A financial advisor is a qualified and certified professional, who advises people on different ways to invest money to reach their financial goals. a financial planner has access to all your investments and finances and hence it is essential to choose a reputed advisor who has a clear track record. Majority of the people feel choosing a financial advisor is an intimidating task. The complexity of financial planning combined with infinite choices, makes the task of choosing a professional financial planner tough.
No matter whether you are looking for online investment advice or a full time financial planner, the first step in choosing a financial planner is to determine the type of advisor who suits your requirements. Advisors can be categorized into three broad categories on how they are paid. Commission based advisors, fee-based advisors and fee-only advisors.
Commission based financial advisors
These advisors sell financial products for a commission. They sell different investment instruments like mutual funds, insurance and annuities, and receive a commission on the sale. Most of the brokers and insurance agents fall under this category. They also offer online investment advice on choosing different stocks, mutual funds, etc. Since these advisors receive commission from financial services companies, they often push the customers into buying the investments which fetch them higher commissions. Majority of the commission based financial advisors do not charge any fees from the clients.
Fee- based advisors
The fee based advisors charge a fee from the clients to offer online investment advice and financial planning services. These advisors also receive commissions from financial services companies to sell their products. There is a major conflict of interest as these advisors tend to push the clients into buying the instruments, which get them huge commissions.
Fee only advisors are the best kind of advisors. They have the fiduciary duty to act in the best interest of their clients. These advisors do not receive any commissions for selling financial and investment products. They charge the clients on hourly basis or at a flat rate that is calculated as a percentage of the total amount to be managed. The fee-only advisors not only offer online investment advice but also provide comprehensive financial planning services like estate management, retirement planning, taxation etc.