Financial advisors help you create a plan for meeting your financial goals and guide your progress along the way. They can help you save more, invest wisely or reduce debt.
What is a financial advisor?
A financial advisor offers assistance with — or, in some cases, complete management of — your finances. The catch-all term “financial advisor” is used to describe a wide variety of people and services, including investment managers, financial consultants and financial planners. A financial advisor can also be a digital investment management service called a robo-advisor.
» Looking for an advisor? View our list of the best financial advisors.
What do financial advisors do?
The services provided by financial advisors will vary based on the type of advisor, but generally speaking, a financial advisor will assess your current financial situation — including your assets, debts and expenses — and identify areas for improvement.
A good financial advisor will ask you about your goals and create a plan to help you reach them. That may mean calculating how much you should save for retirement, making sure you have an adequate emergency fund, offering tax-planning suggestions or helping you refinance or pay off debt. Financial advisors also help invest your money, either by recommending specific investments or providing complete investment management.
In some cases, you can choose which services you want or need based on the type of advisor you select. For example, a traditional in-person advisor will likely offer personalized, hands-on guidance for an ongoing fee. A robo-advisor is a low-cost, automated portfolio management service, typically best for those who want help managing their investments. Then there are online financial planning services, which marry the lower costs of a robo-advisor with the holistic guidance of a human advisor.
Below, an overview of each type of financial advisor and what they do:
If you’re looking to invest for retirement or another goal, a robo-advisor can be a great solution. They’re almost always the lowest-cost option, and their computer algorithms will set up and manage an investment portfolio for you. You’re probably a good candidate for a robo-advisor if:
You need to save for retirement but aren’t sure where to begin.
You want to benefit from stock market returns but don’t have a lot of time to learn how to invest.
You have a lump sum you want to invest for one or more future financial goals.
You don’t have much money to invest yet — robo-advisors typically have low or no account minimums.
Here’s what to expect from a robo-advisor:
- Your first interaction will most likely be a questionnaire from the company you’ve selected as your provider. The questions help identify your goals, investing preferences and risk tolerance.
- Based on the information you provide, the robo-advisor’s algorithm will recommend an investment portfolio that’s typically built using low-cost exchange-traded funds and index funds.
- The service will then provide ongoing investment management, automatically rebalancing your investments as needed and taking steps to reduce your investment tax bill.
The low-cost, easy-entry nature of robo-advisors makes them a good choice for many consumers.
» Sound like the right fit? Check out NerdWallet’s picks for the best robo-advisors.
2. Online financial planning services
Online financial planning services offer investment management combined with virtual financial planning. The cost is higher than you’ll pay for a robo-advisor, but lower than you’d pay a traditional financial advisor.
Consider an online financial planning service if:
You want to work with a human advisor, but you don’t mind meeting that advisor by phone or video. You’ll save money by meeting virtually but still receive investment management and a holistic, personalized financial plan.
You want to choose which financial advice you receive. Some services, like Facet Weath, charge a flat fee based on the complexity of the advice you need (and investment management is included). Others, like Betterment, charge a fee for investment management and offer a la carte planning sessions with an advisor.
For many people, this model is the right fit — it combines lower costs with a high level of service. Here’s what to expect from an online planning service:
- Some services function like hybrid robo-advisors: Your investments are managed by computer algorithms, but you’ll have access to a team of financial advisors who can answer your specific financial planning questions.
- At the other end of the spectrum are holistic services that pair each client with a dedicated CFP, a highly credentialed expert.
- Either way, you should receive investment management and personalized financial guidance to help you meet your goals.
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3. Traditional, in-person financial advisors
In addition to robo-advisors and online planning services, the term “financial advisor” can refer to people with a variety of designations, including:
- CFP: Provides financial planning advice. To use the CFP designation from the Certified Financial Planner Board of Standards, an advisor must complete a lengthy education requirement, pass a stringent test and demonstrate work experience.
- Broker or stockbroker: Buys and sells financial products on behalf of clients in exchange for a fee, commission or both. Must pass exams and register with the U.S. Securities and Exchange Commission.
- Registered investment advisor: Provides advice and makes recommendations in exchange for a fee. RIAs are registered with the U.S. Securities and Exchange Commission or a state regulator, depending on the size of their company. Some focus on investment portfolios, others take a more holistic, financial planning approach. Learn more about investment advisors.
- Wealth managers: Wealth management services typically concentrate on clients with a high net worth and provide holistic financial management.
Human financial advisors generally cost more than robo-advisors and online services, and may have minimum investment requirements of $250,000 or more. But you may decide to go for it if:
You’re undergoing or planning a big life change, such as getting married or divorced, having a baby, buying a house, taking care of aging parents or starting a business.
Your investments have grown or your financial life has gained complexity beyond what a robo-advisor or online advisor can handle.
You want to meet with someone in person and willing to pay more to do so.
Here’s what to expect from a traditional advisor:
- You’ll likely meet in person at a local office.
- The advisor will provide holistic planning and assistance to help you achieve financial goals.
- You’ll have in-depth conversations about your finances, short- and long-term goals, existing investments and tolerance for investing risk, among other topics.
- Your advisor will work with you to create a plan tailored to your needs: retirement planning, investment help, insurance coverage, etc.
Hire an advisor you’ll be comfortable working with and, of course, one who’s qualified — ideally a CFP and a fiduciary, meaning she’s required to put your interests first.
Do you need a financial advisor?
If you’re struggling to prioritize your financial goals, need a plan for where and how to save, or want help with investment management, you may want to work with a financial advisor.
Financial advisors bring an expert and outside view to your finances, take a holistic look at your situation and suggest improvements. Financial advisors also can help you navigate complex financial matters such as taxes, estate planning and paying down debt.
Is a financial advisor worth it?
A good financial advisor or robo-advisor can be worth the cost if you’re able to save more money, cut your expenses or better plan for the future. A financial advisor can also help you feel more secure in your financial situation, which can be priceless.
But financial advisors can also come with high fees. Depending on the type of advisor you choose, you might pay anywhere from 0.25% to 1% of your balance each year. Some advisors charge a flat fee to create a financial plan, or an hourly, monthly or annual rate. (Here’s a full overview of how much financial advisors cost.)
If you’re just starting out, a robo-advisor or online planning service is likely the best fit for you.
» Compare online advisors: Our list of the best financial advisors