How to Choose an Online Financial Advisor

Daniel Penzing
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Finding a financial advisor online has never been easier.

New sites like Ellevest Let women invest with confidence and believe that investing is a no-brainer for women.

With its online investment platform, you can quickly create plans for reaching your financial goals: invest for retirement, save for vacation and more. The same goes for financial goals that are set by you, not Ellevest. You share a vision with the advisor and you both lay down goals and then see if you could benefit from a service such as Ellevest.

But how do you pick a financial advisor?

Financial planning might be easy, yet picking the right financial advisor for you, can be challenging.

To find the online financial advisor that best fits you, you need to know what you want and how you plan to get there.

Here are some items to take into consideration before you sign up for the first available online financial advisor:

Where do you stand financially?

Financial advisors are interested in knowing where you stand financially. They want to know about your current income and how much you have in savings and investments. However, you don’t have to make major disclosures.

In this Guide:

Nothing beats a good financial advisor! Or does it? These days, it seems as though financial advisors are not entirely necessary. You can find plenty of information online about creating and maintaining a budget, and you can find plenty of software programs that can help you manage your finances. It’s no longer required to hire an expensive monetary advisor, right? Well, maybe not quite.

The Importance of Financial Advisors

While a lot of this information can be found online, you are still likely to benefit from the expertise of a financial advisor. A financial advisor can sit down with you and discuss your financial goals. They can help you set realistic budgets and can help you stick to them. It’s a huge benefit to have a real person to talk to and to ask questions to.

Another important aspect of hiring a financial advisor is that they can offer you security. When you have a financial professional looking over all of your financial concerns, you won’t have to worry about the little things. They’ll be able to help you create a great plan for your portfolio, they will keep an eye on market fluctuations, and they will alert you to any potential security breaches or problems.

Understand the Types of Financial Advisors

Before you can begin choosing a financial advisor, you need to be familiar with the types of financial advisors.

A financial advisor can work at a financial firm (a financial firm can be a money management company, insurance company, bank, or investment company). Or, a financial advisor can work in a brokerage firm.

When you hire a financial advisor, you’re hiring someone to help you manage your money. Some advisors may specialize in particular areas of finance.

Some advisors perform general financial services, including:

  • Investments and accounts
  • Retirement plans
  • Investment tax issues
  • Tax planning and preparation
  • Budgeting and financial planning
  • Insurance needs
  • Credit management
  • Opening and closing accounts
  • Cash management
  • Investments
  • Marriage and family counseling
  • Debt management
  • This is not an exclusive list. Other financial services can be offered by financial advisors.

Specific Types of Online Financial Advisors

Especially for individuals, this is one of the most popular types of online financial advisors. The services of these financial advisors are often bundled with the purchase of a mutual fund.

Retirement Planning

A retirement plan is very important for the smooth future of individuals who wish to enjoy the twilight years of their lives.

Insurance / Asset Protection

Insurance advisors work with clients to create long and short-term asset protection planning goals.

Tax Planning

To avoid penalties and interest from the IRS, all Americans are required to pay enough taxes on time. So, tax planning is an element of financial planning.

So, who provides this kind of service? Financial advisors might provide online financial advisory services to individuals or to small to medium-sized businesses as well.

The U.S. government passed a law (the "Act") regulating the financial planners who provide financial advisory services. Real estate agents and insurance agents are examples of those selling financial advisory services. Bank, credit card, and loan officers are examples of those who may be selling financial advisory services if they recommend or provide financial product advice that is security linked. A security link can be a product or service that is designed to shelter, hedge, or otherwise protect assets from market fluctuations caused by inflation or other factors.

Custom Advising

With so many different financial institutions in the industry, including banks, investment banking and asset management firms, choosing the right service can be tough. You could end up drilling through a list of companies and getting very lost as you try and figure out who offers what kind of service.

There are however new and cost-effective services being formed in the industry that are trying to revolutionize the way that consumers access financial advice. One of them is the digital investment advisor. This is a concept that is designed to offer customized plans, that cover all of the financial aspects on your life.

As a client you can completely control the way that your money is treated, and the advisor will work with you based on your needs and goals. Whether you just want advice or a complete financial plan, the digital investment advisor can offer a service that is tailored to you.

The concept of this type of financial institution is appealing to many as it offers a complete lifetime financial plan without any hidden charges, and the service can be accessed from anywhere. All you need is an internet connection, a smartphone, and a laptop. An advisor will call you through telephone calls or a messaging service to discuss your personal finances and offer tips and guidance as to how to best reach your goals and objectives.

