What Financial Advisors Do

Generally speaking, financial advisors help manage your money and guide your financial decision-making. They work with you in creating a financial plan designed for your unique goals. For example, that might include saving $1 million for retirement. Similarly, it could involve building a college savings fund so your children can graduate without student loan debt.

What a specific advisor does can vary. It depends on whether they specialize in a particular area of money management or hold certain financial certifications. For instance, a Certified Financial Planner™ (CFP®) typically offers comprehensive financial advice to their clients.

Since these advisors take a broad look at your financial situation, they could help you with things like creating a debt payoff plan and building emergency savings. In the long term, a CFP® can also help you plan whether you have enough life insurance coverage and know what investments belong in your retirement strategy.

A financial advisor who holds a chartered financial analyst (CFA) designation, on the other hand, may focus on investment advice. They could help with picking stocks or mutual funds. Also, they might assist with strategic portfolio moves or stock market analysis. Which financial advisor you work with largely hinges on what you need them to do. Your choice can also determine whether you pay 1% for a financial advisor, more than that or less.

Financial Advisors vs. Financial Planners

Is there really a difference between a financial advisor or a financial planner? As discussed above, a financial advisor can provide a wide range of services to grow or protect your wealth. A financial planner is one type of financial advisor that is commonly used for their specialty of creating a comprehensive financial plan to help you achieve your long-term financial goals. Some financial planners also help you manage your investments, but it’s not always the case.

Is It Worth Paying a Financial Advisor 1%?

The value of paying a financial advisor 1% is going to vary by person. But, if you’re already working with an advisor, the simplest way to determine whether a 1% fee is reasonable may be to look at what they’ve helped you accomplish. For example, if they’ve consistently helped you to earn a 12% return in your portfolio for five years running, then 1% may be a bargain. The same could be true if they’ve helped you to finally pay off a large amount of debt or reach a major money goal.

This can be a trickier benchmark to use if you’re not working with an advisor yet. In that case, perhaps check the advisor’s track record and reputation. An advisor with rave reviews from current or past clients has a mark in their favor. They’re more likely to be earning their keep, fee-wise.

If you don’t have an advisor yet and you’re concerned about fees, it’s important to think about your goals. If you have very basic financial management needs, then consider an advisor that charges lower fees or only charges by the hour. You could also choose a robo-advisor to start, then move to a traditional financial advisor as your needs change.

What Percentage Fee Is Too High for a Financial Advisor?

The answer to how much is too much when looking at financial advisor fees is really subjective, but there are some generalities to follow. If you’re getting a return that you feel is worth the fee, then you may not be paying too much.

While 1.5% is on the higher end for financial advisor services, if that’s what it takes to get the returns you want, then it’s not overpaying, so to speak. Staying around 1% for your fee may be standard, but it certainly isn’t the high end. You need to decide what you’re willing to pay for what you’re receiving.

Can I Manage My Money on My Own? 

Whether you can manage your own money is going to depend on your financial knowledge and experience with different types of investments. It will also depend on how much money you have to invest. If you have strong financial acumen and experience investing, then you might be fine investing your own money. If you have less than $50,000 of liquid assets, then you may also want to consider going at it on your own, as the fees might not be worth it.

With that said, financial advisors can bring a wealth of information and experience to the table that can make a huge difference in your potential return. If you have a substantial amount of money or just don’t have the required experience, then you may want to consider hiring a financial advisor to take care of your assets.

How Long Should You Stay With a Financial Advisor?

The length of time that you work with a financial advisor can impact both how much you’ll pay as well as how well you can potentially meet your financial goals. If you have a long-term retirement plan with your advisor, but don’t work with them for more than a year or two, it could be difficult to keep any momentum that you’ve built going.

The right decision is going to depend on your unique financial situation and how much you can afford to pay an advisor. If all goes well, then the length of time shouldn’t be an issue to you, financially, because the returns can more than pay for the advisor’s contributions.