Personal Financial Advisor

What Is a Personal Financial Advisor?

A personal financial advisor is a professional who provides financial advice and services to clients according to their specific needs.

Personal financial advisors have the expertise and experience to deliver solutions tailored to their customers' needs, avoid costly errors, and mitigate risk, as well as offer a suite of services and products aligned with their clients' current and future goals. Some financial advisors receive a flat fee for their advice, while others earn commissions from the sale of investments.

Key Takeaways

  • Personal financial advisors are professionals who offer tailored financial advice and services to customers.
  • In the U.S., financial advisors hold the FINRA Series 7 and 66 or the Series 65 licenses and may hold various designations, such as Certified Financial Planner (CFP).
  • Financial advisors first develop a financial plan for their clients, which evaluates their current and future financial needs and considers many facets of their life.
  • Good financial plans are fluid and will keep the client aware of changes that affect them and their investments.
  • Personal financial advisors may be paid as a flat fee, a commission, or a percentage of the client's assets.

Understanding Personal Financial Advisors

Finding a personal financial advisor can be a daunting and confusing task as there are many financial services professionals whose duties are similar to those of financial advisors. Professional organizations like the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA) can help locate advisors in your area.

When choosing a financial advisor, it is important to verify their history and credentials. For example, ask if they have FINRA licenses or professional designations.

Many personal financial advisors elect to join wealth management firms like Fidelity, Vanguard, and Charles Schwab that provide tailored financial advice to high-net-worth and retail customers. Some larger asset managers like Morgan Stanley and Goldman Sachs also have robust wealth management arms for high-net-worth individuals.

A personal financial advisor's role is distinct from that of an adviser. While the former provides advice, the latter has a fiduciary duty to their clients. This means they are legally bound to act in your best financial interests.

Types of Personal Financial Advisors

In the U.S., financial advisors must hold the Series 7 and either the Series 66 or the Series 65 licenses from the Financial Industry Regulatory Authority. In addition, every state requires the Series 63 license before an investment adviser can conduct business within its borders.

In addition to these qualifications, some advisors seek additional credentials that demonstrate their knowledge of different financial areas. Possible additional qualifications include:

  • Certified Financial Planner (CFP): signifies expertise in all areas of financial planning, including taxes, insurance, estate planning, and retirement.
  • Chartered Financial Analyst (CFA): indicates deep study of accounting, economics, money management, and security analysis.
  • Chartered Financial Consultant (ChFC): indicates completion of nine college-level courses on subjects related to financial planning, such as tax laws, asset protection, and employee benefits.
  • Registered Investment Advisor (RIA): authorized to advise clients on different securities and manage their portfolios.

Some of the FINRA series requirements may be waived for individuals who hold one of these qualifications. In addition to the required financial expertise, each of these courses of study requires a strong awareness of the ethical requirements for financial planners. These designations are good indicators of an advisor's experience and training.

Special Considerations

Before providing advice and recommending products and services, financial advisors create financial plans for their clients. This involves a comprehensive evaluation of their current and future financial state. It also considers critical, basic information, such as age (time horizon), financial goals (saving for education, purchasing a home, preserving capital, or generating income), and appetite for risk and reward.

Creating a financial plan requires consideration of the education, net worth, and financial experience of each client. Additional aspects of financial plans can include tax liabilities, asset allocation, and future retirement and estate plans.

A good personal financial advisor won’t reuse templates on different clients. While the majority of financial plans will include research into and considerations of the client's life goals, wealth transfer plans, and projected expense levels, a personal financial advisor should take time to incorporate unique aspects of each customer’s financial journey, including attitudes towards investing, budgeting, and continued education about financial topics.

A good financial plan will alert an investor to changes that must be made to ensure a smooth transition through life's financial phases, such as decreasing spending or changing asset allocation. Financial plans should also be fluid, allowing for occasional updates.

How Do You Become a Personal Financial Advisor?

There are several different paths to becoming a personal financial advisor, but most of them require a bachelor's degree at the very minimum. Financial advisors are required to pass the Series 7 and Series 65 or 66 exams from FINRA, although these exam requirements may sometimes be waived for those with more advanced credentials. Many advisors choose to demonstrate deeper knowledge by acquiring certifications such as the CFP, CFA, or ChFC, which require additional study and work experience.

How Much Does a Personal Financial Advisor Cost?

There are several different fee structures for financial advisors. Many advisors charge a percentage of the client's assets under management. This is typically around 1% or 2%, although larger portfolios may be charged a smaller percentage. Others may charge a flat fee, typically around $1,500 to $3,000, to create your financial plan. Some advisors may also receive a commission based on product sales, although this practice is controversial because of the possible conflicts of interest.

Where Do Personal Financial Advisors Work?

While many financial advisors operate independently, the majority work for financial institutions such as brokers, insurance companies, banks, and investment firms.

Article Sources
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  1. Financial Planning Association. "FPA PlannerSearch."

  2. National Association of Personal Financial Advisors. "Find an Advisor."

  3. Fidelity. "What We Offer."

  4. Vanguard. "Introducing Vanguard Personal Advisor Services."

  5. Charles Schwab. "Plan and Invest With an Advisor."

  6. Morgan Stanley. "Financial Advisors."

  7. Goldman Sachs. "Private Wealth Management."

  8. North American Securities Administrators Association. "Exam Overview."

  9. Certified Financial Planner Board. "The CFP Exam Requirement."

  10. CFA Institute. "How to Become a CFA Charterholder."

  11. The American College of Financial Services. "ChFC: Chartered Financial Consultant."

  12. TD Ameritrade Institutional. "How to Become an RIA."

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