Tech-assisted Online Financial Advisor

Most modern economies are driven by technology automation and computer hardware. Technology-assisted online financial advisor will help financial planners while assisting clients. A technology assisted online financial advisor whether for the financial planning or the investment advice will create a lot of job opportunities. Like any other new technology, it seems like a dream job. But behind the glamour, there is a lot of work involved. Financial advisors need to develop computer expertise, keep pace with the ever-evolving technological advancement, and understand the financial products better. Students will get a clear idea of what to expect from online financial advisors after reading this article. Online Financial Advisory Services are expected to exceed more than USD 217 billion in 2025 to become a USD 100-billion dollar industry. It also provides a huge space for the financial advisors to work on their own.

Financial advisors bank on the influential terms such as demographic trends, increased online usage, smartphones usage, and rising savings rate to provide advisory services over the cyber space. They also provide services to self-directed investors or clients through the exchange-traded funds. Around 62% of the advisory services are registered with the U.S. Securities and Exchange Commission (SEC). This clearly demonstrates the growth of the online financial advisor services. There are so many financial advisors but not all of them provide holistic advice. They usually look into the monetary part of it but completely ignore the behavioral aspects while advising the clients.

Automated Online Financial Advisor

Investment decisions are among the most important that you’ll make in your lifetime – whether you’re planning for retirement, building an emergency fund, or simply working to pay down high-interest debt. For most people, you might think a financial advisor is the best way to go.

From a cost perspective, a financial advisor is necessary when you have a million-dollar nest egg or more to invest. And if you’re not saving yet, you have credit card debt, or your schedule is so packed that you don’t have time to keep track of your money, an advisor probably is wise to have.

The only problem is, finding a trustworthy one can be a challenge. Fortunately, there’s now an automated investment software that will do all of the work for you, including finding an online financial advisor, saving you time and money.

The software that will find you the best online financial advisor for your exact situation will guide you through the entire process, so you don’t have to worry about doing it all yourself. Not only will you have a better sense of control over your finances, but you’ll also avoid getting roped into any high-priced and unnecessary investment advice.

Choose Which Services You Need

When you choose which financial advisor to use, look at the range of services that they offer. Many will offer you the choice of both investing and insurance through their company, but you can also use them to just invest or to just insure your valuables. Take a look at the range of services that each financial advisor offers before choosing which one to use.

Ask for References If you want to make sure that you are choosing a reliable financial advisor, ask for references. Ask your friends and family if they have used the services of any financial advisors in the past, and ask what sort of experience they had with the advisor. Compare the responses that you get from your family and friends with the reviews that you read online to make sure that you are getting the right financial advice and that the financial advisor is not spreading false information about themselves.

Do Not Be Fooled If the financial advisor offers you a tailor-made service that nobody else gets, then that is because they are using the same tactics to get you to choose their service that lots of businesses use. You should not be fooled by these tactics, and you should be looking for a financial advisor that offers a wide range of services to lots of different people so that you can see what their true capacity is. An established financial advisor that has been in business for a number of internal deserves an honest chance.

Service Offerings

The first thing to do is figure out what kind of service you are looking for. Are you interested in reviewing your financial position, optimizing your portfolio, or making financial decisions?

There are a lot of different services that online financial advisors can offer. You should look for a service (or firm) that offers the type of service you are interested in.

Level of Expertise

The more highly qualified your online financial advisor is, in general, the more expensive the service will cost you. You should look for an online financial advisor that meets your requirements in terms of experience and skill set. If you are looking for someone to complete tax returns, you might need a CPA to help you out, while if you want someone to set up your retirement investments, a Certified Financial Planner, who is highly skilled in qualitative analysis, would be of more assistance.

Robot vs. Human Advice

Although online financial advisors have been around for a few years now, many people don’t fully understand what their purpose is. The main purpose for using a financial advisor is to ensure you achieve your financial goals without spending the time and effort needed to figure out the best way to do it.

That said, it’s important to understand that not all online financial advisors are the same. Some give you advice based on a set algorithm or formulas, provided by someone else, and some engage in personal conversations with you to provide advice and financial planning.

Before we get into the spectrum of online financial advisors, it’s important to understand the role of a human advisor in comparison to a robot’s algorithm.

Human advisors are generally able to offer advice and help with retirement planning, investments, life insurance, estate planning and taxes.

Robot advisors, on the other hand, typically specialize in financial planning and tax-loss harvesting.

The good thing is, many of the online financial advisors are actually the combination of a human advisor and a robot advisor. This enables them to give you the right advice based on the current tax laws.

