As you accumulate wealth throughout your life, knowing how to manage it wisely gets tougher and tougher. Unless you work in the financial industry or take up investing as a major hobby, managing an investment portfolio will likely be overwhelming. You need someone who can take the stress of financial planning off your plate and help you establish a path that will take you to your long-term goals.
That’s exactly why you need a financial advisor. You may have heard about these professionals from family or friends, but it’s important to know exactly what an advisor is and how they can help. This article tackles exactly that. We’ll talk about what a financial advisor does, their qualifications and specializations, some of their key services, and how to know when it’s time to hire one.
What is a Financial Advisor?
A financial advisor is a professional who can help you plan and reach your investment and savings goals, both short and long-term. They will assist you when choosing investments and can create financial strategies to build your wealth. In short, financial advisors are there to help you get where you want to go.
Every financial advisor approaches their role differently, which means any office could offer a variety of services. A few common services your advisor might provide include:
- Portfolio management
- Retirement planning
- Tax planning
- Estate planning
- Investment management
Each of these services includes setting up and managing a strategic financial plan. Your advisor might rebalance your accounts from time to time, let you know when it’s time to make significant changes, or recommend courses of action that have certain tax benefits for you.
Many professionals gain on-the-job experience post graduation and learn about the finance industry firsthand. Plenty of great advisors choose the field not because they have an educational background in accounting or investing but because they truly care about helping others establish a sturdy foundation for their financial future.
Some financial advisors will pursue extra certifications to showcase their qualifications. Many advisors will pursue the Series 65 license, which is required to be a fee-based advisor. To pass this, candidates must also pass the series 6 or 7 test, depending on what services they plan to offer. There are also designations such a Retirement Income Certified Professional® (RICP®), issued by The American College of Financial Services, and Accredited Investment Fiduciary® (AIF®), which is an accredited designation recognized by The Financial Industry Regulatory Authority (FINRA).
Advisors can specialize in different areas of finance if they choose. They might do this through extra certifications and licensures or simply with years of experience in a certain area. A few specializations include:
- Retirement planning
- Investment strategy
- Financial planning
Advisors can also specialize in specific types of products or investments. This could be helpful if the majority of their clients benefit from a handful of products. By specializing in that area, the advisor can often secure the best opportunities for their clients.
At West Michigan Advisors, our team focuses on general financial needs, which gives us access to a greater range of services. With our team, you only need one financial advisor to handle all of your investment and planning needs. Our comprehensive services allow us to gain a complete picture of your financial situation, which means we can provide advice with every area in mind. Plus, we have a network of specialists at our disposal who we can pull into projects as needed to ensure our clients always receive the best possible advice.
How Do Financial Advisors Get Paid?
There are two popular ways for financial advisors to get paid: fees or commissions.
Fee-only advisors are paid based on the assets under management (AUM). This includes all of the money in every account they manage for you. They charge a fee, usually about 1% of your total assets, and that amount is what they get paid for being your advisor. Typically, the fee is charged quarterly and taken straight from your accounts so you don’t have to worry about writing a check. Most advisors use this payment structure.
West Michigan Advisors is a fee-based agency. We are paid mainly through client fees, but also receive some compensation from commission payments on certain products.
Commission-based advisors make their money by selling products, similar to insurance agents. For each product they enroll you in, they get a percentage of the premiums paid. This payment structure is often used by advisors who specialize in certain products or services. They might have special access to products at a single company or access to products from multiple companies. Those companies will pay their commissions, so again you don’t have to worry about waiting for a bill from your financial advisor.
The trouble with solely commissioned financial advisors is that it can potentially create a conflict of interest. Their only requirement is to ensure the products they sell are suitable to you (meaning you meet the requirements to purchase) and don’t always look at the bigger picture.
Why Do I Need an Advisor?
There are lots of reasons to find a financial advisor to help you manage your portfolio. A few examples of what an advisor can do for you include:
- Preparing your wealth to pass on to the next generation in your family through strategic investments.
- Investing your retirement savings and establishing retirement accounts.
- Maximizing returns on your current investments.
- Planning your estate.
- Creating a plan for and protecting against major life events.
In short, your financial advisor helps to protect your investments now so they’re there for you in the future. They can help you plan retirement, ensure your portfolio is balanced, and offer general professional advice as you need it. They’re your partner in all things finance.
How the Relationship Works
When you work with a financial advisor, you have a collaborative relationship. In your first meeting, you’ll work together to assess your current situation and goals, then make a plan to help you achieve your desired future. From there, your advisor will handle most of the heavy lifting. You can give them as much or as little discretion as you’re comfortable with. For example, you might allow them to make all decisions on their own or require them to approve certain changes with you first.
As far as meeting frequency, you get to decide how often you see your financial advisor. Typically, you’ll schedule an annual review with them each year, which can be in person or over the phone or video conference. Other than that, you’ll only meet as needed. Many advisors can make changes and offer advice over the phone, as well, so you might not even have to go into their office to get the help you need.
How Do I Choose an Advisor?
Choosing an advisor isn’t just about finding someone with a wall of certifications. You also need a person with the right personality for the job. You want to make sure you get along well with your advisor and feel comfortable communicating with them.
Other than that, there are four main qualities you should look for in a financial advisor:
- Good listener. A financial advisor’s purpose is to help you reach your goals. They should be a patient listener who hears your concerns and offers insightful advice and strategies that address your key pain points.
- Trustworthy. Your advisor needs to be someone you trust. It can be hard to hand over your finances to a stranger, so you need to feel confident that they know what they’re doing and they have your best interest at heart.
- Teacher mentality. Great advisors set themselves apart by teaching their clients about the strategies they use and why they work. Your financial advisor should always be willing to teach you about your investments and explain exactly why they chose a particular path for your portfolio. This promotes accountability and transparency and builds trust.
- Experience. Years of experience is a good measurement, but a better one is experience with clients similar to you. You want to find someone who knows proven methods of managing finances for someone in your situation. For example, if you’re a single mother who teaches full-time, your investment and retirement needs will be different than a company CEO with no dependents. Finding an advisor who frequently manages clients with similar circumstances and net worths is important.
Everyone has a different preference when it comes to meeting an advisor for the first time. Some people want to shake hands and meet in person, others are more comfortable on a video call, and still others might prefer a simple phone conversation. All are equally effective ways to get to know a potential advisor and decide if they’re the right fit for you. The most important thing is that you trust your advisor to act in your best interest.
Find Your Financial Fit
As you start searching for financial advisors, consider West Michigan Advisors. We have a qualified team of financial professionals who can help you with a range of problems and create a strategic plan for your future. Schedule a call with us today to see if we might be your perfect financial fit.