If you’re wondering what financial advisors do, the short answer is that they work with you to create a long-term strategy for your financial future. Specifically, a personal financial advisor helps you build wealth by creating a customized financial plan suited for your goals. They can also execute parts of the strategy on your behalf and make investment changes according to events in your life as well as shifts in the broader market.
You may not need every service offered by a financial advisor. Depending on your circumstances, you may require an advisor with specific expertise. But, what do financial advisors do exactly and are financial advisors worth it in the long run? In general, here are the services you can expect from a professional in financial advising.
A major part of what a financial advisor does is evaluate your current financial situation by taking into consideration aspects like cash flow and an investment portfolio so that you can build a plan to achieve your goals. They’ll also help you manage your personal finances and decision making as life events occur. Financial planning can be broken down into two primary categories:
An advisor looks at your spending versus saving habits to make sure you’re on track for both your short-term and long-term goals. They review your current assets and liabilities (i.e., your cash and debt) to make sure your emergency savings is adequate. At Dowling & Yahnke Wealth Advisors, we also place major importance on listening both to your financial concerns and your dreams for the future.
You should also walk away with action items to execute. For instance, your advisor may work with you to create a monthly budget based on your overall goals. They could also review existing financial products you use, such as a mortgage to help you figure out whether or not it’s worth refinancing.
Although the advisor walks you through your options, you’re the one who actually has to stay on budget or get a new financial product (like a mortgage).
A general financial planning session could also include an analysis of things like insurance policies, such as life insurance, liability, property insurance, and others. A financial advisor probably isn’t in the business of selling insurance policies, as this is a job for an insurance agent. Instead, they help you identify the best way to protect your assets and pass them to your beneficiaries when the time comes.
When it comes to financial planning, you’re the one who has to execute on most of the action items, not your advisor. They can give you all the financial advice in the world, but nothing will come of it unless you execute their recommendations in the effort to achieve each financial goal you have set forth.
In addition to general financial planning, a personal financial advisor also helps you prepare for life events — and react to unexpected events beyond your control. For instance, going through a divorce isn’t a pleasant experience, but your advisor can help you through the financial aspect of dividing assets. Caring for aging parents or a spouse can also cause financial strain. An advisor is able to walk you through different options to finance long-term care or prepare before you get to that point.
Debt management is another scenario in which a financial advisor can offer advice, whether it’s figuring out how to pay down a large balance or working with lenders to make sure your loan is structured in the best way.
An advisor can also help you with positive life events, like finding the best way to combine finances when you get married or crafting an investment strategy to steward an inheritance. Anytime something changes in your life, like having a baby or getting a promotion with a large pay increase, you can let your advisor know. They’re equipped to educate you on the financial and tax implications of these changes (although you should always consult with your tax advisor, too). In other words, your financial advisor acts as an expert to make sure you’re optimizing your finances to pursue your life goals — not just your monetary goals.
Retirement is a crucial aspect of your overall financial planning. Depending on your age, goals, and current finances, a financial advisor helps you figure out how much you should save in order to be prepared for retirement as you envision it. They’ll also recommend investment and wealth management strategies based on all of these details. Financial professionals can help determine and define the private wealth management strategies that will best suit your unique situation.
If you’re still working and are in your accumulation phase, an advisor can review your employer retirement plan options to make sure your investments are distributed properly and you’re not overpaying in fees.
Once you’re nearing retirement or have already reached this milestone, an advisor helps you manage asset allocation in a number of ways. They advise on pension distribution election options, Required Minimum Distributions (RMDs) to avoid hefty fees from the IRS, Social Security, and Medicare. You may also need ongoing help as you experience life changes or as major economic events impact the value of your investment portfolio.
A good financial advisor is able to look at all of these variables holistically to adjust your wealth management strategy as needed. For example, if you’re still in your 30s, you may be tempted to cash in your investments during a stock market dip. A financial advisor, on the other hand, has the training and knowledge to help you navigate both the good times and the difficult times in your financial life.
It’s no secret that college tuition is becoming increasingly expensive each year. In the 2017-2018 school year, the average four-year public institution cost over $20,000 a year while private schools averaged above $43,000 during the same period. It’s clear that many parents can’t pay for college out of pocket, especially if you have multiple children.
A financial advisor identifies the best savings strategies based on your children’s ages and how much you expect to contribute to their education. There are different tax-advantaged investment vehicles that may work for you, such as an UTMA/UGMA custodial account and 529 plans. They’ll recommend the best strategies to strive to minimize your taxes now while saving as aggressively as possible. An advisor also walks you through what happens to the funds if your child doesn’t use all of the account funds during college.
Like any investment account, college savings funds come with a number of rules and regulations. Getting professional insights on tax deductions, penalty-free withdrawals, and more ensures you manage your investments wisely while preparing for your child’s future.
Financial advisors can serve as a resource in assessing estate planning strategies. They often work in tandem with a client’s estate lawyer who handles the legal aspects of trust and will documents. Estate planning lets you give directives for how to divide your assets when you pass away. But it’s not just about who gets what — this planning also includes strategies to minimize both your beneficiaries’ tax burden and the length of the administrative process.
Like any financial plan, a huge component is choosing the right tools to achieve your goals. A revocable living trust, for example, can help avoid probate and protect your privacy. There are several other types of trusts available that may be beneficial in your financial situation. If your estate is large enough that you could pay estate taxes, proper planning can help reduce your estate taxes. It’s difficult to evaluate these options on your own, which is why many people choose to enlist the help of a professional financial advisor in conjunction with an attorney.
If you’re already working with an advisor to manage your investments, estate planning would be another area in which they can help. It’s convenient when you already have a working relationship with a financial advisor before you begin your estate planning, since they’re already familiar with your money situation, and perhaps even your family dynamics. But even if you don’t have an advisor already, they are skilled in assessing your finances in-depth to work with your attorney to create an estate plan on your behalf.
Tax planning is important at every stage of life. During your wealth accumulation years, a good financial advisor should incorporate tax considerations into your investment strategy. This applies to both the types of accounts you use and managing capitals gains when selling stocks (including tax-loss harvesting).
As your financial needs shift, an advisor can also help you figure out the best way to tap into your assets if you ever need an infusion of cash. Many tax-advantaged investment vehicles come with early-withdrawal penalties and must be included as part of your gross income that will be taxed. Sometimes, however, there are exceptions based on the type of account and the intended use of the funds. Because your advisor has a good idea of your broader financial snapshot, they’ll be able to offer investment advice and cash flow recommendations with the fewest tax implications.
Finally, your advisor can walk you through charitable giving in a way that meets your philanthropic goals while simultaneously maximizing tax efficiency. There are multiple levels of complexity, including writing a check to a non-profit, donating appreciated stock, creating a donor advised fund, and plenty in between. Creating a philanthropic legacy can also be a major part of your tax strategy to make your money have an even bigger impact in the areas that are most important to you.
Clearly, financial advisors do a lot. While you may not need every available service, creating a working relationship with an advisory firm like Dowling & Yahnke Wealth Advisors not only improves your financial planning today, but also prepares you for the years to come. As your needs change, we step up to the plate and help you through major financial decisions at every stage in life.
Do you have questions regarding our planning services or San Diego based financial advisors? Contact us today at Dowling & Yahnke Wealth Advisors to speak with one of our experts and learn more about our financial services, including asset management in San Diego.