What Is a Financial Consultant?
A financial consultant, also known as a financial advisor or financial planner, is a professional who offers money management advice to individuals and businesses. Most people come to financial consultants looking for guidance on how to reach long-term financial goals, which may include a debt management plan, investment advice, and/or developing a savings plan. A business will sometimes hire a consultant for advice on managing money programs for its employees.
Types of financial consultants
The field of financial consulting is very wide, and can include everything from investment advice to tax planning to selling financial products. Some advisors focus on one narrow area, like retirement planning, while others may help an individual coordinate all of his or her financial goals. When choosing a financial consultant, an individual should find out what services the consultant offers, what his or her approach to financial planning is, and what kind of qualifications he or she has. Not every consultant may be licensed to sell securities, for example, so if this is a service the client is interested in, he or she should ask up front.
Corporations may also work with a consultant on ways to deal with financial challenges. A business may request help with budgeting issues or ways to manage the company's debt. Some companies will even have a financial consultant answer employees' questions about their benefits and retirement plans.
When to see a consultant
Individuals will sometimes get financial advice after career or life changes — getting a new, higher paying job, or expanding their family. They may have questions about how to get a good mortgage rate, when to start a college fund, or when to start saving for retirement. A financial consultant may be able to offer guidance in all of these areas. Although some consultants will work with people at any stage of life and income level, others only work with clients who have a lot of money to invest.
Most experts recommend that an individual consider hiring a financial consultant when his or her investments are significant, perhaps over $500,000 or $1 million US Dollars (USD), or when making major financial decisions. How often the client meets with the advisor can vary, often depending on how hands-on the client wants to be. The client and consultant should both be comfortable with how often they meet and what other methods of communication are available, should the client have questions at other times.
Fee-based and commission-based consultants
Both individuals and businesses may take into consideration which type of financial consultant, fee-based or commission-based, could be the most beneficial to their needs. Typically, fee-based consultants receive a set fee for their services and commission-based consultants earn fees from financial product sales. When deciding which type of consultant to use, it may be helpful to focus on the financial services and/or products needed.
Fee-based consultants do not receive commission from services provided to clients. Generally, these consultants are compensated with quarterly or annual fees, or an hourly rate. The fees are usually disclosed in advance and prior to the start of financial services.
Commission-based consultants receive fees from financial services or products rendered to clients. In most situations, the commission is a percentage earned from the financial products sold. These services or investments may be suggested by the consultant and involve the buying and/or selling of securities, or the conversion of assets into cash or securities. Some argue that commission-based compensation plans can create incentives for the consultant to invest in a way that is not ideal for the client but yields a higher payout for the consultant.
Financial consultant careers
An individual interested in becoming a financial consultant can get started by working for mortgage lenders, tax companies, or banks. This offers the individual an opportunity to gain valuable experience in handling loans and other financial services. It can also increase the consultant’s understanding of various finance-related issues.
Most people who land a job as a financial consultant start working for a financial service or consulting firm. Working in the field can help the individual gain professional expertise, and some companies will even pay for their consultants to become certified. In the US, qualifications include Certified Financial Planner™ (CFP®), Chartered Financial Consultant® (ChFC®), and Personal Financial Specialist (PFS).
Some consultants may eventually choose self-employment, usually by establishing a private consultancy. This situation often works well for self-motivated consultants, and can offer ideal working hours and an increased earning potential. In many cases, a financial consultant who establishes a private consultancy will offer services in one specific area, such as insurance, retirement plans, or family finances. An option like this can be more lucrative for the financial planner who is a self-starter and is disciplined.
Written by Jenna Gray
