A financial advisor is a catch-all term meant to designate a professional who specializes in financial planning, but this term can further be broken down into financial planner and investment manager. If you want to set your financial goals and need help planning your financial future, including advice on how to save for a down payment on a house, your children’s college costs, vacations or ways to maximize savings for your retirement, you need to seek out a financial planner. If you need a specialist who will allocate your assets for you, you are looking for an investment manager. Finding either type of financial advisor is easier said than done. There are many different types of advisors with various levels of education and experience and they all get paid differently.

Fees

The question of fees is an important one when seeking a financial advisor. Arden Rodgers, financial advisor with Arbus Capital Management, New York, NY, points out that “The question of fees is one of the two most important questions any investor can ask. The other is inquiring about asset allocation.” (For more, see: Understanding the Fees Charged by Financial Advisors.)

In terms of how they get paid, there are fee-based financial advisors and commission-based financial advisors. If you are dealing with a fee-only advisor—a professional who does not make money via commissions—he or she can be compensated for their services per hour, a flat fee depending on the project, or even via a percentage of your investment. Usually it is advisable to deal with fee-only advisors rather than a commission-based one, as they concentrate on helping you rather than representing a company or a product and may be better positioned to provide the objectivity you seek.

David Hunter, a financial advisor with Horizons Wealth Management, Asheville, NC, strongly encourages people to work with fee-only advisors. “The fees that you will experience from an advisor vary around many variables," he states. "Not the least of which is what type of advisor are you working with. Our recommendation would be to use a fee-only advisor. You can find lists of fee-only advisors at www.cfp.net, www.napfa.org or www.paladinregistry.com.”

When considering the best fee arrangement, Rodgers notes that it is important to temper this decision with your actual financial aims and goals. “If you need help with such questions as how to get out of debt; how (and how much) to save for a down payment, your retirement, or college tuition; or what type of insurance you need then you may want to hire a financial advisor or financial planner to create a financial plan for you. The fee for these plans may be based on the number of hours worked, the same way an attorney would bill for her hours. Or it could be a flat fee, which would be similar to a project fee that is a fixed amount of money regardless of the number of hours required,” he says. (For more, see: Paying Your Investment Advisor - Fees or Commissions?)

If you are looking into an advisor who will invest your funds, or give you advice on how to invest and what type of investments are best suited to your needs, you are looking for an investment manager. As Rodgers further elaborates, “You may want to hire a financial advisor to manage your investments for you … These investment managers usually charge a percentage of your assets under management (AUM) each year. This AUM fee can vary based on a number of factors including the expertise of the manager you hire, the size of the firm, their investment strategy, the amount of money you are investing [but] the typical range of AUM fees for investment managers is 0.5% to 3.0%.”

The Bottom Line

Whatever choice you make, it’s good to keep in mind that determining the type of financial advisor, planner or investment manager you decide to hire—and what you are willing to pay for the services you decide you need—is itself an important part of your money management strategy. As in all decisions of this kind, it is important to be clear about your goals, do your research and then make decisions based on what fits best with your personal financial strategy. (For more, see: Fee-Only Financial Advisors: What You Need to Know.)