When choosing an online financial advisor, remember that the quality of the information is usually much more important than the quantity. This is because you need to know the right information to get the right advice.

Management Fees

Different investment management strategies will have different management and performance fees.

For example, value investing may be inexpensive and have a small management fee, but it will also be a lot riskier.

If you are interested in value investing and wish to attempt to make this strategy work for you, it may be wise to invest a certain amount of money earmarked for higher risk investments each month. Once the performance of the account is deemed successful you can use that investment money for lower risk investments with a higher probability of providing a good return.

Index investing is less risky but the management fees can be quite high. The idea behind index investing is to match the performance of a certain index. This index might be market indexes or futures based. Regardless of what index is used, they will most likely have higher management fees.

You need to know exactly what you are trying to accomplish before you can decide which investment manager to choose.

What type of investment portfolio are you trying to build?

Once you can answer that question, you can choose a financial adviser who will help you build this type of portfolio. If you do not know exactly what you are trying to accomplish you will need to take time to figure it out before you commit your money.

How the Advisor Is Paid

Know the difference between paid based on client assets, assets under management, flat rate, and other fees that might already be baked into the services you use like borrowed money or free order flow. In general, the more difficult the problem being solved by the advisor, the larger the fee should be.

Investment Options

is a robo-advisor truly free of charge?

This is what enables investors to create a portfolio of mutual funds, ETFs, individual stocks, bonds, cash, and other assets. That’s a lot of variety, so the good news is you can select the investment options that fit your needs and preferences. The bad news is that sometimes you can go overboard by trying to do too many things at once, which is why it’s best to start very basic and then move on to more advanced options once you’ve gotten a few years of experience.

Since a robo-advisor is not an actual person, it will not be able to answer all your questions about investing in the stock market. The good news is that a robo-advisor can put you in contact with a live customer support team, which will be able to answer your questions and provide you with tips and insights based on their experience.

Account Minimums

Comparing financial advisors is like comparing cars – you have to look under the hood before making a decision. The most important thing you can do to compare apples to apples is to ensure all your potential financial advisors have the same minimum account order. Make sure your advisor charges the same amount of money to open an account and requires a monthly fee. Sometimes advisors will discount their monthly fee if you have a larger account size.

Types of Accounts Managed

Before you can begin to shop for a financial advisor online, you need to know the types of accounts that are available.

Most financial advisors offer account management that includes a mix of the following:

Self-Managed Products

You put together your own portfolio of stocks, bonds, mutual funds, and exchange-traded funds. Your advisor might provide guidance on how to do this, but you will retain the final authority.

Retirement Products

You can manage your own retirement portfolio or your advisor can hold it for you until you reach retirement age. You will also have the option to pay for professional management or to manage it yourself.

Wealth Management Products

You can manage your own wealth and engage your advisor as a sounding board and for financial planning advice.

Licenses, Certifications and Background

Regardless of whether you are considering using an online or a full-time brick and mortar financial advisor, it is sensible to check whether the advisor you are considering has formal training covering the following areas:

  • Estate Planning
  • Investment Risk
  • Investment Knowledge
  • Human Behavior
  • Types of Investments

You should check to see that whether your online financial advisor has a certification in any of these areas. Ideally, the certification should be from a professional organization such as the Certified Financial Planner Board of Standards, Inc. or the Personal Financial Specialist credential from the American Institute of Certified Public Accountants.

Verify that your advisor has at least a bachelor’s degree in accounting or finance. However, it is also a good idea to check that he/she has a graduate-level certification in business, financial planning or real estate.

Find the Best Online Financial Advisor for You

The financial market is filled with choices. If you are looking for a financial advisor to help you make the right choices, it can be quite daunting. You need to find the right person to help you. First, consider your needs.

How much money do you have to invest?

How much money do you have now?

Are you looking to grow your money, or are you investing it for retirement?

Are you looking for someone who will help you invest all of your money, or just some of it?

Do you have a financial plan already? If so, does it need updates?

If you already have funds available, do you want to invest it in a new retirement plan?

Are you looking to invest in a new business?

What is your total worth?

If you are still not sure how much you have, try this online financial calculator. It is the ultimate financial tool when it comes to calculating your net worth.

What kind of investment would you like to focus on?

Are you interested in gold investment?

How about investing in precious metals such as gold, silver, and platinum?

Are you looking to invest in stocks such as real estate stocks, or stocks in businesses that interest you?

Do you want to invest in mutual funds and exchange-traded funds?