People make use of financial advisors to seek advice on:
- how to invest
- manage their assets
- or optimize tax savings
This usually includes navigating the complicated world of stocks, bonds, real estate, taxes, estates, and wills, among others.
However, financial advisors do not come cheap, as you would need to be in a certain financial bracket or have a substantial amount of money or assets to procure their services.
One particular niche that is gaining recognition among less wealthy people is advice-only financial advisors. These types of financial advisors take a unique approach to planning your finances that puts your needs first.
In this article, we’ll look at advice-only financial advisors and where you can find them, including the pros and cons of using them to get financial advice.
What are Advice-Only Financial Advisors?
Also called fee-only advisors, Advice-only financial advisors give you advice, suggestions, and plans about your money without managing your investments or selling you goods.
Unlike traditional financial advisors, advice-only financial advisors don’t sell financial products or get paid commissions. Instead, they charge fees for their expert advice, which means their only goal is to help you make smart choices.
Who can use advice-only financial advisors?
Advice-only financial advisors can be a valuable resource for a wide range of individuals and situations. People who would find advice-only financial advisors particularly useful include:
- Young adults who are just starting to manage their finances
- DIY Investors who prefer to manage their investments themselves, but want expert advice on portfolio structuring, asset allocation, and investment strategies
- Individuals or families looking to create a budget, reduce debt, or increase savings
- Pre-retirees and retirees often need assistance in creating a retirement plan that includes strategies for drawing down retirement savings, managing pensions and Social Security, and optimizing tax efficiency
- Those who want to set a financial goal, whether it is saving for a child’s education or a dream vacation
- If you need advice on the basics of estate planning, such as understanding the implications of wills, trusts, and beneficiary designations
- Individuals who need guidance on tax-efficient investing, retirement accounts, and general tax strategies to minimize liabilities
- Investors looking to diversify their portfolios or understand the risks and potential returns of different asset classes
- Parents and educators interested in teaching financial literacy to children can consult advice-only advisors for resources and strategies
How can you find an advice-only financial advisor?
Finding an advice-only financial advisor involves a few steps to ensure you’re working with a qualified professional who can provide the guidance you need without selling financial products. Here are some ways you can find one:
- Online directories and databases like the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network list advice-only financial advisors
- Use the search tool on the official webpage of the Certified Financial Planner (CFP) to specify your preferences, including fee structure and services offered
- Ask for referrals and recommendations from friends, family, or colleagues who have worked with advice-only financial advisors
Pros of using an advice-only financial advisor
1. Objective and unbiased advice
The neutrality of advice-only financial advisors is one of the biggest benefits of dealing with them. Due to their lack of interest in commissions or product sales, they have no potential conflicts of interest.
2. Cost-effective
Fees for advice-only financial advisors’ services are usually based on hourly rates or a set price for particular financial tasks.
Even though it could seem like an extra price, doing this frequently results in long-term cost savings. You may be able to keep more of your hard-earned money by avoiding excessive commissions or unstated costs related to product sales.
3. Personalized financial planning
Advice-only advisors understand that each person’s financial circumstances are different.
They take the time to fully comprehend your situation, risk tolerance, and financial objectives. They can create financial solutions that are tailored to your individual demands thanks to this personalized approach.
4. Transparency and education
These advisors place a high value on openness and education.
They make sure you understand the cost of their services by providing transparent explanations of their price schedules. Additionally, they are dedicated to providing you with the knowledge necessary to understand the reasoning behind their suggestions, enabling you to make wise choices.
5. Fiduciary duty
Advice-only financial advisors are legally obligated to act in your best interests.
6. Comprehensive financial planning
Advice-only advisors provide a broad range of financial planning services, such as:
- investment strategies
- retirement planning
- tax planning
- and estate planning
Their all-encompassing strategy guarantees that every facet of your financial situation is taken into account and included in a well-thought-out plan.
7. Control
Even though you use them, you retain control over your investments and financial decisions, which is empowering for many individuals.
9 Cons of using an advice-only financial advisor
While advice-only financial advisors can offer many benefits, it’s essential to consider the potential drawbacks and limitations before working with one. Here are some cons to be aware of:
1. Limited scope of services
The sole responsibility of advice-only financial advisors is to provide guidance and advice. As such, they do not carry out financial transactions on your behalf.
2. No investment management
Advice-only financial advisors don’t manage your investments directly.
3. Hourly fees
They charge by the hour. These fees can add up, and if you need money for a long time, it might be cheaper to work with a financial advisor who charges a flat fee or a share of the money they handle.
4. Upfront costs
Depending on your financial situation, the initial cost of hiring an advice-only advisor can be relatively high, especially if you require in-depth financial planning.
5. No recommendations
Since advice-only advisors do not sell financial products, you won’t receive recommendations for specific investment products, insurance policies, or other financial instruments. This could be a disadvantage if you prefer an all-in-one approach.
6. No tax preparation
They usually don’t provide tax preparation services. If you need assistance with your taxes, you’ll have to consult a tax professional separately.
7. Complex financial situations
A financial situation that is extremely complex and involves multiple investments, enterprises, or estates may be too difficult for advice-only advisors to handle.
8. Limited accessibility
It could be difficult to find an advisor who shares your taste for in-person encounters. The main ways to get in touch with them are by phone, email, or video conference.
9. No sales commissions
Although this is frequently viewed as a benefit, there are times when it might be a drawback. They might not be inclined to suggest particular financial products, even if they could improve your financial circumstances if they are not compensated with commissions.
Conclusion
If you want fair, personalized, and cost-effective financial help, hiring an advice-only financial advisor is a good idea.
These professionals can help you find your way to financial success because they are dedicated to being open, teaching, and looking out for your best interests.
So, if you want to make smart financial choices and protect your future finances, you might want to work with a financial advisor who will only give you help and put your needs first.