The right financial advisor guides you through your money decisions such as reaching savings goals, building a retirement plan and investing in strategic ways so you can reach your goals, effectively.
In a recent survey, the National Financial Educators Council determined that the average American missed out on $1,634 in 2020 based on a lack of financial knowledge. That’s a lot of cash!
It’s clear that many can stand to gain by working with a financial advisor. But how to choose the right financial advisor? Here’s what to look for in a financial advisor.
Different types of financial advisors
Before you can choose the right financial advisor, you’ll need to know the different types of financial advisors available. Here are the most common options:
Traditional financial advisors
When you think of a financial advisor, this is probably what comes to mind. These professionals include Certified Financial Planners, financial consultants, stockbrokers and Chartered Financial Analysts.
Importantly, a traditional financial advisor might have multiple certifications to back up their financial advice. Typically, a traditional financial advisor offers services from a brick-and-mortar location that you can visit in-person.
Often, the costs of working with a traditional financial advisor are higher based on their business model. For example, traditional advisors often have overhead costs such as an office space or other basics that factor into their total fees.
But if you have a complicated financial picture, for example, if you have an independent small business or specific estate planning goals, the right financial advisor can help you navigate tricky waters.
Robo-advisors are on the opposite end of the spectrum. Instead of a personalized experience with a human, you’ll rely on complex algorithms to provide financial advice.
Typically, you’ll start your relationship with a robo-advisor by answering questions that assess your risk tolerance and financial goals. Once the robo-advisor has an idea of what you hope to achieve, it builds an investment portfolio that matches your risk tolerance and goals.
Robo-advisors are usually more affordable than other advisor options. If you have a straightforward financial picture, then a robo-advisor could be the right choice. But you’ll need to keep a closer eye on your portfolio to ensure that the robo-advisor is truly building toward the goals you had in mind.
Online financial advisors
An online financial advisor offers the best of both worlds. You’ll have the opportunity to work with a live person but at a more affordable cost than traditional financial advisors.
In some cases, you’ll find online financial advisors combine robo-advisor services with the ability to ask questions to a live financial professional. Some online financial advisors are essentially traditional advisors in terms of the offered services but in an online setting. The total cost will reflect the amount of customized attention you receive.
If you are looking for some solid guidance but are comfortable enough with technology to handle some of the management on your own, then an online financial advisor could be a good fit.
How to decide between a tax platform service vs. full-service CPA
When considering your financial situation, taxes should come into consideration. The decision between a tax platform service and a full-service CPA might seem difficult. But your unique situation should help you narrow down the right choice. For example, you might have student loans or other financial obligations that could affect your tax liabilities.
If you have a tricky student loan situation and want to minimize the costs of repayment, then a full-service CPA is likely the way to go. With specialized knowledge surrounding the intricate details of the tax code, a CPA can help you find the most advantageous way to file your taxes based on your particular income situation.
For example, if you have a complicated income situation with multiple streams of income, a CPA can help you categorize and file for these types of income streams in the most efficient way possible.
But if you have a basic W-2 income and aren’t pursuing student loan forgiveness through an income-driven repayment plan with the threat of a student loan tax bomb in the future, a tax service platform like TurboTax should do the trick. With a tax service platform, you can quickly walk through your tax forms and file a simple return at an affordable price.
If you have a complex student loan situation and need professional tax help from a full-service tax professional, check out Student Loan Tax Experts. If you mention Student Loan Planner®, you’ll receive a free 30-minute consultation and discount on tax preparation.
Questions to ask yourself when choosing a financial advisor
Unfortunately, there are too many financial advisors that don’t have your best interest at heart. Before settling on a financial advisor, ask yourself these important questions:
- Do I prefer to guide my own investment strategy?
- How much help am I looking for?
- What am I willing to pay?
- What financial goals do I have for my future?
- What level of communication do I want in a financial advisor?
- What qualifications do I expect from a financial advisor?
- Am I willing to listen to the advice of a financial advisor?
With these questions as a starting point, you’ll be ready to choose the right financial advisor.
3 Places to find a financial advisor
As you evaluate potential financial advisors, keep the fees in mind. You’ll want to choose someone that offers fee-only services and is a fiduciary, which means they’re legally bound to keep your best interest at heart.
Ready to hire a financial advisor? Here’s where to look.
For a “do it yourself” approach
If you like investing, hiring a financial advisor might not be worth it. Instead, you can choose to build a self-directed portfolio.
The best option for self-directed investing is Vanguard. Although you’ll have to commit some time to manage your portfolio, the costs are minimal.
Not willing to completely guide your investment strategy and keep tabs along the way? Then an affordable option would be a robo-advisor or online financial advisor.
Two good choices include Vanguard’s Digital Advisor and Betterment. Both offer an opportunity to build an investment portfolio with a variety of individual stocks, ETFs, mutual funds, and more.
Beyond those basic features, Betterment also provides an online investment advisor experience that aims to help you get the most out of your money. If you sign up through Student Loan Planner®, you’ll receive up to one year completely free, depending on your initial investment amount.
As you explore your options, make sure that the management fee makes sense for what you’re investing. The going rate is around 1% of your assets under management for a traditional financial advisor, while robo-advisors charge roughly 0.25% to 0.50%. Although you’ll likely run into financial planners that charge a larger percentage fee for your assets under management, keeping this fee around 1% is right around the average costs. With that, you can avoid significantly overpaying.
For the full-service investing and planning
The final option is seeking out a fee-only financial planner that’s also a fiduciary. If you’re looking for advice to build a mid-seven-figure net worth or willing to pay more for comprehensive services, then a traditional or online financial advisor is the way to go.
The right financial planner can help you navigate wealth building, investment strategies, tax planning and business structures as you build your net worth.
Are you looking for a financial planner that understands the challenges of working in or owning your professional practice? Travis Hornsby, the founder of Student Loan Planner®, recommends checking out Buckingham Wealth Management. You’ll find professional service that’s knowledgeable in helping you navigate your unique financial territory.
How to choose the right financial advisor for you
As you plan your personal finances, the advice of a financial professional can come in handy. The best option depends on your specific circumstances. If you have a complicated financial picture or aggressive goals, however, there’s a high chance that you’ll benefit from working with a financial advisor.