Financial advisors help individuals and families develop financial literacy skills and establish good financial habits. They offer a wide range of services and may help you tackle 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 can benefit from financial education and support, a financial advisor may provide you with the help you need.
- Financial advisors help people build financial skills and improve their overall financial health.
- Financial advisors often help low-income families manage current expenses, build savings, create debt repayment plans, and navigate public assistance benefits.
- Financial advisor fees are generally lower than those of financial advisors and planners.
- Military personnel, college students, and families struggling financially due to the COVID-19 pandemic may have access to free financial advice.
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 families, such as saving, budgeting, paying off debt, managing credit, and achieving financial goals, such as buying a home.
Like many titles used by financial professionals, the term “financial advisor” is unregulated—meaning anyone can call themselves a name. Furthermore, you do not 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 expertise and experience you need.
However, one certification in this field is gaining traction: Certified Financial Advisor (AFC), offered by the Association for Financial Counseling and Planning Education (AFCPE). For certification, candidates must meet ethical, educational, and related experience requirements, including at least 1,000 hours of relevant financial advisory experience. There is also an exam that focuses on nine core competencies:
- Customer information collection
- Helping clients develop business plans
- Develop financial statements, ratios and expenditure plans
- money management
- Credit and Debt Management
- Awareness of customers about major purchases
- Financial risk management
- Discuss the basics of investing with clients
- Educating clients about retirement and estate planning
Financial advisors with AFC accreditation must also meet continuing education requirements and adhere to the Code of Ethics.
What do financial advisors do?
Financial advisors provide support and guidance on a variety of financial topics. They can help you:
- Building savings
- Set a budget (and stick to it)
- Create a debt repayment plan
- Deal with an immediate financial crisis
- Determine if you qualify for tax credits
- Improve your credit score
- Credit Lines Management
- Student loan management
- Modify ineffective money habits
- Browse available public goods and community resources
- Setting and achieving financial goals
- Understand basic financial principles
- Improve your overall financial health
- Refer you to an investment advisor or financial planner when you’re 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 consultants 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) certified housing advisor on their website.
A financial advisor cannot make investment recommendations unless registered as an investment advisor.
If you need help with budgeting, saving or paying off debt, an AFC certified financial advisor can be a good choice. 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) would be a better fit.
How much do financial advisors cost?
Financial advisors work in different places – from hospitals and banks to universities and private clinics. The cost of meeting with a financial advisor usually depends on where they work, but in many cases the price is lower than working with a financial advisor or CFP.
Financial advisors who work in a private practice may offer a free initial session and then charge a flat fee for any subsequent meetings. Others may charge an hourly wage or a monthly subscription.
You may also be able to find free financial advisory services. For example, advisors who work in the military may provide financial advice to service members at no charge. Likewise, universities that have a financial department or career center may offer free financial advice to students.
Regardless of where AFC-certified advisors operate, they must offer a “reasonable” fee that is disclosed in advance to clients.
AFCPE Certified Financial Counselors and Coaches offer totally unbiased and confidential virtual financial counseling and coaching sessions free of charge to individuals and families suffering from the financial impacts of COVID-19. The program is supported by the Wells Fargo Foundation and offered in partnership with the Coordinating Assistance Network.
How to choose a financial advisor
If you think you could benefit from a financial advisor — but don’t know one — start with referrals from friends, colleagues, or family members who seem to be in control of their finances. You can also ask your local bank or credit union if they offer financial advisory services.
Once you have a few potential candidates, the AFCPE suggests asking your competitors 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 can you keep up with developments in personal finance? The AFC must meet continuing education requirements and adhere to the Code of Ethics.
- What services do you provide? Make sure that their services or areas of expertise align with your needs.
- What is your approach? Make sure that their philosophy, personality, and communication style suits you well.
- What types of clients do you work with? Some financial advisors work with clients who have a set minimum net worth, so make sure the advisor is a good fit 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 punished for any illegal or immoral acts? You may also want to ask for references and do an online search.
The AFCPE emphasizes that “Anyone can call themselves a financial advisor, coach, advisor, or planner, but accreditation demonstrates a higher level of education, specialization, or commitment.” You can check if a potential candidate has received a qualification by checking the AFCPE Handbook.
What is a certified financial advisor?
Certified Financial Advisor (AFC) certification is offered by the Association for Financial Advisory and Planning Education (AFCPE) to certify advisors who have met the educational requirements of the organization and pledged to follow its ethical standards. Candidates must have at least 1,000 hours of relevant experience in financial advisory and take continuing education to maintain certification.
What is the difference between a financial advisor and a financial advisor?
The primary difference between financial advisors and advisors is the clients they serve. Financial advisors tend to work with low-income clients, building financial literacy skills and sound financial habits. In contrast, financial advisors typically provide a comprehensive range of services for middle- and high-income clients, such as investment recommendations, portfolio management, tax planning, insurance, and getting kids into college.
What does a financial advisor cost?
This is determined in part by where they work, be it a bank, hospital, university, or their own clinic. The initial session is often free, after which a flat fee per meeting, hourly rate or monthly subscription fee are all possible scenarios. College students, military service members, and veterans may qualify for free services. The price is generally lower than the rate charged by financial advisors and certified financial planners (CFPs). AFC accredited financial advisors are required to charge a “reasonable” fee and state it up front.
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 an excellent first step, as it helps lay the foundation for financial success. Once your financial situation is under control, your advisor may refer you to a financial advisor or planner to work on advanced topics, such as investing, tax planning, saving for college, and building a nest.