What Are the Different Types of Financial Advisors?
Confused about whether you need a financial advisor and the different types? Laura interviews Rita Cheng, CFP, from Blue Ocean Global Wealth and Finder.com about who should work with an advisor, how to find someone trustworthy, what fees are charged, and the differences between robo-advisors and financial advisors.
Using a financial advisor is one of the best ways to make sure you’re on track for a comfortable retirement. A trusted advisor can also help you answer complex money questions, such as whether you should buy a home, get a business loan, or settle zombie debt.
But how knowing which type of financial advisor you should work with can be confusing. There are many different investment firms and advisors with different designations to choose from.
Even if you don’t think you need a financial advisor right now, it’s wise to understand the types of services they offer, how they get paid, and how to check their background and any complaints filed against them.
To get clarity on what you should know about working with a financial advisor, I interviewed Rita Cheng, CFP. She’s the CEO of Blue Ocean Global Wealth, an investment advisory firm that strives to be a trusted partner and educational resource. Rita is also an Editorial Review Board Member at Finder.com, a comparison site helping consumers make better financial decisions.
I think you’ll enjoy our conversation and come away with a better understanding of what it’s like to work with an advisor and how to get started. We cover:
- How your goals determine if you need an advisor and which type
- If you need to be wealthy to work with an advisor
- Different types of fees that advisors charge
- Who’s an excellent candidate to work with a financial advisor
- Differences between robo-advisors and financial advisors
- Where to find potential advisors and check their backgrounds
- Questions you should ask a potential financial advisor
Listen to the interview using the embedded audio player or on Apple Podcasts, Audible, Stitcher, and Spotify.
Even if you don’t think you need a financial advisor right now, it’s wise to understand the types of services they offer, how they get paid, and how to check their background and any complaints filed against them.
Understand How Financial Advisors Get Paid
Here are three ways various financial advisors and investment brokers get paid for their services and advice:
1. Commission-Based
When a commissioned broker recommends a particular investment product, such as a mutual fund or exchange-traded fund, it may include a “load” or fee that comes out of your account—or the product company may pay a broker directly.
Working with an advisor that gets paid on commission isn’t necessarily a disadvantage; however, it may create a conflict of interest. For instance, the advisor may only recommend products that pay them the most, even if they’re not best for you.
Therefore, if you use a commission-based financial advisor, make sure they are a fiduciary. That means they have a legal obligation to put your interests above their own.
2. Fee-Only
Fee-only financial advisors don’t sell products or receive commissions and typically operate as fiduciaries. They may get paid an hourly rate, a fixed monthly or annual retainer, or a percentage of the investment portfolio they manage.
A typical fee could range from 1% to 3% of your total asset value for a portfolio arrangement. For example, if your advisor manages $100,000, their fee could be $1,000 a year.
3. Fee-Based
Fee-based financial advisors blend the commission and fee-only payment models. They may sell investment products for a commission, charge a fee calculated as a percentage of your portfolio, or both. So, it could create a similar conflict of interest as a commission-only fee structure.
No one payment model for a financial advisor is inherently right or wrong. What’s essential is that you understand their fees and believe the advisor will help you achieve your financial goals. So, always discuss fees with potential advisors and get it in writing before you begin working together.
Financial Advisor Resources:
National Association of Personal Financial Advisors
National Association of Insurance Commissioners
SEC Investment Advisor Public Disclosure
What questions do you have about using a financial advisor and building wealth? Leave a voicemail for Laura by calling 302-364-0308. Follow her on Instagram and sign up for her weekly newsletter at LauraDAdams.com.
About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
