What does a financial advisor do?

What does a financial advisor do?

What exactly does a financial advisor do? It depends on the advisor you’re working with.

That’s a great question “what does a financial advisor do?” I can’t speak for other financial advisors, but I can certainly tell you after 20 years what I think a financial advisor does.

A financial advisor – in a broad sense – should create a road map for your money. Not just any road map, but a clear path to reach your financial goals as efficiently as possible.


What’s in a financial road map?

Most financial advisors are more general in nature. They’re not experts in tax law and won’t be able to draft your estate documents. Your advisor should however have a solid and broad knowledge of those things and how they affect your financial plan overall.

The financial road map they create for you should be robust and thorough. If the advisor doesn’t have specific expertise in certain areas, they should be willing to work with your other advisors closely. The road map must cover important financial aspects such as:

  • Insurance. What happens if you die? Will your spouse and/or children suffer disastrous consequences or will they be perfectly fine financially? Do you need more or less life insurance? What about your health in retirement? Will it drain your family financially if you become sick for an extended period of time? Is long-term care insurance a good or bad idea?
  • Tax Planning. How can you use the very few tools the IRS has given us to minimize your taxes both now and into the future? Different types of accounts can postpone taxes, or provide tax free income for life? Different types of investments generate various tax consequence – which should be owned in which types of accounts?
  • Estate Planning. A great advisor will either have the wherewithal to help you plan a legacy for generations to come, or work with an expert estate planner who can! Accounts should be titled in certain ways to maintain a clear path towards your final wishes, and important legal documents must be crafted and managed according to your personal wishes.
  • Investments. Most people think a financial advisor simply sells investments. This couldn’t be farther from the truth! A great financial advisor knows how to manage your investment portfolio efficiently, minimizing risks as much as possible while tailoring your expectations towards your capacity, tolerance, and need for investment risk.
  • Retirement Planning & Other Goal Planning. It’s too simplistic to say the best financial advisors will create a great retirement plan. The fact is there’s far more to it. What about younger couples with kids and college expenses? What about that second home purchase which must be carefully planned for, or that business you want to buy? While retirement planning is perhaps 90% of the battle there are other important aspects to consider.


So how to the best financial advisors deliver these things?

The CFP board defines financial planning as the following six steps:

  1. Establishing and defining the client-planner relationship
  2. Gathering client data including goals
  3. Analyzing and evaluating the client’s current financial status
  4. Developing and presenting recommendations and/or alternatives
  5. Implementing the recommendations
  6. Monitoring the recommendations

I certainly can’t argue with the CERTIFIED FINANCIAL PLANNER Board of Standards. I do however think every client is different, and every situation must be custom tailored to the individual. That being said, not every financial advisor is dedicated to spending the time necessary to complete all 6 steps. It’s important for you to know, that only the best financial advisors are committed to doing so!