What’s a financial advisor? This term can describe a variety of people.
- Robo-Advisor – A digital service offering a simple, cheap way to invest. You answer questions online and a computer algorithm builds a portfolio. They usually offer financial planning tools and will regularly rebalance your investments. If you prefer human guidance, there are hybrid models that let you consult with real advisors. Financial Planner or Advisor – Broad term for professionals in the financial services industry:
- Certified Financial Planner – Provides financial planning advice. Must have proper education, pass a test, and demonstrate work experience.
- Stockbroker – Buys and sells financial products for clients in exchange for a fee, commission, or both. Must pass exams and be registered with the U.S. Securities and Exchange Commission.
- Registered Investment Advisor – Provides advice and makes recommendations in exchange for a fee. Some focus on investment portfolios and some use a financial planning approach. Must be registered with the U.S. Securities and Exchange Commission or a state regulator.
- Chartered Financial Analyst – Helps you build an investment portfolio.
- Enrolled Agent – Focuses on tax preparation.
- Wealth Managers – Concentrates on high net worth clients.
When choosing an advisor:
- Figure out what service you want. It depends on what you’re looking for. If you’re a beginner who wants to invest small amounts, a robo-advisor may be cost-efficient for you. If you want advice on different industries, such as real estate, insurance, and more, a human financial planner might be better.
- How much do you want to spend? Robo-advisor annual fees start at 0.25% and can go up to 0.50%. Human advisors usually charge a fee of 1% and some require minimum assets. Other options include flat fees, an hourly rate, or a retainer.
- Check out qualifications and standards. Make sure to check out the company or person you’re considering and ask questions about their expertise.
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