Guide to Hiring a Financial Advisor

Financial advisors help individuals and families develop financial skills and establish good financial habits. They offer a wide range of services and can help you deal with an immediate financial crisis, build savings, manage student loans, pay off debt, and refer you to a different type of financial professional when your needs change. If you could benefit from financial education and support, a financial counselor may be able to offer you the help you need.

key takeaways

  • Financial advisors help people develop financial skills and improve their overall financial health.
  • Financial advisors often help low-income households manage current expenses, build savings, make plans to pay off debt, and navigate public assistance benefits.
  • Financial advisors’ fees are generally lower than those of financial advisors and planners.
  • Military members, college students, and households experiencing financial difficulties due to the COVID-19 pandemic may be able to access free financial counseling.

What is a financial advisor?

Financial advisors are personal finance experts who help clients manage their money more effectively and responsibly. They often provide education and guidance on topics relevant to low-income households, such as saving, budgeting, paying down debt, managing credit, and achieving financial goals like buying a home.

Like many titles used by financial professionals, the term “financial advisor” is unregulated, meaning anyone can call themselves one. Plus, you don’t need any specific licenses or certifications to set up shop as a financial advisor. These factors can make it difficult to find a counselor with the experience and knowledge he needs.

Still, one certification in the field is gaining traction: the Accredited Financial Counselor (AFC), offered by the Association for Financial Counseling and Planning Education (AFCPE). To become certified, candidates must meet ethical, educational, and experience requirements, including a minimum of 1,000 hours of relevant financial advisory experience. There is also an exam that focuses on nine core competencies:

  • Collection of customer information
  • Help clients create action plans.
  • Development of financial statements, indexes and expense plans.
  • Money Management
  • Credit and debt management
  • Educate customers about important purchases.
  • Financial risk management
  • Discuss investment basics with clients
  • Educate clients about retirement and estate planning

AFC-accredited financial advisors must also meet continuing education requirements and adhere to a code of ethics.

What do financial advisors do?

Financial advisors offer support and guidance on a variety of financial topics. They can help you:

  • generate savings
  • Create (and stick to) a budget
  • Create a plan to pay off debt
  • Facing an immediate financial crisis
  • Determine if you are eligible for tax credits
  • Improve your credit score
  • Manage lines of credit
  • Manage student loans
  • Change ineffective money habits
  • Navigate available public benefits and community resources
  • Set and achieve financial goals.
  • Understand basic financial principles.
  • Improve your overall financial health
  • Recommend you to an investment advisor or financial planner when ready

Some financial advisors have additional training in other areas, such as serving the needs of military service members and their families, veterans, and people with disabilities. There are also housing counselors, who specialize in helping people find affordable housing, avoid foreclosure, and manage reverse mortgages. You can find a US Department of Housing and Urban Development (HUD) approved housing counselor on their website.

A financial adviser may not make investment recommendations unless they are registered as an investment adviser.

If you need help with budgeting, saving, or paying off debt, an AFC-Certified Financial Counselor may be a good option. However, if you are looking for investment recommendations, asset management, retirement planning, complex tax strategies, or a complete financial plan, a financial advisor or certified financial planner (CFP) will be a better choice.

How much do financial advisors cost?

Financial advisors work in various settings, from hospitals and banks to universities and private practices. The cost of meeting with a financial advisor generally depends on where they work, but in many cases the price is lower than working with a financial advisor or CFP.

Financial advisors working in private practice may offer a free initial session and then charge a flat fee for subsequent meetings. Others may charge an hourly rate or a monthly subscription.

You can also find free financial advice services. For example, counselors who work for the military may offer financial counseling to service members free of charge. Also, colleges that have a career or money management center may offer free financial counseling to students.

No matter where AFC-certified counselors work, they must offer “reasonable” rates that are disclosed to clients in advance.

AFCPE-accredited financial counselors and coaches are offering unbiased and fully confidential virtual financial coaching and counseling sessions that are free of charge to individuals and families struggling with the financial implications of COVID-19. The program is supported by the Wells Fargo Foundation and delivered in partnership with the Coordinated Assistance Network.

How to choose a financial advisor

If you think you could benefit from a financial advisor but don’t know of one, start with referrals from friends, colleagues, or family members who seem to have their finances under control. You can also ask your local bank or credit union if they offer financial counseling services.

Once you have a few potential candidates, the AFCPE suggests asking the contenders a few questions before making any decisions:

  • What are your credentials? Look for AFC accreditation, which demonstrates a higher level of education and commitment to the profession.
  • What experience do you have? Find a counselor who has helped people in situations similar to yours.
  • How do you keep up with developments in personal finance? AFCs must meet continuing education requirements and adhere to a code of ethics.
  • What services do you offer? Make sure your services or areas of expertise align with your needs.
  • What is your focus? Make sure their philosophy, personality, and communication style work well for you.
  • What kind of clients do you work with? Some financial advisors work with clients with a specific minimum net worth, so make sure the advisor is right for your financial situation.
  • How much do you charge? The financial advisor should provide an estimate based on what you want to achieve.
  • Will others benefit from the financial advice you give me? Find out if there are any conflicts of interest.
  • Have you ever been disciplined for illegal or unethical actions? You may also want to ask for references and do a search online.

The AFCPE emphasizes that “anyone can call themselves a financial advisor, coach, advisor, or planner, but a credential demonstrates a higher level of education, specialty, or commitment.” You can check if a potential candidate has received a rating by checking the AFCPE directory.

What is an Accredited Financial Advisor?

The Accredited Financial Counselor Certification (AFC) is offered by the Association for Financial Counseling and Educational Planning (AFCPE) to certify counselors who have met the organization’s educational requirements and committed to following its ethical standards. Candidates must have a minimum of 1,000 hours of relevant financial advisory experience and pursue continuing education to maintain certification.

What is the difference between a financial advisor and a financial adviser?

The main difference between financial advisors and advisers is the clients they serve. Financial advisors tend to work with low-income clients, developing financial literacy skills and good financial habits. By contrast, financial advisors typically offer a wide range of services for middle- and upper-income clients, such as investment recommendations, portfolio management, estate planning, tax planning, insurance, and putting the kids through college.

How much does a financial advisor cost?

That’s decided in part by where they work, whether it’s a bank, a hospital, a university, or their own private practice. An initial session is usually free, after which a flat fee per meeting, an hourly fee, or a monthly subscription fee are all possible scenarios. College students and military service members and veterans may qualify for free services. The price is generally less than what financial advisors and certified financial planners (CFPs) charge. AFC-accredited financial advisors must charge “reasonable” fees and declare them up front.

The bottom line

Financial advisors provide education and guidance to help people manage their money and improve their financial well-being. Working with a financial advisor can be a great first step as they help lay the groundwork for financial success. Once your financial situation is under control, the counselor may refer you to a financial planner or counselor to work on advanced topics such as investing, tax planning, saving for college, and building savings.

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