Online Financial Advisors: What Are They And How Can You Find The Best One?

Online financial advisors are a great choice for those looking for an affordable and convenient solution to ensure their finances are on the right track. However, are they better (or at least on par) compared to in-personal financial advisors or other forms of traditional financial planning methods?

The truth is that it depends on your individual situation. To determine whether it’s worth it for you to consider, let’s take a look in more detail at online financial advisors and how to find the best one.

What Is An Online Financial Advisor?

An online financial advisor can offer all of the financial advice and tips of an in-person financial advisor, while saving you from some of the associated fees. Online financial services can vary from online human coaching to being fully automated robo-advisors. The latter consists of investment platforms helping you manage your finances using a proprietary algorithm.

How Can An Online Financial Planner Help You?

An online financial planner can help you with a variety of matters, whether that be reaching your retirement goals or more day-to-day affairs. These professionals are there to help you create a financial plan that fits your goals.

Here’s a closer look at some of the different ways an online financial planner can help their clients:

Personal finances: An online financial advisor can assist you with personal finances, such as helping you to create a budget, figure out what expenses you can cut back, and other practices to ensure you’re staying out of unnecessary debt. They can also help you look at your short- and intermediate-term goals (like saving for a car) to help you come up with a savings plan that’s realistic for you.

Managing debt: They can give you advice on how to properly manage and pay off debt. For instance, online financial advisors can analyze your spending to see where you may be able to change some of those habits temporarily until your debt is paid off. Online financial advisors can also help you look at how your spending habits may have gotten you into debt and advise you on how to change your long-term financial behavior.

Investment tips: Hiring an advisor is helpful if you want someone to offer you investment tips and advice, and even help with your portfolio allocation, such as the right percentage to put toward exchange-traded funds (ETFs). Plus, they you can help you figure out your risk tolerance, and how your investment tactics might change the close you get to retirement age.

Retirement planning: Related to the point above, an online financial advisor can talk in more detail about how to best withdraw your funds during retirement. This person can help you look over your employer-sponsored retirement accounts like your 401(k) to determine the best available funds to invest in, and how much to contribute from your paycheck.

Estate planning: Making sure your final affairs are taken care of is important to ensuring your loved ones aren’t left scrambling. An online advisor can assist you with estate planning by making sure your beneficiaries are updated, advising you on the types of documents you need, the right type of life insurance policy to purchase, and where to house important documents.

How To Choose The Best Online Financial Advisor

Hiring an online financial advisor isn’t for everyone. Before working with one, here are some questions to consider:

What services do you need? Sit down and list all the things you want to discuss when it comes to your finances. For example, you need help with figuring out how to stay out of debt, or you’re unsure whether the funds you’ve allocated in your investment vehicles are the right mix of you. Then, determine how hands-on or hands-off you want to be. Knowing what you need and how you work best will determine what online financial advisor you end up going with.

How much do they cost? Online financial advisors will charge for their services differently, so it’s important to understand what you’re paying for. Some charge a flat fee for consultations, while some are paid based on commissions, or may charge you a percentage based on an amount you invest through their service.

Who feels like the right fit? Choosing the right advisor, whether a human or automated service, comes down to the right fit. That’s why it’s important to do your research and test out different services before committing.

Top-Rated Online Financial Advisors

Aside from asking trusted friends and family members for recommendations, here are some online financial advisors you can go with.

Wealthfront. This robo-advisor is a great choice for most folks because it offers hands-off investing and access to human financial advisors. Their proprietary algorithm helps to pick an investment allocation strategy best suited for your financial goals, and the human financial advisors can help you see the bigger picture in what you're trying to achieve. Plus, you can set short- and intermediate-term goals and see how much you’ll need to save to reach them.

Paladin Registry. This website is a free directory full of highly rated financial advisors. You can search on their website to be paired up with an advisor that’s the right fit for you. Paladin created the Paladin Transparency Index (PTI) to evaluate the accuracy and completeness of financial advisors’ websites, so you can be sure you’re getting the full story.

Wealthsimple. Wealthsimple is mainly an investment robo-advisor, though you'll unlock more features the more you have invested with the company. All investment tiers will receive a personalized portfolio, and fees start at 0.40% of the amount invested. Higher tiers will receive financial planning sessions and a dedicated team of advisors.

Pros And Cons Of Getting Online Financial Advice

There are benefits and drawbacks to using an online financial advisor.

Pros

• You can choose from various options depending what services you want and whether you want to work with a human or with an automated algorithm.
• Online financial advisors offer convenience and easy access to financial advice without you leaving your home. Most will offer support via email, phone, or video conferencing.
• In many cases, you can save on fees associated with working with an in-person advisor. Most companies are also transparent in their fees — you’ll most likely find them on their website.

Cons

• Some automated online financial advisors have limited human involvement other than customer service. That means if you have questions about your investment portfolio or have follow up questions on other financial matters, you’re limited to communication channels like email or live chat.
• Investment options may be more limited when using an online financial advisor. For instance, many robo-advisors have limited choices in what ETFs and mutual funds you can choose from. Some may not allow you to choose individual stocks, bonds or alternative investments.

The Bottom Line

Working with an online financial advisor can help you to better understand what you need to do to ensure your money is working for you. Whether that’s working to budget better, get out of debt, or set short-, intermediate- or long-term goals, doing your research is key. After all, you’ll be paying this person (or company) a decent amount of money, so you want to make sure you’ll get a return on your investment.

With a quick breakdown of your finances and spending, our Rocket MoneySM app can put your savings on autopilot, even with a smaller budget.