What is a Financial Consultant?

A financial consultant offers money management advice to people and businesses. Most people employ them for guidance on how to reach long-term financial goals, which may include a debt management plan, investment advice, or developing a savings plan. Organizations also work with consultants to make sure their business plans are financially viable and to manage money programs for employees.

Financial consultants generally focus on retirement advice, investments, and debt management, though some advisers help clients coordinate all of their financial goals. Corporations sometimes work with a financial planner on ways to deal with financial challenges. A business might request help with budgeting issues or ways to manage the company's debt. Some companies employ financial advisers to answer employees' questions about their benefits and retirement plans.

People often hire a financial consultant after a life change, like a promotion or an addition to their family, as they may have questions about how to get good mortgage rates, when to start a college funds, or when to start saving for retirement. Most experts recommend that a person seek financial advice when making large investments — generally around $500,000 or $1 million US Dollars (USD) — as well. When choosing a financial consultant, it's important to shop around and ask detailed questions of each potential advisor. Questions to ask include what services he or she offers, what his or her approach to financial planning is, what kind of fee structure will be used, what type of licensing he or she has, and whether he or she has ever been disciplined. Additionally, people should ask potential advisors what kind of experience they have with working with people in their specific financial situation, as approaches to financial planning vary according to circumstance.

Many financial consultants get their start by working for mortgage lenders, tax companies, or banks. Some eventually become self-employed, usually by establishing a private consulting business, which allows for flexible working hours and increased earning potential. Those who do this generally offer services in a specific area, such as insurance, retirement plans, or family finances.

There is no international standard of certification that a financial consultant must get before working, though most areas do have regional certification and licensing requirements. Generally speaking, any person providing financial advice for a living has to be certified before he or she can sell insurance, stocks, or mutual funds. In the US, qualifications include Certified Financial Planner® (CFP®), Chartered Financial Consultant® (ChFC®), and Chartered Life Underwriter®. Both the CFP® and ChFC® certifications are focused primarily on financial planning, while the CLU® certification is more focused on insurance, but also includes aspects of financial planning.

Consultants tend to use either commission-based, fee-only, or fee-based payment models, depending on the types of services provided as well as the cash flow of their clients. Commission-based advisers charge fees for financial services or products that they sell to clients. Most of the time, the commission is a percentage of the value of the financial products sold to clients. Critics of this type of compensation plan argue that this payment models can encourage consultants to sell products that are not ideal for their clients, but which yield higher payouts for themselves.

Fee-only advisers do not receive commission from services provided to clients. They're generally compensated with quarterly or annual fees, or by an hourly rate. In this type of compensation model, they also cannot receive any rebates or kickbacks from financial product providers, like insurance companies or real estate businesses. Fee-based consultants, on the other hand, receive both the fees that a fee-only adviser would get, as well as a commission on any products and services sold.