Financial advisors (1)

When someone is planning for retirement or simply creating a personal budget, there is a need to get help from an expert. Financial advisors are the professionals who help people to make decision about financial budgets. They provide financial services and products, depending upon the training and qualification examinations they have. They use their expertise and knowledge to generate customized financial plans that make for client easier to achieve financial goals. Those financial plans are not comprised of investments only but also budget, savings, tax strategies, and insurance.

Role of financial advisor

A financial advisor is a client’s financial planning companion. If a person is going to retire in 20 years and wants to send his child to private educational Institute in 10 years, then here comes a financial advisor, who accomplishes his goals and makes those plans a reality.

One of the roles of financial advisor is to educate client about what can happen in achieving future goals. This is achieved by giving the detailed help to the client about financial topics. In starting, financial advisor helps the client regarding savings and budgeting.With the time, the advisor assists in understanding insurance, tax matters and complex investment.

The first step of financial advisory procedure is about knowing the client’s financial health. A client need to fil a questionnaire which helps advisor to make a proper plan for the future .

Kinds of Financial advisor (2)

The most common financial advisors are as follows

  1. Brokers and broker dealers

A broker dealer can be an individual or company that sells and buys securities such as bonds, stocks and, mutual funds. Financial products, a broker dealer sells, depends upon the licence he has. For instance a broker dealer who has qualified the series 6 exam is limited to sell Variable annuities, mutual funds and, related products.

  1. Financial consultant

This term can generally be used by anyone having required skills but some of the consultants hold a specific designation known as Chartered financial consultant.

  1. Financial coach

Financial coach considers the basics of financial literacy including how to reduce spending and save money.

  1. Investment portfolio and asset managers

As the name suggests, these professionals deal with the investment portfolios. They also offer other services related to financial planning.

  1. Wealth advisors

Wealth advisers and wealth managers work with wealthy clients. Along with investment guidance, these advisors also offer comprehensive financial planning services.

  1. Robo-advisor

It is an automated investment management service. It creates and manages client’s investment portfolio by using computer algorithms.

  1. Investment advisors

An investment adviser is an individual or group that is paid for making investment recommendations or conducting security analysis. He performs his function whether by directly managing the assets of client or by written publications. An investment advisor with assets registered with Securities and Exchange Commission (SEC) is also known as Registered Investment Advisor (RIA).

  • Working of investment advisor.

He works in the financial industry and paid for giving essential recommendations regarding the client’s investment. He owes a fiduciary duty, so he must put the client’s requirements first at all time and he must ensure that any guidance made to clients are designed according to the financial circumstances, and preferences of clients. He must avoid any perceived or real conflicts of interest. One way to minimize the perceived or real conflicts of interest is through compensation structure of investment advisor. He is paid through fees and it makes the link between advisor’s success and client.

For example he might be paid according to the performance and size of client’s assets This financially motivates the investment advisor to work for the client’s success.

Discretionary authority of investment advisor allows him to perform on behalf of the client without need of any formal permission before making the transaction.

  1. Certified financial planner (CFP)

It is a formal designation given to the person, expert in the areas of insurance, financial planning, estate planning, taxes, and retirement.This is awarded to the individual, who qualifies the CFP board’s initial exams, and then continues with the education programs conduct annually to maintain his/her skills and certification. It is an elevated type of financial advisor.

In terms of financial advisors, it is the most stringent and difficult process to become a certified financial planner. It requires successful qualification in given exams, years of experience, formal education, and ethics demonstration.

  • Role of certified financial planner

CFPs help an individual in managing budgets or finances. Compared to investment advisors, CFPs are encompassing almost all the financing areas. CFPs begin the procedure by evaluating client’s available finance, including assets, any cash, properties, and investments to have an idea of client’s net worth. After that, they work with the client’s need to put forward a financial plan. For instance, if someone is going to retire in near future and having a child nearly starting college, then CFPs manage the cost by

Creating a financial plan.

Pros of financial advisor (3)

  1. Some people do not prefer to spend time in learning about managing investments. Working with financial advisor makes a client knowledgeable about investment strategies.
  2. Working with financial advisor gives rise to a positive human influence. Unlike other robo-advisors, a client can get personalised advice directly from the financial advisor.
  3. Along with the financial advice and guidance, financial advisors also save the time of investor.
  4. A financial advisor considers the client’s net worth and future goals to generate a plan according to the needs.
  5. It is a good choice for those having larger assets.
  6. Financial advisor directly works with attorney and creates the most beneficial investment strategies for the client from tax and legal perspective.

Cons of financial advisor

  1. It is challenging to find a best financial advisor.
  2. Some financial advisors ignore interest of client and act best in the interest of their need.
  3. High financial advisors cost is one of the major cons.
  4. Financial peace is a disadvantage of hiring a financial advisor, as one gets rid of the responsibility of his own wealth.

References

  1. https://www.investopedia.com/terms/i/investmentadvisor.asp#:~:text=An%20investment%20advisor%20(also%20known,by%20way%20of%20written%20publications.
  2. https://www.nerdwallet.com/article/investing/types-financial-advisors
  3. https://retirecertain.com/pros-and-cons-of-using-a-financial-advisor/