Financial advisors are in the business of advising their clients on how to manage their money. There are many different types of financial advisors and offering different services to clients. In the recent 2020 data from the Bureau of Labor Statistics (BLS), the median salary for a financial advisor is $89,330. The compensation, however, varies in the type of services that a financial advisor provides. Have a financial question? Click here. There are many different types of services that a client can get from a financial advisor, and the type of service they offer will often depend on their employer. A financial advisor looks at your income and assets and provides advice about how to make money with them. They might help you decide which investments might be best for you based on your age, whether or not you want to take risks, etcetera. Financial advisors may also guide buyers through investing in stocks or bonds, work alongside lawyers who buy property, and help people set up retirement savings plans like Individual Retirement Accounts (IRAs). They can also provide loans secured by portfolios of investments and act as mediators when major financial decisions need to be made and do several other things. In some instances, people who provide this service do not have accountants' licenses. People who want to prepare their own taxes can also use software or go online for help.Types of Financial Advisor Services
Investment Advice
Income Tax Preparation
Accounting and Bookkeeping Services
These are services that would help individuals maintain their financial records. They may also help small businesses with accounting, taxes, payroll processing, and other related tasks.
Estate Planning
A financial advisor will look at an individual's assets, income, expenses, insurance policies, debts, and any other factors that may be relevant to their situation.
They also provide advice on what is best for them to manage their assets and pass these assets onto their next of kin or chosen beneficiary.
Financial advisors will often work with clients who have a lot of money, such as big-time royalty, politicians, celebrities, business owners with tons of money to invest, and other people who want to protect their assets.
With so many options available, it can be difficult for someone who wants to invest in deciding how they feel most comfortable putting their money into something that will grow.
For example, some people are more risk-averse than others and would instead choose more stable investments.
Others understand the risks involved but are willing to take them to make bigger gains.
How Do Financial Advisors Get Paid?
Financial advisors may get paid in a number of ways, including:
Commission
Financial advisors who work for a brokerage firm, mutual fund company, or other financial institution (and there are many) may be compensated by accepting commissions.
Hourly Rate
Some financial advisors charge an hourly rate for their services.
For example, if someone needs help with income taxes and tax preparation, they might also need help with bookkeeping and accounting.
In this case, they may hire a financial advisor at an hourly rate to provide these services.
Financial advisors usually have to have licenses before they're able to do this type of work.
Fixed Fee
This is where people pay one payment for financial services.
This payment usually covers the creation of a plan and any execution of this plan over a certain length of time.
Retainer
A retainer is where a financial advisor may charge a fixed hourly rate for their time without providing a specific service.
For example, individuals who might pay for life insurance through their job or a group plan cannot get a customized rate or policy.
They may, however, pay the advisor a retainer fee for their services over time to help them work towards getting a personalized insurance policy that will suit their needs.
Financial advisors may also make money by advising people who have retirement plans from an employer or other organization.
They do this because they will build and manage portfolios for their clients based on what kind of risk level the client is most comfortable with.
They may also choose investments for these retirement plans. Financial advisors may be paid by receiving a salary from a company, or they may work as independent consultants who get commissions from various companies for increasing their sales.
Financial Advisor Fee Structures
There are two types of fee structures for financial advisors: fee-only and fee-based.
Fee-Only
Fee-Only is where financial advisors do not take commissions and instead charge one flat fee that covers all the advice and other related services they provide.
They will typically charge an hourly rate for any time spent discussing prospects and investments with clients.
Fee-Based
Financial advisors who work on commission might charge a percentage of assets under management for managing funds in exchange for providing investment advice or executing trades on behalf of investors.
For example, if someone has $10 million invested in a mutual fund, the advisor might charge a percentage of assets based on the total value of those assets.
Tips in Finding a Financial Advisor
Here are some tips you can use when finding a financial advisor:
- When seeking a financial advisor, people should remember to take the time to research the individual and their company.
- Ask for references and get in touch with some of them to decide whether or not this would be a good fit.
- Look at the advisors' client testimonials, and do an online search about their qualifications and experience. Insurance agents, for example, are required to have a license to sell policies.
- Ensure that the advisor you're considering has these credentials before investing any time or money working with them.
- Finally, remember that an established company signals experience and trustworthiness.
If you are looking for advisors who strictly follow fiduciary duty, you might want to consider Fee-only Advisors. Learn more about them here: Fee-Only Financial Advisor
Salient Points
- The fee structures for financial advisors vary, and the one that is right for you will depend on your goals.
- You may want to consider a commission-based advisor if you need help with retirement plans from an employer or other organization, but they might not be as good at managing assets.
- If you're looking for someone who can manage your finances in exchange for providing investment advice or executing trades on behalf of investors, then a fee-based advisor might work better.
- Be sure to do some research before choosing which type of advisor to hire.
How Financial Advisors Make Money FAQs
Financial advisors typically make money by charging a fee for their services, either an hourly rate or a percentage of the assets they manage for clients. They may also earn commissions from investment products such as mutual funds, annuities, and insurance policies.
Financial advisors typically provide services such as retirement planning, investment advice, estate planning, tax preparation, and insurance reviews. They can also help clients with budgeting and developing financial goals.
Yes, all financial advisors must be registered with the Securities and Exchange Commission (SEC) or their state securities authority and adhere to a fiduciary standard. This means that they must act in their clients’ best interests when providing advice or making recommendations.
In order to provide certain services, such as offering investment advice or managing assets, many states require financial advisors to be licensed or registered. Additionally, the Financial Industry Regulatory Authority (FINRA) requires financial advisors to pass a series of exams in order to obtain the necessary licenses.
When selecting a financial advisor, it is important to research their qualifications and check to see if they are registered with the SEC or their state securities authority. Additionally, clients should make sure the financial advisor has a good reputation and experience in the field they are seeking advice on. It is also important to meet with any potential advisors to ensure there is a good fit between the advisor and the client.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
