If you've ever thought about asking for help with your finances—maybe trying to roll over your 401k without getting dinged by tax penalties or making sure you’re not taking too much risk with your life savings—you may have found yourself wondering what financial advisors actually do. I mean, beyond someone telling you why a particular ETF is going to do well, that’s sales. It’s the "advice" part of the job description that eludes most people. What advice?

During my 25+ years as an investor advocate, I’ve seen with my own eyes that people sometimes struggle to trust themselves to make all of their investing decisions, without any help. The vast majority of consumers actually want to collaborate with a real person—someone they trust has the right expertise and their best interests at heart. They want an advisor who works only for them, gets paid directly by them, and is in the business of offering comprehensive financial advice—not someone selling investments for a brokerage firm or insurance company.

But the sales-driven culture has essentially hijacked our sense of what a financial advisor can and should be able to do. Where’s the advice part? Put it this way: would you walk into a first-time appointment with a doctor and expect that the first thing out of the doctor’s mouth will be a lecture about the benefits of a specific prescription medication without even knowing if you need any meds?

It’s the same with financial advice. The professional advisor needs to get into the details to understand what makes you tick, let alone your cash flow needs before suggesting how you should invest.

Let’s Talk Financial Planning

A better way to understand what a financial advisor can do for you is to think of the advisor as your personal wealth planner because the process doesn't start with investing. Rather, it starts with planning, which, in a nutshell, starts by listening to you talk about your goals, fears and plans.

A good advisor wants to find out what makes you tick in the financial sense, how organized you are, and how hands-on you’ve been in managing your money. A real advisor wants to take the time to understand your whole financial situation. This is the only way he or she can effectively plot a course to help you get from where you are now to where you want to be in five, 10, 20, 30 or more years. Investing is only a part of that conversation.

Financial advisors who offer planning use powerful software to model your cash flow and spending habits. Those projections allow you to see how much you can afford to spend today and years later after you retire. Taking this holistic approach allows you to play with "what if" scenarios like what happens to your future savings if you change careers or decide you’ll pay for two college tuitions. It’s all about cash flow—near and long term.

The whole reason you want to hire a financial advisor is to get a clear picture of how much you’ll be able to spend throughout your life without taking the risk of spending your savings.

Holistic Financial Planning Looks at the Whole Picture

You may be thinking that only the richest 1% of the country needs a financial plan, but that just isn't the case. A teacher earning $45,000 a year needs a good financial plan much more than anybody who’s counted as part of the 1% of high net worth individuals. If you're breathing, then you need a plan for each stage of your life, and there are many benefits of having one created just for you, including:

• Helping you define your goals
• Making sure you're saving enough
• Identifying risks you didn't realize you had
• Planning what will happen to your assets when you pass away
• Understanding whether your goals are realistic when it comes to your current age and net worth, where you want to be one day and when you want to get there
• Helping you adjust your spending habits
• Making sure you are properly insured
• Identifying financial mistakes you're making
• Increasing your financial confidence
• Measuring your progress toward your goals
• Ensuring that you're taking full advantage of every benefit your employer provides
• Helping you build wealth
• Getting fully educated about how the investing process works in combination with your goals
• Enabling you to live more comfortably

What’s Financial Advice Worth in Dollars?

I’m glad you asked because according to Vanguard, good advice is worth a 3% bump up to your total returns. A few years ago Vanguard published a study called "Advisor's Alpha”. The whole point was to measure the value of having a relationship with an advisor who offers real financial planning. Yes, the very same Vanguard Group, also known as the king of do-it-yourself investing, found that investing all on your own often leads to major mistakes, big enough to damage your long-term financial future.

The study also found that a string of bad judgment calls typically leads to "wealth destruction rather than creation" or in other words, we can’t get out of our own way. The key finding in this Vanguard research was that a good financial planner can add about 3% points to the value of your investment portfolio net of all fees (and those fees tend to average about 1% point).

The report shows you come out ahead when you work with an advisor. But it’s not because these advisors are stock picking gurus, the extra value comes from planning and having someone there to protect you from impulse-based decisions. Forget how the stock market behaves, to a large extent, it’s about how you behave in reaction to the market’s up’s and down’s.

Choose a Fiduciary Financial Advisor

Since all advisors are not created equal, let me emphatically recommend that you make sure you’re working with what’s known as a fiduciary advisor. You want a financial advisor who is working only for you as your advocate. In other words, they’re not also getting paid by a brokerage firm or insurance company to sell their products. You pay an independent advisor directly. Ask them right up front to put it in writing that they and their firm adhere to the fiduciary standard. If they cannot agree to accept fiduciary responsibility, then it’s likely they are working as a salesperson for someone else.

How Much Does a Financial Advisor Cost?

Independent financial planners (or advisors) typically charge fees that amount to less than 1% of the total value of your investment portfolio. So if your whole portfolio is worth $500k, you can expect to pay less than $5,000 a year for ongoing advice and holistic planning.

You may also be able to pay an advisor or planner by the hour, task, or on a retainer basis. Maybe you just want a one-time retirement analysis to give you some peace of mind that you won’t run out of money if you stop working.

A fiduciary advisor will provide the plan and be fully transparent. He will want you to understand all fees and expenses because you’re working together and are on the same side of the table.

By understanding the advice you really want, it will be easier for you to see what kind of financial expert you have and can decide how much the service is worth to you and whether you have the right professional.