Hiring a financial advisor can be an important step in taking your personal finances to the next level. Maybe your income has started growing, and you feel ready to uplevel your retirement savings and investing but aren’t sure where to start. Or maybe you’ve been taking the DIY approach to your investments, but now you’re ready for personalized advice.
That’s where an online financial advisor comes in. An online financial advisor offers all of the same services you’d expect of a financial advisor, but with benefits that include convenience, lower costs, and a lack of geographic limitations.
In this article, you’ll learn what an online financial advisor is, how they differ from robo-advisors, the advantages of working with an online financial advisor, and how to get started finding the right one for you.
What is an Online Financial Advisor?
An online financial advisor provides the same services as any other financial advisor. The only difference is that they provide those services remotely and online rather than in person.
Before we fully explain how an online financial advisor works, let’s back up a few steps to explain what exactly a financial advisor is. Financial advisor is actually a broad term that can describe a variety of different financial professionals. But in general, they help people to manage their finances and make financial decisions.
Financial advisors can offer a wide variety of financial services. They can help clients with tasks such as investment management, budgeting, debt management, insurance planning, estate planning, tax planning, and more. However, many people hire a financial advisor specifically to manage their investment portfolios and offer investment advice.
The services that financial advisors offer don’t necessarily require you to be in the same room with them. That’s where online financial advisors come in. These financial professionals meet remotely with their customers — often over the phone or via video calls — to offer financial advice and discuss the next steps in their finances.
Robo Advisor vs. Online Financial Advisor
When you hear the term online financial advisor, you may associate it with a robo-advisor. In reality, the two are entirely different.
A robo-advisor is an online financial service that invests the money in your retirement or brokerage account based on an algorithm. When you open an account with a robo-advisor, you’ll answer a variety of questions about your financial goals, time horizon, risk tolerance, and more. Then, the robo-advisor will automatically invest your money based on your responses.
An online financial advisor is very different because even though the relationship takes place online, the advisor is a real person.
Aside from the fact that an online financial advisor is a real person while a robo-advisor is a computer algorithm, there are a few other key differences. First, as we discussed, financial advisors can offer far more services than just managing your investments. They can offer tailored financial advice on all areas of your finances. The same can’t be said about a robo-advisor, however. Generally, they have one simple job, and that’s to invest your money.
A financial advisor can also offer a more tailored investment approach. While a robo-advisor will invest your money based on your financial goals, they have select portfolios that they invest in. The portfolio the robo-advisor builds for you would be identical to the portfolio it builds for someone else with your same time horizon and risk tolerance.
An online financial advisor, on the other hand, can look more closely at your financial situation and may be able to build a customized investment portfolio that’s truly tailored to you.
Why You Need an Online Financial Advisor
There are plenty of reasons why an online financial advisor might be right for you. They have plenty of advantages over the alternatives of an in-person financial advisor, a robo-advisor, or taking a DIY approach.
Personalized advice
Unlike a robo-advisor or a DIY financial approach, an online financial advisor can offer you personalized financial advice for your situation. All of the advice you receive is tailored entirely to your situation. And any time you have a question about your finances, you can call them. In contrast, both a DIY approach and a robo-advisor often leave you on your own when it comes to answering your financial questions.
Convenience
An online financial advisor is far more convenient than an in-person advisor. First, you can save time by eliminating travel time to and from your advisor’s office. You can also meet with your advisor from the comfort of your own home, which could help avoid the need to take time off work, find a babysitter, etc.
No geographic limitations
When you choose to work with an online financial advisor, there are no geographic limitations. You don’t only have the option of working with advisors within a certain radius from your home since all of your meetings will take place online. This factor can be especially advantageous for those living in small towns where there may not be many advisors to choose from or those who can’t easily commute to meet with an advisor.
Cost
Another advantage of working with an online financial advisor is the cost. Any time you hire someone to help manage your finances, there will be a cost associated with it. But the cost of hiring an online financial advisor may be more affordable than the in-person alternative.
A typical in-person financial advisor fee is about 1% of assets under management. In other words, if you have $100,000 under management with your financial advisor, your annual fee will be about $1,000.
Because online financial advisors often have less overhead, they can charge less for their services. For example, to work with a Personal Capital financial advisor, the fee starts at just 0.89%. And the fees get lower as your portfolio grows.
Retirement planning
Retirement is the most expensive financial goal that most of us will save for, but many people choose to take a DIY approach. While that approach can certainly be effective, it may not be right for people who aren’t sure how much they need to save or who don’t know how to invest their retirement savings. An online financial advisor can help you to create a customized retirement savings plan based on your current financial situation, your retirement goals, and more.
Can You Trust an Online Financial Advisor?
You might be worried about trusting someone you’ve never met face to face with your finances. But in general, an online financial advisor is just as trustworthy, especially if they’re associated with a well-known advisory firm.
That being said, it’s important that you feel comfortable with whoever is managing your investments. Here are a few questions you can ask potential advisors to help you feel more comfortable working with them:
Are you a fiduciary? A fiduciary has a legal and ethical responsibility to act in the best interests of their clients. You might be surprised to learn that not all financial advisors are held to the fiduciary standard, so it’s important to ensure that your advisor is.
What are your credentials? There are many credentials that a financial advisor can attain to make them even more qualified to manage your money. Some of the top credentials for financial advisors include Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA).
How are you paid? Some financial advisors charge a fee that’s a percentage of assets under management, while others earn a commission from the products they recommend to you. You might feel more comfortable working with a fee-based financial advisor so you know they aren’t recommending products simply to earn a commission.
It’s essential that you fully trust the person that’s managing your investments. You’re essentially leaving your financial future in their hands. For that reason, it’s important to communicate openly with your advisor, ask questions, and understand what you can expect from them.
How to Find an Online Financial Advisor
Ready to find an online financial advisor to help you manage your money? Choosing the right professional can feel daunting, especially with so many options. Here are a few tips to help you find the right advisor for you:
Consider what services you need
Before hiring a financial advisor, it’s important to consider exactly what services you’re looking for. There is a broad range of services that advisors can offer, and knowing which you need will help narrow down your search.
Research advisors that fit
The ability to work with an online financial advisor is one of the many benefits of the digital age we live in. Another benefit is that there are countless online resources available to help you find financial advisors that meet your needs. Even a quick Google search or a search through a database of financial professionals can return plenty of results.
Vet potential financial advisors
Once you’ve found a few online advisors who offer the services you need, you can do a bit of vetting to ensure they’re right for you. One source you can turn to is the firm’s Form ADV, where they’ll share information about the firm, how they charge for their services, past disciplinary actions, and more.
Ask questions
We said this earlier, but it’s worth mentioning again. Be sure to ask questions of any financial advisors you’re considering hiring. And don’t worry about asking too many questions. An advisor that’s the right fit will be happy to spend as much time as is necessary to make you feel comfortable before making a decision.
The Bottom Line
An online financial advisor is a financial professional who can help you manage your investments and meet your financial goals, all from the comfort of your own home. Online financial advisors offer all of the same benefits as the in-person alternative, but with even more advantages such as convenience, cost, and a lack of geographic limitations.
If you’re in the market for an online financial advisor, be sure to check out Personal Capital’s wealth management services to decide if they’re right for you. Personal Capital has a team of licensed fiduciary advisors who can work with you to build a personalized investment portfolio, prepare for retirement, and reach all of your financial goals in between.
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Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.
