Overview: Need an Online Financial Advisor or a Financial Planner? What You Need to Know
Many people still believe that financial advisors are only for the rich and the famous. Financial advisors, however, benefit people of all backgrounds and income levels.
Within the past few years, choosing online financial advisors has become more and more popular.
It’s easy to see why.
Over half of U.S. adults choose to bank online, and even more millennials are turning to the Internet to quickly and conveniently manage every area of their lives.
Online financial advice is opening up new doors to the masses to take control of their finances and their futures.
Image Source: Online Financial Advisor
If you find yourself in need of an online financial advisor, we have a whole rundown of everything you will need to know first. The information here will help you make an informed decision.
What Do Online Financial Advisors Do?
Seeking a financial advisor online will bring you many similar benefits of seeking a financial advisor in a traditional office setting. Essentially, you are getting the same wealth management services that you would with a regular financial advisor.
You just also get the added convenience of doing all the work from your personal computer.
An online financial planner can help you with the following areas and more:
- Analyze your current financial state
- Create financial goals for the near and distant future
- Invest wisely based on your risk preferences
- Make plans to get out of debt
- Prepare for retirement
- Anticipate life events such as children’s college or a wedding
- Provide help with finances after a life change like divorce
- Track your assets
- Maintain your portfolio
Types of Online Financial Advisors
Online financial advisors do not come in one uniform shape or size. Luckily, you can find different options to best fit your needs and wants. Typically, you will find one of these three basic options when you are searching for online financial advice:
- Human Advisors
One type of online financial advisor is a regular advisor who happens to make him or herself available through the Internet. You may live in one part of the world, and your online financial planner may live in another.
Often, they are connected with a larger company. You will typically communicate through email, video chat like Skype, or email.
This is the best option for those who still value one-on-one contact with those who advise them. It is vitally important to make sure this type of online financial advisor is still registered and/or certified.
When you start looking for online financial advice, you will undoubtedly keep seeing the phrase “robo-advisors” pop up. It is important to distinguish the difference between a regular online financial advisor and a robo-advisor.
Robo-advisors are a subset of online financial advisors. Where you may communicate with your online financial planner over email, phone, or video chat, you won’t be communicating with any particular human when you choose a robo-advisor.
Robo-advisors provide online investment advice on a fully automated platform. They use algorithms and set patterns to consistently manage your money for you. This keeps costs down and errors to a minimum.
- Hybrid Advisors
Some companies are choosing to use the best of both worlds and offer online personal communication through an online financial advisor while also offering fully automated services.
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Online Financial Advice: The Pros and Cons
Hiring a financial advisor online comes with a large set of pros, but also a few cons. We will go through the major benefits and disadvantages to help you decide if you should pursue this online option.
The biggest pros of online financial advice are:
- Save Commuting Time: When you do not need to travel to and from your financial planner’s office, you save time within your workday.
- Save Money: Most online financial planners or planning companies have low overhead. This allows them to charge you less for their services. This allows people of all income levels to benefit.
- Benefit from Convenience: When you seek online investment advice, you can make adjustments whenever necessary. You could be at home, in the office, or on vacation. You are not bound to another person.
- Benefit from Technology: You get the use of web tools like virtual screen sharing where online financial advisors can show you exactly what they are looking at on their computers. Easy mobile app access is also a common feature.
- Freedom to Move: If you move around frequently for your job, you won’t have to find a new, trustworthy financial advisor each time you change locations. Keeping it online is ultimate long-term freedom.
Some cons of online financial advice to keep in mind are the following:
- Lose Face-to-Face Interaction: Sure, many people may not consider this a con. But some people may feel more comfortable seeing the person who is dealing with their money and talking to them in person. If you want to build a relationship, online financial advisors may not be the right option for you.
- Open Yourself Up to Cybercrime: The truth is that financial companies today will use state-of-the-art systems to ensure their websites are safe and secure. But we know these systems are never 100% secure. Realizing the potential for online fraud or scamming is important.
How Do Online Financial Advisors Make Money?
Nobody works for free, so many people are skeptical about how much money they will have to pay their online financial advisors for their services. After all, the point is to earn money, not lose it in fees to your online financial planner.
