How to Find the Type of Financial Advisor You Need

Hiring a financial advisor can be a wise move. A suitable financial professional can help you achieve your goals with fewer errors while providing peace of mind. However, to truly benefit from their expertise, it is crucial to find the right type of financial advisor - someone who suits your needs and offers services that align with your goals and budget.

There are several types of financial advisors that you can choose from. This article will explore each of them and help you select the one that is best for you.  

What are the different types of financial advisors?

1. Investment advisors

Investment advisors are professionals or companies registered with the Securities and Exchange Commission (SEC). You can verify their credentials and registration through FINRA's BrokerCheck tool. Their primary role is to provide investment advice and guide clients on investments tailored to their financial goals. Investment advisors manage client assets directly. They help in creating and overseeing investment portfolios to ensure they align with a client’s risk tolerance and financial objectives. Their services are best suited for individuals looking for expertise in selecting and managing investments.

2. Wealth manager

Wealth managers cater to high-net-worth individuals with diverse financial needs. Their services extend beyond basic investment advice. They offer a more holistic approach to managing wealth. Wealth managers can assist clients with a range of services like estate planning, tax strategies, insurance planning, charitable donations, and more. They are ideal for clients with large estates.

Wealth managers focus on preserving and growing wealth while ensuring it aligns with their clients’ long-term goals. If you have substantial assets and need comprehensive guidance, a wealth manager can be a suitable choice.

3. Certified Financial Planner (CFP)

Certified Financial Planners (CFPs) specialize in providing well-rounded financial guidance, such as creating a budget, planning for retirement, filing taxes, tackling debt, and more. While many CFPs focus on general financial planning, others may specialize in specific areas like retirement planning or small-business ownership. CFPs are required to get their certification by passing an exam.

They are particularly suitable for individuals who need a structured financial plan without necessarily needing investment management.

4. Robo-advisor

Robo-advisors offer a digitized alternative to traditional financial advisors. They are essentially digital platforms that use your inputs and run them through their algorithms to provide automated investment advice. They are quite affordable, which makes them an excellent choice for individuals just starting their financial journey.

Robo-advisors can be used for a wide range of needs like tax planning, portfolio management, goal-based financial planning, and more. However, they simply work on the input provided by the client. They do not offer personalization that you can get from a human financial advisor. Nevertheless, they can be suitable if you want an affordable solution and are just starting out.

5. Portfolio manager

Portfolio managers focus exclusively on managing investment portfolios for their clients. These professionals work on diversification and asset allocation to ensure the client’s wealth grows as per their goals. They ensure the portfolio’s risk and reward potential align with the client’s needs. They also rebalance the portfolio based on market movements and ensure the portfolio always aligns with the client’s evolving financial situation.

They are suitable if your primary need is to have your investment portfolio managed as they do not provide generalized advice on other facets of financial planning, such as budgeting, debt management, etc.

6. Fiduciary financial advisor

Fiduciary financial advisors are different from other financial professionals who may earn commissions by recommending financial products, mutual funds or insurance plans. Fiduciaries are legally bound to prioritize your financial well-being above all else. These financial advisors cater to clients across various income levels. Their fees can be competitive. They usually charge on a fee-only basis or as a percentage of the client's assets under management (AUM). You can hire them for a number of reasons, such as building wealth, preparing for retirement, tax planning, and more.

Fiduciary financial advisors are registered with the SEC or state regulators. They can be hired independently. In some cases, they may work with an advisory firm, where you may need to contact the firm and select a working arrangement that suits your needs.

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 What type of financial advisor do I need?

The type of financial advisor you need depends on your specific goals, current financial situation, and net worth. Here’s how to decide:

1. Evaluate your financial situation and needs

It is essential to evaluate why you are hiring a financial advisor. Are you looking for investment guidance, or do you need help saving for retirement? You may also be looking for support with creating a budget or paying off debt. Each of these goals points to a different type of financial advisor. For instance, a CFP can be a great choice if you are primarily concerned about taxes and overall financial planning. On the other hand, if you have significant wealth and require help with estate planning, tax strategies, and more, a wealth manager might be more suitable. If you have a vast number of needs but they are not very complex, a robo-advisor could be a budget-friendly option for basic investment advice and portfolio management. However, if your goals are specific, such as managing an investment portfolio, an investment advisor or portfolio manager may be the better fit.

