Personal Financial Advisor

DEFINITION of Personal Financial Advisor

A personal financial advisor is a professional who help individuals manage their finances. Personal financial advisors provide advice on a range of issues such as investments, insurance, mortgages, college savings, estate planning, and taxes and retirement, depending on what the client requests help with. Some financial advisors receive a flat fee for their advice, while others earn commissions from the investments they sell their clients.

BREAKING DOWN Personal Financial Advisor

Professional organizations like the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA) can help you find an advisor. When choosing a financial advisor, it is important to ask if they have any FINRA licenses or official credentials. Certified Financial Planner® (CFP®), chartered financial analyst (CFA), chartered financial consultant (ChFC) and registered investment advisor (RIA) credentials are good indicators of an advisor’s experience.

Personal Financial Advisor and Individual Financial Plan

The first step in developing a relationship with a personal financial advisor is creating your financial plan. This is a comprehensive evaluation of your current and future financial state. It also takes into account critical, basic information such as age (time horizon), financial goals (saving for education, buying a home, preserving capital, or generating income), and appetite for risk and reward. This is often based on education, net worth, and experience in the public and private markets. Additional aspects of financial plans can include tax liabilities, asset allocation, and future retirement and estate plans. Financial plans can use variables to predict future cash flows, asset values and withdrawal plans.

A good personal financial advisor won’t re-use templates on different clients. While the majority of financial plans will include research into and considerations of the client’s life goals, wealth transfer plans and projected expense levels, a personal financial advisor should take time to incorporate unique aspects of each customer’s financial journey, including attitudes towards investing, budgeting, and continued education about financial topics. A good financial plan will alert an investor to changes that must be made to ensure a smooth transition through life’s financial phases, such as decreasing spending or changing asset allocation. Financial plans should also be fluid, allowing for occasional updates.

Many personal financial advisors elect to join wealth management firms like Fidelity, Vanguard, and Charles Schwab that provide tailored financial advice to high net worth and retail customers. Some larger asset managers like Morgan Stanley and Goldman Sachs also have robust wealth management arms for high net worth individuals.