How a Financial Advisor Can Help You Meet Your Goals

Image shows two people reviewing multiple financial documents. Text reads: "What to expect from your financial planner: savings advice; retirement planning; mortgage guidance' insurance guidance; assistance with taxes; downsizing advice"

Julie Bang / The Balance

Financial planners help you arrange and plan your finances. They use your current income, savings, and investments to project what you will have when you're ready to retire. They also help you decide what to do with your money to help you reach your goals.

The terms "financial planner" and "financial advisor" typically mean the same thing. However, not all planners and advisors are alike because there are different ways to become a planner. The level of education, training, and skills a planner has makes a big difference in the quality of the advice you receive. If you handle your own finances, a planner can usually help improve the plans you've made. 

If you're thinking about getting some help, it's good to know what to expect from a financial planner. You'll need to know how to tell if the person you're talking to is selling products or if they are giving you solid financial advice and have valid credentials. Learn what to look for and what to expect from a financial planner.

Key Takeaways

  • Financial planning helps you define your goals and develop a plan of action to achieve those goals. 
  • A good financial planner can offer advice on several aspects of your financial life.
  • Financial planners are paid in various ways, so make sure you understand how they’re paid before you start working with one.  
  • While some planners can give investment advice, not all are able to or want to.

What Is Financial Planning?

Financial planning is the process of defining your financial goals. This can include knowing when you will need to use your money and what you will be using it for. You set some goals, with milestones along the way to those goals. Then, you lay out a plan of action you need to take to achieve those checkpoints and goals.

To give good advice, a planner must gather personal and financial data about you. They use this data to create a picture that shows you when and how you can reach your goals. A planner takes your information and forecasts where you'll be using data about inflation and investment returns. You'll learn how much you can save and how much you can expect to earn and spend.

What a Good Financial Planner Does

A good planner will be able to identify and give advice on all of the following:

  • Things that you might need to do differently to save money.
  • How much money you should be saving for retirement.
  • The types of retirement accounts you can choose from (e.g., IRA, Roth, 401(k)).
  • If the mortgage you have or want is best for you, and whether you should pay it off or refinance your existing one.
  • If you have the correct type of insurance and how much you might need (this would include life insurance, long-term care insurance, disability, and sometimes property, casualty, and health insurance).
  • How much money you should keep in your emergency fund based on your lifestyle.
  • Some changes that might improve how much you pay in taxes.
  • The rate of return you will need to earn to achieve your goals over a given time frame.
  • If downsizing sooner or later in life is best for you and your circumstances.
  • The level of investment risk that is appropriate for the types of accounts you have.

Also, many planners provide estate planning advice and tax planning services. Ask a planner which of the above items they address and whether they'll put their advice in writing. Getting recommendations in writing is always a good idea. This way, there are no questions about the recommended course of action.

If you meet with a planner who starts talking about a product right away, they are not helping you plan; they are trying to sell you something.

A good planner shouldn't tell you what you need until they understand your goals and run a long-term forecast. Planners should want to gather account statements and data on all aspects of your finances.

Financial Planners Fees

You'll find that fee structures vary. Planners can each differ in the way they charge fees for their services:

  • You might pay an hourly rate for basic services.
  • The planner might ask for a flat fee to complete a specific project.
  • If you plan to visit them often, a planner might ask for a quarterly or annual retainer fee.
  • Planners might charge a fee as a percentage of the assets that they manage on your behalf (typically anywhere between 0.5% per year to 2% per year. The more assets you have, the lower the fee usually is).
  • Many planners are paid using commissions from financial or insurance products you buy through them.
  • Sometimes you might see a combination of fees and commissions.

Always ask a planner for a clear explanation of how they are paid. If they work as a registered investment advisor, they must provide you with a disclosure document called an ADV, which consists of two parts. Part one is a fill-in-the-blank form, and part two provides details on all fees and any potential conflicts of interest.

Investment Advice

Some planners also offer investment advice and investment management services in addition to financial planning. Investment advice can range from a general recommendation of the asset allocation model you should follow to specific recommendations on which investments to buy and sell. Make sure to ask your planner if they give specific investment advice or only offer planning services.