Your income level and future goals also play a crucial role in determining a suitable financial advisor for you. If you are focused on achieving immediate financial needs, such as creating a monthly budget or paying down debt, a CFP may be the best option. Working with an investment advisor or wealth manager might make more sense for long-term wealth building or managing complex investments. Your employment status can also influence your choice. For instance, if you are a salaried individual, you only need financial advice for yourself. However, if you are a small business owner, your needs may extend beyond personal financial planning. You may require help with setting up retirement plans, employee benefits programs, etc., for your employees. You would also need help with the company's tax planning. In such cases, building a team of financial advisors with expertise in these areas can be helpful to address both personal and business-related financial concerns.

2. Evaluate your net worth

Your net worth also plays a significant role in determining the type of financial advisor you need. For instance, individuals with a high net worth may require specialized financial expertise that goes beyond general financial advising. If you fall into this category, working with a wealth manager can be beneficial to ensure your wealth is preserved and managed effectively and that it continues to grow in the future. Wealth managers primarily serve high-net-worth individuals, including entrepreneurs, senior executives, professional athletes, celebrities, etc., who have accumulated substantial wealth and financial assets. These financial advisors specialize in handling the complexities of large estates, such as tax planning, portfolio management, international investments and assets, estate planning and wealth transfer, and more. They also assist with managing charitable endeavors, insurance needs, etc.

When selecting a wealth manager, you can look for certifications and credentials, such as the Independent Registered Investment Advisors (RIAs). RIAs are registered with either the SEC or state securities regulators and are held to fiduciary standards. The fiduciary obligation ensures they prioritize your best interests over their own, which makes them particularly suitable for managing large estates. Hiring a fiduciary can be crucial when dealing with the complex financial needs of high-net-worth clients. These professionals are legally bound to act in your favor and provide a higher level of trust and transparency. Moreover, they can be helpful in covering a wide variety of needs, like tax planning, managing portfolios with international exposure, or safeguarding your wealth through comprehensive insurance planning, among other things.

3. Evaluate your budget  

Understanding your budget will also help you ensure you are getting the most value from your financial advisor. Your budget significantly influences the type of financial advisor you choose. For example, if you are a high-net-worth individual with a sizable budget, you have the flexibility to hire a wealth manager or even a team of professionals to address your diverse financial needs. You could hire an investment advisor to craft your investment strategy, a portfolio manager to oversee your assets, and a tax specialist to handle your complex tax planning requirements. While this approach may seem more expensive, it ensures you get access to specialized expertise tailored to your unique requirements as a high-net-worth individual.

On the other hand, if your budget is limited, a robo-advisor can be a more affordable and practical solution. Robo-advisors offer basic financial advice at a fraction of the cost of hiring a traditional financial advisor. They are particularly well-suited for individuals who are just starting out with financial planning or those who have relatively less complex financial needs. For example, young professionals who want to only start with budgeting and saving but do not yet have substantial assets can benefit greatly from a robo-advisor. Robo-advisors are also ideal if you are looking for generalized advice. If your primary concern is creating a basic budget, saving for short-term goals, or investing in simple, low-cost investments, these digital platforms can be sufficient.

Additionally, understanding the fee structure of a financial advisor is just as important as evaluating your budget. Financial advisors may charge on a fee-only basis or levy a flat rate, hourly rate, or a percentage of your AUM. It is essential to evaluate how these fee models align with your budget and financial goals. For example, if you need help creating a budget, an hourly fee could save you money rather than hiring a financial advisor for ongoing assistance. However, if you need assistance with a long-term goal like retirement planning that requires frequent support and guidance, hiring a flat-rate financial advisor or a fee-only advisor can be more beneficial.

To conclude

Hiring a financial advisor is important and can be immensely beneficial, but it is even more important to choose one who aligns with your needs, goals, and budget. Working with a financial advisor who does not fit your requirements can lead to minimal progress and underwhelming results, which can leave you frustrated. Finding a suitable financial advisor involves evaluating your unique financial situation, the services you require, and the fee structure you are comfortable with. Remember that your financial journey is personal, and the financial advisor you choose should not only help you achieve your goals but also make you more confident about your financial future.

Use the free advisor match tool to get matched with seasoned financial advisors who suit your needs and offer services that align with your goals and budget. Answer a few simple questions based on your financial needs and get matched with 2 to 3 financial advisors who may be best suited to help you.