What Does a Financial Advisor Even Do?

If you’re reading this, you probably have a good problem.

Your daily finances are stable, and those savings accounts are going up. But you know that those savings will be eaten away by inflation if they’re not invested, and now you’re wondering how to invest well. Your future financial health is on the line. Congratulations on your stress!

At this stage, it’s natural to wonder if a financial advisor is the solution to your problem.

And sure, a quick Google search can tell you what advisors do for their clients—help identify your risk tolerance, construct an investment portfolio for you, monitor your investments—but a laundry list of these actions doesn’t really capture the value you get out of working with an advisor.

Recently, we examined why investors keep their financial advisors around, and the insights may help you get a better grasp on what it means to work with an advisor.

Top Things Financial Advisors Do for Their Clients

Here are some of the most important things that financial advisors do:

1. Offer peace of mind with their knowledge and expertise.
2. Create tailored financial advice.
3. Help clients make better financial decisions.

#1 Thing Financial Advisors Do: Financial advisors bring peace of mind to the table through their knowledge and expertise.

The most common reason that people keep their advisor is the comfort they got from working with their advisor. Some investors said they didn’t have to worry about their finances as much anymore; others said they felt happier having someone with more time and knowledge doing the work; and some just said they were pleased they didn’t have to be bored by financial decisions.

Indeed, advisors can handle a whole range of issues from 401(k)s to taxes to wills. This breadth of knowledge can be relieving to everyday investors who may not feel they have the expertise to deal with these disparate issues.

#2 Thing Financial Advisors Do: Advisors get to know their clients’ specific wants and needs so they can tailor financial advice to help clients get to where they want to be.

People also often said they kept their advisor because of the personalized advice they received. Many people liked getting advice that was specific to their circumstances and goals.

Good financial advisors put in a lot of time and effort getting to know their clients and helping them articulate meaningful and achievable financial goals. This, in turn, allows them to offer the advice that helps you reach those goals.

#3 Thing Financial Advisors Do: Advisors help clients make better financial decisions, especially in times of stress.

People also commonly said a top reason they kept their financial advisor around is because they gave decision-making support. This group commonly noted that their advisor was able to act as a sounding board to help them find their best options, or that their advisor provided guidance through rocky financial terrain.

Advisors understand that being an investor is hard, and it’s even harder when it feels like your financial future is on the line. However, advisors offer the scaffolding to help their clients make good decisions and avoid common behavioral mistakes.

What About Returns?

Aren’t people keeping their advisor because they got them a good rate of return?

Yes, some people did mention that, but only 12% cited returns as reasons for keeping their advisors—whereas 59% of investors cited an emotional reason, like getting comfort from working with their advisor. This means that advisors are bringing a whole other set of benefits to the table beyond financial returns.

How to Find the Right Financial Advisor

Altogether, we start to see a picture of what advisors actually do for their clients: Help them develop and follow financial plans so they can reach financial goals and rest easy. So, if you’ve been curious about financial advisors but unsure whether they are worth your money, hopefully what they do is a little demystified at this point. Also, you now have a good list of things to look for if you do decide to go shopping for financial advisors.

On top of ensuring they are a fiduciary, you also want to make sure that they’re a good fit in these areas. You should ensure that they value providing:

1. Peace of mind to their clients. You might be able to tap into this by asking them the reasons their clients like working with them. They shouldn’t just tout some grand return rate, but they should also talk about how much better their clients feel about their finances.
2. Good, individualized advice. You can tap into this by asking advisors how they incorporate clients’ goals into their financial advice. Again, the focus shouldn’t be on how well they can predict the best-performing funds. Instead, it should be on how they consider a client’s timeline to reaching a goal, how comfortable they are with investment risk, or how they help clients find meaningful financial goals that are within reach for their situation.
3. Decision support. To find out if an advisor is keyed into the importance of helping their clients make good decisions, ask them what challenges investors face when trying to make financial decisions. They should mention things like how investors may need help navigating what to do in bad markets, how investors may sometimes need a sounding board to figure out the best decision, or how investors may need a financial educator to help interpret their options and market conditions.