Table of Contents
- What Is a Financial Advisor?
- Key Takeaways
- Understanding Financial Advisors
- The Fiduciary Distinction
- Financial Advisors vs. Financial Planners
- How Do You Become a Financial Advisor?
- What Do Financial Advisors Do?
- How Much Does a Financial Advisor Cost?
- How Much Does a Financial Advisor Make?
- The Bottom Line
What Is a Financial Advisor?
Let me explain what a financial advisor is: I'm talking about a professional who gives you financial advice or guidance for a fee. You might see it spelled as 'adviser' sometimes, but either way, these folks can handle a range of services like managing your investments, planning your taxes, or sorting out your estate. More and more, they're becoming your go-to for everything from portfolio management to insurance products.
If you're dealing with a registered advisor, they need to have the Series 65 license to work with the public. Depending on what they do, they might need other licenses and certifications too.
Key Takeaways
Here's what you need to know: A financial advisor is a pro who helps with your decisions on money, personal finances, and investments. They could be independent or work for a big firm. To do business, registered advisors have to pass exams and get licensed properly. They're not like stockbrokers who just execute trades; advisors give guidance and make decisions for you. Their pay might come from fees, commissions, a percentage of profits, or a mix.
Understanding Financial Advisors
'Financial advisor' is a broad term without a strict definition in the industry. It can cover stockbrokers, insurance agents, tax preparers, investment managers, financial planners, even estate planners and bankers. But the key point is that a real financial advisor must provide actual guidance and advice.
You can tell them apart from someone like an execution stockbroker who just places trades, or a tax accountant who only prepares returns without advising on tax strategies. Also, watch out because some who call themselves advisors are really just salespeople pushing stocks or life insurance.
A true advisor should be well-educated, credentialed, and experienced, working for your benefit, not to boost sales for some institution or earn commissions. There were 330,300 professional financial advisors in the U.S. in 2021, according to the Bureau of Labor Statistics.
Generally, these advisors are independent and act as fiduciaries, putting your interests first. Only Registered Investment Advisors (RIAs) under the 1940 Investment Advisers Act are held to a strict fiduciary standard, always prioritizing you. Some agents and brokers choose to act this way to attract clients, but their company contracts might limit them.
Your advisor should work for you, not their employer. If they're not responsive, accurate, or seem to ignore your best interests, find a new one.
The Fiduciary Distinction
Since the 1940 Investment Adviser Act, there are two main relationships between financial pros and clients: the reasonableness standard and the stricter fiduciary standard. This applies in the broker-dealer world. Registered Investment Advisors with the SEC must follow fiduciary duties of loyalty, care, and full disclosure.
The reasonableness standard is like 'buyer beware,' based on suitability and reasonableness for recommendations. But fiduciary is federal law demanding the highest ethics: the advisor must act as you would if you had their knowledge and skills.
Financial Advisors vs. Financial Planners
A financial planner is a specific type of financial advisor focused on helping you or your company create programs for long-term financial goals. They might specialize in investments, taxes, retirement, or estate planning, and could hold designations like Certified Financial Planner (CFP). Their expertise can cover tax planning, asset allocation, risk management, retirement, and estate planning.
How Do You Become a Financial Advisor?
If you want to become a financial advisor, start with a bachelor's degree—finance or economics helps but isn't required. Then, get hired by a financial institution, often through an internship. It's best to work somewhere that sponsors your licenses, like Series 7, 63, 65, or 6. You could get them on your own, but it's easier with company support. An internship or entry-level job will teach you the ropes. Once licensed, you can practice as an advisor.
What Do Financial Advisors Do?
Financial advisors handle all parts of your financial life, from retirement and estate planning to savings and investing. They're not just suggesting investments or selling products; they assess your situation, understand your goals, and build a custom plan. They can cut your taxes and boost returns on your assets.
How Much Does a Financial Advisor Cost?
The cost depends on the services. Typically, they charge about 1% on assets under management, but it can slide lower with more business. Fees vary: $2,000 to $7,500 annually flat, $1,000 to $3,000 for a custom plan, or 3% to 6% commissions on accounts.
How Much Does a Financial Advisor Make?
Earnings vary by experience, location, clients, products, and advice type. The Bureau of Labor Statistics says median pay in 2021 was $94,170 per year, or $45.27 per hour.
The Bottom Line
Financial advisors help you reach financial independence and security. They're key for your annual reviews to check if you're on track. They can be independent or with a firm, often getting designations to prove expertise. Pay depends on factors, but starting salaries are above average.
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