Four in five Americans feel anxious about their financial situation, with 34% reporting they feel moderate or severe anxiety—yet most have never worked with a financial advisor.
If you want to gain peace of mind about your financial future, investing in professional help could be the answer. This article breaks down what financial advisors do, when you might need one, how much they cost, how to choose the right one, and alternatives if you prefer to go it alone.
Key Takeaways
- A financial advisor offers personalized guidance on investments, retirement planning, estate management, and more to help you reach your financial goals.
- You don’t need to be wealthy to benefit. Major life events, big financial decisions, or time constraints can all justify hiring an advisor.
- Choosing the right advisor requires checking credentials, understanding their fee structure, and confirming their commitment to acting in your best interest.
What Does a Financial Advisor Do?
A financial advisor helps clients manage their money and achieve their financial goals through personalized guidance. Their services often include:
While financial advisors may specialize in different areas, they all tailor their guidance to your unique financial situation and goals.
When Do You Need a Financial Advisor?
Many assume you only need a financial advisor if you’re wealthy, but there are many scenarios when consulting one could be a smart idea:
- Major life event: Marriage, divorce, a new baby or death in the family can have significant financial implications. A financial advisor can help with insurance, estate planning, and filing taxes correctly.
- Big financial decision: Major financial decisions like buying a house or switching careers can be daunting. Instead of relying on your gut or getting overwhelmed, get an unbiased opinion from a financial advisor who can lay out the trade-offs for you.
- High income or net worth: The larger your income or net worth, the more complex your finances become and the more you have to lose. A financial advisor can help you avoid costly mistakes and secure long-term wealth.
- Approaching retirement: Moving from a salary to a fixed retirement income requires delicate planning. A financial advisor can help ensure you properly time and allocate your investments to preserve your nest egg.
- Lack of motivation or time: Even if you’re financially savvy, staying on track can be tough. An advisor can help you stick to a plan without the stress of managing everything yourself.
Types of Financial Advisors
There are different types of financial advisors, categorized mainly by how they’re paid:
- Fee-only advisors are paid directly by the client. They may charge a flat fee per service, an hourly rate, or a small percentage of the assets under management (AUM).
- Commission-based advisors earn a commission on the financial products they sell. As a result, their financial advice may be biased, but it costs less upfront.
- Fee-based advisors are a hybrid of fee-only and commission-based advisors. They charge the client directly but also earn commissions from selling financial products.
Another distinction to keep in mind is fiduciary vs. non-fiduciary advisors:
- Fiduciary advisors have a legal and ethical obligation to act in the best interest of their clients and disclose any conflicts of interest. Most fee-only advisors are fiduciaries.
- Non-fiduciary advisors, such as brokers, are held to a lower standard. They must only ensure that their recommendations are “suitable” for their clients.
How to Choose the Right Financial Advisor
When comparing financial advisors, it’s important to check their credentials. The term “financial advisor” can apply to a wide range of professionals: Certified Financial Planners (CFPs), Chartered Financial Analysts (CFAs), Registered Investment Advisors (RIAs), and others. Many of these designations require rigorous training and taking on a fiduciary duty to clients.
Once you’ve established a financial advisor’s credibility and fiduciary commitment, ask them about their fee structure and make sure it aligns with your budget and needs. For example, a flat or hourly rate may be preferable if you only need advice on a single question. Alternatively, a retainer or percentage AUM fee may be better if you’re seeking ongoing financial guidance.
In addition, ask about their experience and expertise. Have they advised clients in similar situations to yours before? Do they specialize in the areas of finance where you need help?
Finally, check online reviews or ask for references.
Tip
If the financial advisor’s current and past clients are happy with the service they received, you can be more confident that you will be, too.
How Much Do Financial Advisors Cost?
The cost of a financial advisor can vary widely, but here are some average price ranges:
| Fee Structure | Typical Rate |
| Percentage of AUM | 0.5% to 2% annually |
| Hourly | $120 to $300 per hour |
| Flat Fee | $1,000 to $3,000 per project |
| Annual Retainer Fee | $6,000 to $10,000 |
| Commission | 3% to 6% (on products sold) |
Alternatives to Hiring a Financial Advisor
Not ready to commit to a financial advisor? Then consider some DIY alternatives.
- Robo-advisors: Provide automated, algorithm-driven financial advice with minimal human supervision. As a result, they tend to be relatively inexpensive, with annual fees of less than 0.4% per account managed.
- Free or low-cost community resources: Nonprofits and government agencies often offer free educational workshops, financial literacy courses, or one-on-one advice.
What Qualifications Should a Financial Advisor Have?
Look for credentials like Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or Registered Investment Advisor (RIA), which signal formal training and a fiduciary duty to act in your best interest.
How Do Financial Advisors Charge for Their Services?
Financial advisors may charge a percentage of assets under management (AUM), hourly fees, or flat fees per service. Alternatively, they may charge you nothing but earn commissions from selling financial products.
What Are the Risks of Not Hiring a Financial Advisor?
Without professional guidance, you may miss significant financial opportunities, make costly mistakes, or delay important decisions that could hurt your long-term financial health.
Can I Manage My Finances Without a Financial Advisor?
Yes, if you have the time, knowledge, and discipline, you can manage your own finances. However, it takes ongoing learning and effort.
How Often Should I Meet With My Financial Advisor?
It depends on your needs, but most people benefit from at least an annual review. You may want to meet more frequently during major life or financial changes.
The Bottom Line
A financial advisor can help you navigate complex money matters based on your unique goals, and you don’t need to be wealthy to benefit. Life events, major decisions, or lack of time may all be good reasons to seek help. Look for an advisor with strong credentials, a clear fee structure, and a fiduciary commitment.
Alternatively, consider low-cost options like robo-advisors or trusted educational resources. Whatever you do, take the time to assess your financial needs and then choose the best path for you and your loved ones’ future.
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