Finding a Financial Advisor
The Investopedia 100
The Right Financial Advisor for You
What does a financial advisor do?
A financial advisor is a professional who builds personalized financial plans to achieve the life goals of clients. Financial advisors help clients analyze and visualize their financial situations, including risk tolerance and risk capacity. Plus, they provide a buffet of services to improve clients’ financial futures, including investment advising, debt management, retirement planning, and tax assistance, among other services. Even after constructing an initial financial plan with a client, a financial advisor will regularly reassess the client’s situation to keep financial goals on track and ensure clients’ comfort and satisfaction with financial decisions.
How do I choose a financial advisor?
You can find a financial advisor by asking for recommendations from family and friends, or you can search online. Many professional financial planning associations offer searchable databases of advisors such as the National Association of Personal Financial Advisors and the Financial Planning Association. No matter what title an advisor claims to have, it is recommended that you vet any potential advisor's credentials, experience, and fee structures before sharing your financial information. You can look up a firm's or individual's background by looking up the firm's Form ADV on the Investment Advisor Public Disclosure website.
How much does a financial advisor cost?
The cost of a financial advisor can vary based on the kind of advisor you choose to work with and their payment structure. Financial advisors are usually paid through fees, commissions, or a blend of the two. Fee-based advisors earn a set hourly rate for their services or a set percentage of clients’ assets under management, while commission-based advisors earn commission through the products they sell. Within the field of financial advisory, there are three main types of advisors: human advisors, robo-advisors, and digital advisors. The cost—and what you get with each one—will vary.
What is the Investopedia 100 program?
The annual Investopedia 100 Awards celebrates financial advisors who are making significant contributions to critical conversations about financial literacy, investing strategies, life-stage planning and wealth management. With more than 100,000 independent financial advisors in the U.S., the Investopedia 100 spotlights the country’s most engaged, influential, and educational advisors.
How is the list of Investopedia 100 winners determined?
The annual Investopedia 100 list honors independent U.S.-based financial advisors who have demonstrated top-of-the-industry commitment to financial literacy by using their social and traditional media reach, and who have received community support through peer nominations. To determine winners, Investopedia's data science and editorial teams measure each advisor's domain authority of their personal blog or website, followers across social media and podcasts, participation in workshops, programs, nonprofits or collaborations to spread financial education, and peer nominations by industry professionals outside of their own firms. Applications are checked for accuracy and quality, too.
What are the best investing books to learn from?
In addition to working with a financial advisor, you may wish to continue your education on investing, growing wealth, or general financial planning. As part of the 2023 Investopedia 100, we asked seven of our top financial advisors to share the investing books that they have read and shared with their clients. The books touch on financial planning for couples, the behavioral psychology of money, and how to start legacy planning.
A financial advisor provides financial advice or guidance to clients for payment. Financial advisors can provide many different services including investment management, tax planning, retirement planning, and estate planning. A wide variety of licenses and certifications may be required depending on the services provided by a given financial advisor.
Certified Financial Planner
Certified Financial Planner (CFP) is a recognition of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement saving. The title is awarded by the Certified Financial Planner Board of Standards to people who have completed the CFP exam and take continuous coursework to sustain the certification.
A fiduciary is a person or organization that acts on behalf of another party, putting their clients’ interests ahead of their own. Fiduciaries are held to the fiduciary standard, meaning that they have a duty to preserve good faith and trust. Therefore, the role of a fiduciary requires being bound both legally and ethically to act in the client’s best interest. Not all financial advisors are fiduciaries, though many are.
Asset allocation is an investment strategy that aims to balance risk and reward by apportioning an individual’s portfolio assets according to their goals, risk tolerance, and investment horizon. The three main asset classes—equities, fixed-income, and cash and equivalents—have different levels of risk and return, so each will behave differently over time.
Risk tolerance is a measure of the degree of loss an investor is willing to endure within their portfolio, so it is a valuable consideration in investment decisions. Stock volatility, market swings, economic or political events, and regulatory, or interest rate changes affect an investor's risk tolerance. Therefore, greater risk tolerance is often synonymous with investment in stocks, equity funds, and exchange-traded funds (ETFs), while lower risk tolerance is often associated with the purchase of bonds, bond funds, and income funds.
Investment horizon is the term used to describe the total length of time that an investor expects to hold a security or a portfolio for an individual or company, and it can span as short as a few days or as long as two decades. The length of an investment horizon will often determine how much risk an investor is exposed to and what their income needs are. Generally, when portfolios have a shorter investment horizon, that means investors are willing to take on less risk.
Risk capacity, unlike tolerance, is the amount of risk that the investor "must" take in order to reach their financial goals. The rate of return necessary to reach these goals can be estimated by examining time frames and income requirements. Then, the rate of return information can be used to help the investor decide upon the types of investments to engage in and the level of risk to take on.
Suitability refers to an ethical, enforceable standard regarding investments that all financial professionals are held to when dealing with clients. Before making a recommendation, brokers, money managers, and other financial advisors have a duty to ensure their advice is appropriate for their clients’ goals, needs, and risk tolerance. In the U.S., the Financial Industry Regulatory Authority (FINRA) oversees and enforces this standard, outlining suitability requirements in its Rule 2111.
Fee-Based Financial Advisor
The term ‘fee-based' describes a kind of financial advisor who receives some or all of their income from fees paid to the advisor by the client. Many fee-based advisors not only receive pay from clients but also earn commission from brokerage firms, mutual fund companies, or insurance companies when they sell products. Advisors who exclusively earn pay through fees are called ‘fee-only’ advisors.
Commission-Based Financial Advisor
Commission-based financial advisors receive compensation from clients based on product sales. They receive pay when their clients make a specific financial transaction that they recommend, such as purchasing a stock or other asset.