential focuses on retirement income planning. It requires courses and ongoing certification through the American College of Financial Services.
If you want help with investments, even if your advisor doesn’t manage your portfolio, Kumok suggests looking for an RIA or someone who works for an RIA firm.
“You know they’re a fiduciary in that case, and you know it’s a regulated designation,” Kumok says.
Look for a fiduciary financial advisor
Many experts emphasize the importance of finding someone who will act as a fiduciary financial advisor. This ensures that they will put your best interests first, regardless of whether it’s best for their own bottom line or their firm’s.
Ransom-Cooper recommends reviewing the credentials of an advisor to determine whether they’re meeting the requirements to be a fiduciary. Complaints against RIAs registered with the SEC are publicly available, and Finra BrokerCheck includes regulatory actions against advisors.
“The CFP Board enforces ethical and fiduciary standards for planners with that designation,” Ransom-Cooper says. “The Board can remove credentials and publicly sanction advisors that don’t meet the requirements.”
What criteria define a top financial advisor?
The best financial advisor is one who meets your specific needs and budget. Since each person has different financial goals, the criteria that define a top financial advisor are different for everyone. However, a few features help financial advisors stand out among the rest, no matter the client. Top financial advisors are often fiduciaries, meaning they are held to higher standards and have a legal obligation to act in their client’s best interest. Top advisors also carry credentials that are applicable to your needs, provide excellent customer service and offer a range of products and services.
What minimum assets should I have before hiring a top‑tier advisor?
Many advisors require a minimum amount of assets to work with them, and that number varies. For example, while Facet requires a minimum of $500 to work with an advisor and start investing, Betterment requires a minimum of $100,000 to meet with a financial advisor. The type of advisor and plan you choose might also influence the minimum assets you should have. Betterment requires $10 in assets for its robo-advising service, but doesn’t provide access to a financial advisor. You might also incur a monthly charge if your assets are below a certain amount.
Top-tier advisors tend to be more exclusive, provide additional services and often handle complex finances. They might take a more holistic approach to your finances overall, not just investments. They might also specialize in specific areas like estate planning and taxes or connect you with other experts who can help. Because of this, you’ll likely see higher minimum asset requirements that can range from hundreds of thousands of dollars to more than a million.
How often should I review my advisor’s performance and fit?
Financial needs and goals can change, so it’s important to review your advisor’s performance at least once per year to make sure their services still meet your needs. However, there are certain situations in which it might be wise to do semi-annual or quarterly reviews instead:
- You’re a high-net-worth individual, meaning you have more than $1 million in assets.
- You have multiple income streams, or your financial situation is more complex than the average client.
- You’re going through a significant life change, like getting married, having a child or making a large purchase.
- You’re nearing retirement.
If you decide to change your financial advisor, be sure to review your contract and save your records to ensure a smooth transition.
When should I switch financial advisors?
There are several instances when it might be a good time to switch financial advisors, though making that transition is a personal decision based on what services or guidance you expect from your advisor and how quickly you want to reach your financial goals. It might be time to make a change if your advisor:
- Will not modify your plan to correct underperformance or better align with life changes, like having kids or retiring earlier than expected.
- Does not offer additional wealth management services that you need, such as estate planning and tax optimization.
- Ignores your calls, misses meetings or fails to follow up on questions and concerns you might have.
- Pushes products, disregards your concerns or pushes you to make riskier investments than you’re comfortable taking on.
Is it worth it to hire a financial advisor?
Hiring a financial advisor can be worth it, especially if you are facing a major life event or have a high net worth, multiple streams of income and other complex needs, like tax strategy, investing and estate planning. A financial advisor can also help with everyday needs, such as building a retirement plan, creating a budget and helping you plan for future expenses, like buying a home or paying for your child’s college. If you’re not yet ready to make the financial commitment or just want a hands-off approach to investing, you can dip your toes into financial advising with a robo advisor. This automated investment platform uses algorithms to construct and rebalance an investment portfolio based on your goals and risk tolerance and typically costs less than a human advisor.
What is a red flag for a financial advisor?
One of the biggest red flags to watch out for is any distrust you feel toward your advisor, which can come from a myriad of reasons. For example, your financial advisor could be pushing products on you, avoiding you, adding on fees without explanation or ignoring your needs and risk tolerance. If your financial advisor is a fiduciary, they are legally required to act in your best interest. If they are not doing so, you can file a complaint with the Financial Industry Regulatory Authority (Finra) or the Securities and Exchange Commission (SEC).
Methodology
We analyzed some of the largest and most well-known independent RIA firms. We picked independent RIAs because they are required to act as true fiduciaries—meaning they must act in the client’s best interest—which is often a good starting point for those looking for a financial advisor.
Buy Side evaluated advisory firms’ fees, credentials, customer support, available services, portfolio construction and account minimum. These factors were weighted based on WSJ reader surveys regarding what they considered most important.
FAQ
What is the difference between a fiduciary and a non-fiduciary advisor?
A fiduciary is required to act in your best interest. A non-fiduciary advisor might not need to provide you with the advice that’s best for you as long as they meet a lesser standard.
How often should I meet with my financial advisor?
How often you meet with a financial advisor depends on your goals and comfort level. It’s usually a good idea to meet at least once or twice a year to make adjustments to your plan as needed.
Can financial advisors help with tax planning?
Yes, some financial advisors can help with tax planning. Look for an advisor with experience in tax matters or who works as part of a firm with tax planning experts.
Are online financial advisory services reliable?
Yes, online financial advisory services can be reliable. The best financial advisors have credentials and are registered with several states. You can review their records using BrokerCheck.
What questions should I ask when interviewing a financial advisor?
When interviewing a financial advisor, ask how they are compensated and whether they are a fiduciary. Find out what fee structure they use, how often they plan to meet with you and how they approach planning. Make sure you choose an advisor who asks questions about your goals and is prepared to provide a tailored approach to your finances.