What is a Financial Advisor? How to Break it Down

Imagine you are sitting at your dining table staring at piles of documents, including tax returns, investment statements and bills. As you attempt to sort it out, your head is spinning. Here is when a financial adviser steps in, like a super hero with a briefcase rather than a cape – read this.

What does a Financial Advisor do? Simply, they manage your money. This is just the beginning. They wear many different hats. Imagine them as a Swiss Army knife of your finances.

Your financial advisor will guide you in everything from investing to planning your retirement, including budgeting. Like your own personal GPS, they can help you to navigate through the confusing maze of decisions. Whether it’s planning to retire or buying your home, these experts have you covered.

Imagine trying to construct a house with no blueprints or without any tools. It would be more like an abstract piece of art than a home. In the same way, managing finances with no expert guidance can be a disaster.

We’ll get into the nitty gritty. Different types of advisors are available: those who charge a fee only, those that work on a commission basis, and advisors whose fee is based (a mixture of both). Fee-only advisers are paid for their service but do not receive commissions. Commission-based advisers earn their money through the sale of financial products, such as insurance and mutual funds. Fee-based advisers earn money through fees as well as commissions.

You get what you spend. It’s the same here. Fee-only advisors are more costly upfront but their advice can be objective, since they do not earn additional money from pushing products.

Many people wonder if one of these Money Maestro’s is really needed. Answers are not black-and-white; they depend on each individual’s situation. Maybe you don’t require one at this time if you feel confident managing your investments.

Realistically, most people aren’t watching CNBC and reading financial news over their breakfast cereal. If you’re lost when it comes to jargon, such as “asset allocating” or “diversification”, an advisor could be invaluable.

My friend told me once about the time he sought out an adviser after inheriting money from his Aunt. The amount was not huge, but it wasn’t life-changing. The man had no idea what to do, other than put the money in his account earning peanuts interest.

The advisor helped him create an investment portfolio that was tailored to his goals. He helped him create a portfolio that was tailored to (whoops!) his specific goals, including buying a home within 5 years and setting up college fund for his children.

What if we spent the same amount of time learning to manage our finances as we do other skills, such as cooking gourmet meals and mastering yoga? Crickets chirping…

The advisor will also be an emotional cushion during times of turmoil in the markets. He or she can act as a voice for reason in a panicky situation when stocks take a sudden plunge.

You remember 2008? Yeah… fun times! There were advisors there to help clients make calm decisions, not impulsive ones based only on their fear. They offered data-driven strategies rather than emotional reactions.

Let’s also not forget about taxes, the necessary evil which we all hate. The advisors minimize taxes legally and maximize returns, a feat worthy of Cirque du Soleil artists!

The best financial advisors simplify complicated issues and make them manageable so that people who are financially averse can feel empowered, rather than being overwhelmed.

The next time that you are drowning in paper and wonder if the light is at the other end, call someone whose entire job revolves about making dollars out of cents (pun intended).

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