The financial advising field in general typically works off of two money models.
- Commission: Some advisors will earn a commission whenever you choose a particular fund or investment. This often produces a conflict of interest, so it is not the preferred method.
- Fee: Most advisors will earn a fee on the value of whatever balance they are managing for you. By making you earn more money, they earn more money. Most people consider this a great advantage because their advisor has a vested interest in making you money.
Both an online financial advisor and online investment advisor will typically use a fee-based system. This percentage can vary depending upon the advisor and what services they offer.
These fees can be a set percentage rate, a tiered percentage rate, a flat and/or hourly rate, or by retainer.
Is Your Money Safe with Online Financial Advice?
As with any financial service, it benefits you to start out skeptical about online financial advice. Do your own thorough research before trusting your hard-earned money with any company.
Image Source: Online Financial Advice
One great way to begin that research is by looking into company transparency.
Paladin Transparency Index (PTI) offers the public free security reports for both robo-advisors and online financial advisors. By digging into each company’s policies, compliance reports, and online reviews through websites like Yelp, the PTI helps you choose the best online financial planner available to you.
PTI has a simple 1 to 5 scale. The higher the rating, the better the company is at being straightforward and offering its customers full transparency. For example, Wealthfront receives a full five stars. iQuantifi only receives a score of 2.5
How to Choose the Right Online Financial Advisor
When embarking on any decision that will affect your personal finances, it is important to take the time to choose the right advisor. Some questions to ask yourself before choosing could include:
- How much money do I have to invest? Pay attention to the different fee structures of online financial advisors. Also know that many people with significant amounts of money to invest are choosing a more traditional financial advisor than an online advisor. Of course, the trend of online financial advice is beginning to spread as younger generations earn more money.
- Is it important to have communication with an actual person via video conferencing or phone calls? In this case, you may prefer a hybrid online financial advisor instead of a robo-advisor.
- Am I comfortable using a computer? With wealth management being vitally important to your wellbeing, it is important that you feel comfortable navigating your way online before you delve into online financial advice.
- What are my goals? Each company and each independent financial advisor will offer different things. It is important to know what you are looking for from your online financial planner before you begin your search.
Who Are Some of the Top Online Financial Advisors?
There are countless companies offering online financial advice to the public. In fact, many well-known and established wealth management companies, like Charles Schwab, have added robo-advisor services as an option to their clients.
Here is a small overview of three highly rated options to start you on your search:
- Wealthfront: CNN Money named this robo-advisor company one of the best financial sites. A big bonus with Wealthfront is that they manage the first $10,000 for free.
- Betterment: This robo-advisor service is often in competition with Wealthfront for top place. They offer a tiered rate fee that allows those with larger sums of money to get a better deal.
- LearnVest: This is a company that connects you with online financial advisors directly as well as allowing you to benefit from automated services. Their fee structure is quite different. They have a $299 start-up fee followed by a $19 per month service fee.
Also remember that many traditional, registered financial advisors are offering their services through the Internet. You do not always have to partner with a company in order to benefit from online financial advice and online investment advice.
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Apps: The New Online Financial Advisor?
A quick but important side note on apps! There seems to be an app for everything these days. Finances are no different. Many companies are offering apps that provide online financial advice.
It is important to recognize how much trust to place in these apps.
If your online financial advisor or advising company offers mobile apps as an added bonus, they often make great tools on your wealth management journey. These can be a great supplement.
Not all other apps are created equally. Proceed with caution when it comes to finance apps. Just because they tout “online financial advice” does not mean they are up to par with legitimate advisors and companies.
Online Financial Advice: The Next Steps
If you need some online financial advice, begin by deciding whether you want to work with a human advisor online, if you would like to try a robo-advisor service, or if you would feel more comfortable with a hybrid.
Then, take the time to price out the different fee structures. If you are only investing a small amount, you may want to try a company like Wealthfront that offers the first $10,000 for free. If you are investing substantial money, you may try Betterment, which offers lower fees for a higher balance.
You should also pay close attention to services provided and methods of calculation. Just because this person or company is an online financial advisor does not necessarily mean their methods will work for you.
Then, once you choose to get your financial advice online, you will be able to grow your money with ease and flexibility.
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