Updated: Mar 14, 2024

What Does a Financial Advisor Do to Help Improve Your Finances?

Learn how financial advisors can help you along your financial journey, from answering questions about complex financial matters to handling your investments.
Today's Rates
Super boost your savings with highest rates.
Savings Accounts up to:
5.35% APY

Managing your finances can be tricky.

Most people can handle the day-to-day aspects of paying their bills.

However, a lot of people get stuck in that phase of personal finance management.

They don’t have time to step back, look at the big picture and plan for the future.

To help with this, some people may hire a financial advisor.

You may be wondering, “How do financial advisors help my finances?” It’s an excellent question to ask.

Financial advisors can help your finances in many ways, such as retirement planning. Even so, they’re not the right fit for everyone.

To make matters more complex, different advisors may work in different ways.

Here’s what you need to know about how financial advisors may help.

Armed with this information, you can decide whether you may want to look into finding one that fits your needs.

How a Financial Advisor May Help Your Finances

Financial advisors can provide several services to help you improve your finances.

Creates Financial Plans

When you first meet with a financial advisor, they get to know you and your finances.

They’ll ask questions about your financial goals in life and what you want to accomplish.

Then, they’ll help you formulate a plan to help you financially achieve your goals.

In some cases, an advisor may have to deliver the harsh truth that your goals aren’t realistic based on your current situation.

In other instances, the advisor may let you know you aren’t dreaming big enough.

Your advisor will also get to know how you deal with risk.

Assessing your risk tolerance is essential as it helps the advisor figure out what types of investments you may be comfortable with.

Based on all of this information, the advisor makes a financial plan.

A big part of this plan is likely an investment plan to help you reach your long-term goals.

The advisor may also deal with other aspects of your finances and life.

For many individuals, estate planning could be a big area that needs to be addressed.

Some advisors offer this service, while others may refer you to an estate planning professional, such as an attorney.

Advisors can also help with insurance needs, such as life insurance.

Ask the advisors you’re considering working with what services they offer.

This can help you get an idea of how they can help you since services may vary from advisor to advisor.

Facilitates Investing

Once you have your financial plan in place, an advisor can help you start investing to reach your goals.

They can advise you which types of accounts will work best for your goals.

This could be a taxable investment account, an IRA, Roth IRA or some other tax-advantaged account.

Then, they can advise you how much you need to invest regularly to reach your goals.

Advisors suggest a portfolio of investments. Then, they manage that portfolio to keep it properly allocated according to your plan.

These are vital parts of wealth management.

Helps Keep You on Track

Some advisors help you create a plan and let you deal with implementing it on your own.

This may be the case if you pay a flat fee and decide against working with an advisor on an ongoing basis.

That said, most help you along the way and charge a recurring fee for doing so.

Advisors can monitor your accounts to make sure you contribute the necessary amounts to reach your goals.

They can also help you avoid making bad financial decisions.

While the advisor does help you manage your money, you’re still ultimately in control.

If you call the advisor ready to panic sell during a financial dip, the advisor can help remind you of your plan.

It’s still up to you whether you sell or not, but the advisor can try to talk you out of deviating from your plan.

If an advisor successfully talks you out of panic selling or over-exuberant buying, they could quickly pay for their fee by helping you avoid these mistakes.

They can also be a sounding board for big financial decisions.

They work with several clients, so they may have experience that can help you make a better-educated decision.

May Help Optimize for Taxes

Some advisors may directly help you manage your tax situation.

If advisors are tax-savvy or have a tax preparation department, they may handle your whole tax situation.

Other advisors may only work with optimizing your investments for taxes.

Still, there are several tax aspects to investments an advisor could help with.

This includes selecting the proper tax-advantaged accounts and tax-loss harvesting to name a couple.

By carefully optimizing your taxes, especially with your investments, you could end up saving a lot of money.

Advisors without the capabilities to handle your entire tax situation may refer you to a certified public accountant (CPA) they work with to help.

Addresses Major Life Changes

Your financial life never goes according to plan. Financial advisors know this.

Instead of trying to force a square peg into a round hole, advisors help you make changes as life throws you curveballs.

Whenever something significant changes, the advisor can help you adjust your financial plan.

In some cases, you may need to adjust your goals.

Other times you may have to contribute more to reach those goals.

Favorable situations also happen.

You may be able to dream bigger or invest less to reach your goals if you get a big unexpected inheritance.

You must communicate with your advisor so they can make changes as necessary.

Thankfully, you usually meet with your advisor at least once per year. Other advisors may want to meet quarterly.

You can typically call your advisor whenever curveballs or questions pop up, too.

Working With a Financial Advisor vs. a Robo Advisor

You may like the idea of a financial advisor. Still, you may feel you don’t need the one-on-one touch.

In these cases, the average fee an advisor charges may not feel worth the services provided.

Some people are self-starters and are generally good with their money. In these cases, a robo advisor may be a better option.

When you work with a robo advisor, they use technology instead of humans to help build and manage your financial plan.

Robo advisors use questionnaires to help determine your goals and risk tolerance.

Then they create a portfolio to help you achieve those goals.

The technology can also rebalance your portfolio and take care of certain tax planning aspects in some cases, such as tax-loss harvesting.

The downside is you usually don’t have a human to talk to.

If you panic, you can log in and sell your positions without a human advising you not to.

Of course, you financially benefit from lower fees with robo advisors.

Generally, they charge around 0.25% to 0.50% annually when an in-person financial advisor may charge 1% annually.

This seemingly small difference in fees can easily add up to hundreds of thousands of dollars over 40 years.

Robo advisors can also work well for people without much money to invest initially.

Typically, the advisors that work with people without much money get paid by commissions.

These commissions aren’t ideal and provide conflicts of interest.

An advisor should put you in low-cost investments without commissions.

These advisors wouldn’t get paid without commissions, though.

In these cases, starting with a robo advisor may be a better fit and help you keep more of your money invested for your goals.

Don’t Forget to Research an Advisor Before Hiring

If you’ve decided to look for a financial advisor, you must carefully consider who you hire.

The term financial advisor isn’t regulated. A life insurance salesperson could call themself a financial advisor if they want to.

You need to perform research before hiring financial professionals to make sure you find a good one.

One way to do this is checking their history for red flags using BrokerCheck.

BrokerCheck will alert you to complaints filed against advisors.

You can also check to see if your advisor has taken the time and effort to earn financial planning certifications.

One noteworthy certification is the Certified Financial Planner designation. You can look up Certified Financial Planners.

Get Started

Whether you decide to hire a financial advisor or not, the key is getting started.

If you opt not to hire an adviser, create your own basic financial plan. Then, find a brokerage or investing app and start investing.

Once you build up a small portfolio, you can always consult a financial advisor later to help with your financial health.

People that want to work with a financial advisor should start researching advisors and how they get paid.

Find a few advisor options that align with your goals, such as fee-only financial advisors that are fiduciaries.

Check their backgrounds first. Then, interview the contenders to find one that’s a good fit for your financial situation.

Remember, getting started today is crucial. Even if you make mistakes, building a robust investing habit is often better than not starting at all.