What is a Financial Advisor?

A financial advisor is often responsible for more than just executing trades in the market on behalf of their clients. Advisors use their knowledge and expertise to construct personalized financial plans that aim to achieve the financial goals of their clients. These plans include not only investments but also savings, budget, insurance and tax strategies. Advisors further check in with their clients on a regular basis to re-evaluate their current situation and future goals and plan accordingly.

Signs you may need an Advisor

Anyone can work with a financial advisor at any age and any stage of life. You don’t have to have a high net worth; you just have to find an advisor suited to your situation. The decision to enlist professional help with your money is a highly personal one, but any time you’re feeling overwhelmed, confused, stressed out or scared by your financial situation may be a good time to look for a financial advisor. It’s also fine to approach one when you’re coming from a position of strength but want someone to ensure that you’re on the right track and suggest possible improvements to your plan that might help you achieve your goals more effectively. Finally, if you don’t have the time or interest to manage your finances, that’s another good reason to hire a financial advisor. Those are some general reasons you might need an advisor’s professional help. Here are some more specific ones.

None of Your Savings Is Invested or You Don’t Know How to Invest

Because we live in a world of inflation, any money you keep in cash or in a low-interest account declines in value each year. Investing is the only way to make your money grow, and unless you have an exceptionally high income, investing is the only way most people will ever have enough money to retire.

You Have Investments, but You’re Consistently Losing Money

Even the best investors lose money when the market is down or when they make a decision that doesn’t turn out as they’d hoped, but overall, investing should increase your net worth considerably. If it’s not doing that, hiring a financial advisor can help you find out what you’re doing wrong and correct your course before it’s too late.

You Don’t Have a Current Estate Plan

A financial advisor can also help you put together an estate plan to make sure your assets are handled according to your wishes after you die. And if you aren’t properly insured (or aren’t sure what insurance you need), a financial advisor can help with that, too.

A Financial Advisor’s many roles

A financial advisor is your planning partner. Let's say you want to retire in 20 years or send your child to a private university in 10 years. To accomplish your goals, you may need a skilled professional with the right licenses to help make these plans a reality, and that’s where a financial advisor comes in. Together, you and your advisor will cover many topics, including the amount of money you should save, the types of accounts you need, the kinds of insurance you should have (including long-term care, term life, and disability) and state and tax planning.

The financial advisor is also an educator. Part of the advisor's task is to help you understand what is involved in meeting your future goals. The education process may include detailed help with financial topics. At the beginning of your relationship, those topics could be budgeting and saving. As you advance in your knowledge, the advisor will assist you in understanding complex investment, insurance, and tax matters.

Step one in the financial advisory process is understanding your financial health. You can’t properly plan for the future without knowing where you stand today. Typically, you will be asked to complete a detailed written questionnaire. Your answers help the advisor understand your situation and make certain you don't overlook any important information.

Creating the financial plan

The financial advisor synthesizes all of this initial information into a comprehensive financial plan that will serve as a roadmap for your financial future. It begins with a summary of the key findings from your initial questionnaire and summarizes your current financial situation, including net worth, assets, liabilities, and liquid or working capital. The financial plan also recaps the goals you and the advisor discussed.

The analysis section of this lengthy document drills down into several topics, including your risk tolerance, estate-planning details, family situation, long-term care risk, and other pertinent present and future financial issues.

Based upon your expected net worth and future income at retirement, the plan will create simulations of potentially best- and worst-case retirement scenarios, including the scary possibility of outliving your money, so steps can be taken to prevent that outcome. It will look at reasonable withdrawal rates in retirement from your portfolio assets. Additionally, if you are married or in a long-term partnership, the plan will consider survivorship issues and financial scenarios for the surviving partner.

After you review the plan with the advisor and adjust it as necessary, you’re ready for action.

Helping you reach your goals

Financial advisors can assist you with investing and reaching your long-term goals in so many ways. Here are five:

1. Expertise. Financial advisors know more about investing and managing money than most people. They can guide you to better choices than you might make on your own.

2. Accountability. Financial advisors help keep you on track by talking you out of making emotional decisions about your money, like buying a stock that’s been skyrocketing or selling all your stock funds when the market plummets.

3. Advice. It’s in the name: Financial advisors can make suggestions about the best strategies to implement to improve your finances, from what to investments to make to what insurance to buy.

4. Evolution. As your life circumstances change, a financial advisor can help you adjust your financial plan so that it always fits your current situation.

5. Action. Many people don’t take the steps they should to manage their finances because they’re too busy or too uncertain about what to do. Working with a financial advisor means someone else can handle what you don’t have time for and make sure your money is being deployed in the best way.