What is a Financial Advisor? Do I Need One?

What is a financial advisor?

Financial Advisors are professionals you hire to determine how to invest your "investable assets" (a term that encompasses your cash, money market accounts, stocks, bonds, mutual funds, retirement accounts and trusts), to help you reach your long and short-term financial goals.Some advisors also have developed an expertise in aligning the investments they choose with your values. For example, if you're concerned about climate change, they can ensure that your investments aren't further contributing to the problem, and, in some case, may even be investing in companies that help find solutions.  

Do I need a financial advisor?

Typically, you need approximately $500,000 in investable assets (defined above) to make it cost effective to hire an advisor. There are some advisors (including a few on the ValuesAdvisor platform) that have no minimum account size. The more assets you have, the less advisors charge to manage your money, as you'll see below in the Fees Section. 

• You're experiencing a major life event such as marriage or divorce, having kids, or new investable assets via an inheritance or a liquidity event (meaning, you sudden acquire a large influx of investable assets). 
• You need specific advice on retirement planning, charitable giving (DAFs), or tax strategies.
• You have specific questions about assets in a particular asset class (i.e. stocks, bonds, private equities, etc.).
• You're feeling very anxious about your finances and would benefit from being able to speak to someone who knows you and your financial picture.

Many investment advisors require a minimum account size to work with you, generally ranging from $100,000 to $5,000,000. 

Three important factors when choosing a financial advisor

1. Make sure they are a registered investment advisor (RIA), which requires them to operate under the "fiduciary standard" (meaning they are legally required to put your financial interests ahead of their own or their firm's, versus a "suitability standard," where investment decisions need only be "suitable" for the clients: you can read more about it here). Not all financial professionals are required to put your financial interests ahead of their own or their firms', so it's critical that you ask and confirm that any US-based advisor you work with is an RIA. (Here's a helpful article from Forbes magazine to learn more).
2. Commissions. Ask whether they receive commissions, and, if they do, explore how that impacts their investment advice. For example, stockbrokers offer investment advice but can also receive a commission (an additional fee) when you invest in certain products like funds. Stockbrokers do not operate under the fiduciary standard, which means they are not required to put your financial interests ahead of their firms' so be sure to ask.
3. Financial advisors cost more than robo-advisors. Advisor fees are usually charged as a percent of your assets under their management (AUM). Percentage fees tend to be deducted directly from your account and are often on a sliding scale: The higher the investment, the lower the fee. An advisor might charge 1.25% to manage assets of $500,000 or less, then drop to 1.0% for assets of $501,000 or more, dropping again to 0.090% after the first million invested, and so on. They can also charge a flat fee (by the hour). Because each person's financial situation is different, you need to specifically ask each advisor explicitly about their fees  
    
   The bottom line: be sure to ask what each advisor charges as an annual fee and that they are an RIA (requiring them to put your financial interests ahead of their firm's).

To Find a Values Aligned Advisor

Blog post: " The Seven Attributes of a Values-Aligned Advisor," an excerpt from Activate Your Money: Invest to Grow Your Values and Build A Better World, by Janine Firpo.

Intentional Endowment Network’s Hiring an Investment Consultant: Making your ESG intention Actionable

Omidyar Network: Building an Impact Investing Team