What Does A Financial Advisor Do

What Does A Financial Advisor Do

What Does A Financial Advisor Do?

A good financial advisor is like a good mechanic: you likely will need one at some point in your life, it could save you a sizable chunk of money, and many people have no clue where to start when it comes to finding one.  To further complicate matters, our industry uses all sorts of terms to describe advisors – financial planner, money manager, wealth manager, retirement planner, and so on.  Regardless of their title, my hope is that this article provides you with a solid background so that you know what to look for if you ever need a professional advisor.


Planner, manager, adviser – what’s the difference?

Financial advisors can have multiple specialties, but the basic idea is that they will help you invest your money to reach your financial goals.  These goals could include retirement, saving for college, minimizing your tax burden, giving to charity, budgeting, debt reduction, or generating income.  In addition to helping achieve your goals, a financial advisor should help you understand the strategies behind these investment decisions so you are better informed.

Allocation matters

Your investment plan should have a clearly defined structure (“allocation” in advisor-speak), in which your assets are diversified into different types of investments like domestic and international stocks, bonds, real estate, and commodities.  This helps reduce the risk that your portfolio will decline in value if one sector of the market sours.

Controlling behavioral risk

While diversifying investments can help reduce risk, not all risk is investment-specific.  Some risk is emotional or behavioral.  Did you panic during 2008 and sell all of your stocks?  Or get overconfident in 2006 and take too much risk leading into the Great Recession?  An advisor should counsel you through difficult times and help set expectations for your portfolio, so that you know what risks are involved and what “success” looks like on the upside.

The whole financial picture

While some advisors are entirely investment-focused, many focus on the other aspects of your financial life, like estate planning, insurance, retirement planning, debt reduction, or tax planning.  Many financial advisors have expertise in one or more of these topics, and the scope of services each advisor provides is different – ranging from strictly investment management to holistic financial planning.  Every client is unique and has different priorities, so make sure your advisor can help where you need it.

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