The honest answer starts with a problem: “financial advisor” is not one job. The same two words are used by people who do very different things and are held to different standards.
So first, the three kinds. Then what the good ones do all year.
Three people with the same title
The investment adviser. Registered to give advice for a fee. The SEC explains that investment advisers owe a fiduciary duty to their clients, which means your interest comes first across the whole relationship.
The broker. Buys and sells investments for you, and is often paid per transaction. The SEC’s page on brokers describes the role and how they are paid.
The insurance agent. Sells insurance products such as life insurance and annuities, usually for a commission.
Many people hold more than one of these licenses and switch between them. That is why the first question is always “which one are you, on this account, right now?” I explain how to look it up in is my financial advisor a fiduciary.
The five real jobs
When the work is done properly, it comes to five things.
1. Build the plan. Where you are, where you want to be, what to do first. In writing. I published a full sample plan so you can see what one looks like.
2. Manage the investments. Choose the mix, keep the costs low, rebalance, and leave it alone when leaving it alone is right.
3. Watch the taxes. Which account holds what. When to take gains or losses. What to convert, and when. Which account to draw from first.
4. Check the protection. Enough insurance and not too much. Beneficiaries that match your wishes. Estate documents that exist.
5. Keep you steady. Talk you out of the expensive decision in the bad week. This one is invisible until the day it is worth more than the other four together.
What a good year looks like
At least one real review of the plan, not only the portfolio. A look at your taxes before December, when something can still be done. A call when markets are ugly, without you having to ask. A check-in when your life changes: a job, a baby, a sale, a death. Answers within a day or two.
If your year looked like one statement a quarter and a holiday card, you are getting investment management at most. That is a narrower service.
What they are not
Not a fortune teller. Nobody knows what the market will do next, and an advisor who claims to is selling.
Not, usually, a tax preparer or an attorney, although a good one works alongside yours.
How they are paid
Four common ways: a percentage of what they manage, a flat or hourly fee, commissions on products, or a mix. Among advisors who charge a percentage, a Kitces Research study found the median is 1% a year on accounts up to $1 million.
How someone is paid tells you where their incentives point. Ask in dollars.
Some advisors plan. Some manage. Some sell. The title does not tell you which.
Do you need one?
Not everyone does. If your situation is simple and you stay calm in bad markets, you can do most of this yourself. If you have a business, equity pay, a large tax bill or a retirement date coming, the five jobs get harder and the mistakes get more expensive.
Related questions: do financial advisors actually help, advisor or do it yourself, how much a financial advisor costs and is my advisor doing a good job.
One question for this week: of the five jobs, which ones is your advisor actually doing? Count them.
As always, if you want to talk any of this through, the door is open. Genti