You might be wondering what do financial advisors do when considering hiring one. In an increasingly complex financial world, many individuals seek guidance to manage their money, plan for the future, and make sound financial decisions. This is where financial advisors come in. Yet despite their growing relevance, there is still confusion about what financial advisors actually do, how they help, and when to engage their services. So, what do financial advisors do? The answer involves much more than just investment advice.
A financial advisor is a licensed professional who helps clients manage their finances and achieve their financial goals through personalized guidance and strategic planning. They provide a broad range of services, from budgeting and saving to investing, retirement planning, tax strategies, estate planning, and more. Financial advisors work with individuals, families, and businesses at various stages of life and income levels.
Understanding the full scope of what financial advisors do can help individuals determine whether they need one and how to choose the right advisor for their needs. Let’s take a deeper look into the diverse roles and responsibilities of today’s financial professionals.
Understanding the Role of a Financial Advisor And What Do Financial Advisors Do
At its core, the role of a financial advisor is to help clients align their financial resources with their short-term and long-term goals. This requires a deep understanding of the client’s financial situation, risk tolerance, lifestyle, values, and aspirations.
A financial advisor’s process typically begins with an initial consultation where they assess a client’s income, expenses, assets, debts, and future plans. From there, they develop a tailored financial plan and recommend specific strategies to build wealth, protect assets, and create a secure financial future.
Advisors can specialize in specific areas, such as retirement planning, investment management, tax efficiency, or business succession planning. Others operate as generalists, offering a holistic approach to comprehensive financial health.
Key Services Provided by Financial Advisors
The services offered by financial advisors are vast and vary based on the advisor’s certification, licensing, and area of expertise. Here are some of the most common areas of service:
Budgeting and Cash Flow Management
Advisors help clients create realistic budgets and monitor their spending to ensure financial goals are met. They identify unnecessary expenses and offer tips for increasing savings without sacrificing lifestyle.
Investment Planning and Portfolio Management
One of the most well-known functions of a financial advisor is investment guidance. They help clients choose appropriate investment vehicles based on risk tolerance, time horizon, and objectives. Advisors also rebalance portfolios as markets shift and financial needs change.
Retirement Planning
Planning for retirement is a primary concern for many clients. Financial advisors help estimate retirement income needs, optimize Social Security benefits, and build strategies to ensure funds last throughout retirement.
Tax Planning
Advisors can suggest strategies to minimize tax liability through investment choices, income timing, and deductions. While they don’t prepare tax returns (unless they are also CPAs), they can coordinate with tax professionals to align planning efforts.
Estate Planning
While estate planning is typically handled by attorneys, financial advisors play a key role in guiding clients on how to structure their finances to ensure their wishes are carried out. This includes beneficiary designations, trusts, wills, and tax-efficient wealth transfer.
Risk Management and Insurance Analysis
Advisors assess existing insurance policies and identify gaps in coverage. They may recommend life insurance, disability insurance, or long-term care coverage to protect against financial setbacks.
Education Funding
Advisors help families plan for education expenses through 529 plans, education savings accounts, and other investment options tailored for college funding.
Types of Financial Advisors
Financial advisors can be categorized based on their fee structure, credentials, and regulatory oversight.
Fee-Based vs. Commission-Based
- Fee-only advisors charge a flat fee or a percentage of assets under management (AUM). They are generally considered more objective, as they don’t earn commissions from selling financial products.
- Commission-based advisors earn money through the sale of insurance or investment products. Some operate under a hybrid model, earning both fees and commissions.
Fiduciary vs. Suitability Standard
- Fiduciary advisors are legally obligated to act in their client’s best interest. This is considered the gold standard in financial advising.
- Advisors operating under the suitability standard are only required to recommend products that are suitable for the client—even if not the most cost-effective option.
Certifications and Licensing
Common credentials include:
- Certified Financial Planner (CFP®)
- Chartered Financial Consultant (ChFC®)
- Certified Investment Management Analyst (CIMA®)
- Registered Investment Advisor (RIA)
Each designation indicates a certain level of education, ethics, and experience. Choosing an advisor with the right credentials is crucial for your financial needs.
When Should You Hire a Financial Advisor?
Not everyone needs a financial advisor at every stage of life. However, there are certain milestones or circumstances where their guidance can be particularly valuable:
- Starting a family or getting married
- Planning for retirement
- Receiving an inheritance
- Changing jobs or receiving stock options
- Starting or selling a business
- Navigating divorce or loss of a spouse
Even those who are financially savvy may benefit from an objective third party who can provide insight and accountability.
How to Choose the Right Financial Advisor
Finding the right advisor involves research and self-assessment. Here are key steps to guide the selection process:
- Clarify your goals: Are you focused on debt reduction, investing, tax strategies, or retirement?
- Understand payment structures: Know whether you prefer a fee-only, commission-based, or hybrid advisor.
- Check credentials and background: Use databases like FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure.
- Ask about fiduciary duty: Ensure the advisor will act in your best interest.
- Meet for a consultation: A face-to-face or virtual meeting can help determine if there is a good fit.
Conclusion
So, what do financial advisors do? They offer expert guidance, comprehensive planning, and support to help individuals manage money, reduce financial stress, and build long-term security. Whether it’s through investment management, retirement planning, tax strategies, or risk analysis, financial advisors play a pivotal role in shaping confident and informed financial decisions.
At ELVT Financial, our mission is to elevate your financial future by providing transparent, education-focused financial guidance that aligns with your values and goals. Whether you’re just starting out or managing generational wealth, the right advisor can make all the difference.
