Financial Advisor
Financial advising is a rewarding career that has grown rapidly as baby boomers near retirement. According to Money magazine, financial advisor ranks #4 in its ?Best Jobs in America? With an average salary hovering above $120,000, there is no question why financial advisor is one of the best jobs in America. Financial advisors provide advice relating to investment strategies, mutual funds, bonds, and stocks. Using this knowledge to provide retirement advice and estate planning is crucial to client success. Clients will often discuss the need to change investment strategies based on major events such as marriage, having kids, and retirement. A financial advisor?s recommendations will help make these transitions easier. 1 You can trust your Financial Advisor to provide you with customized, objective advice as well as help you build and manage your wealth through investment planning and tailored investment strategies. Your Financial Advisor works with you to create an appropriate investment portfolio—and helps ensure that it stays balanced with your objectives and risk tolerance. 2 All financial planning and investment recommendations should be based upon a client’s needs and objectives. Your financial advisor is responsible for assisting you in the diversification of your investments through allocations among asset classes and individual securities. In the event you initiate an investment decision without the benefit of or against the advice of your financial advisor, the order ticket and trade confirmation will be marked "unsolicited," reflecting that the decision is your sole responsibility. For accounts managed by a professional money manager, the order ticket and confirmation will reflect that the decision is the responsibility of the money manager, not the financial advisor. 3 A financial advisor is a professional who renders investment advice and financial planning services to individuals and businesses. Ideally, the financial advisor helps the client maintain the desired balance of investment income, capital gains, and acceptable level of risk by using proper asset allocation. Financial advisers use stocks, bonds, mutual funds, REITS, options, futures, notes and insurance products to meet the needs of their clients. Many financial advisers receive a commission payment for the various financial products that they broker, although 'fee-based' planning is becoming increasingly popular in the industry. Fee-only advisors receive 100% of their compensation directly from their clients and have no conflicts between their own interests and those of clients created by commissions or referral fees paid by other product or service providers. 4 A financial advisor is trained to help you analyze your personal financial situation and help you piece together the various parts of your financial puzzle to create a thorough, integrated life plan that incorporates your investment time horizon, your risk tolerance, your cash flow requirements and sources of income. He or she can not only help with the necessities of funding the basics — such as your children’s education or a retirement nest egg — but also with other planning for personal aspirations from buying a second home to setting up a foundation. More importantly, he or she can keep you abreast of changes in the markets and help you make decisions that evolve in the context of your life’s stages. 5 Similarly, you may want to look for a financial advisor who has a longer track record, or you may decide to take a chance with a new graduate who is building the foundations of his or her reputation. Typically, the financial advisors who have been around for a long time with a good track record will cost more than the new graduates with little experience. That's not to say that the new graduates can't make you profits or help you save money, but they do pose more uncertainty. 6 Federal and state law requires that Registered Investment Advisors are held to a Fiduciary Standard. This law requires that an advisor act solely in the best interest of the client, even if that interest is in conflict with the advisor?s financial interest. Investment Advisors must disclose any conflict, or potential conflict, to the client prior to and throughout a business engagement. Investment Advisors must adopt a Code of Ethics and fully disclose how they are compensated. 7 Why, then, maintain the independent RIA status? Most advisors who want these broker-dealer services and want to do financial planning would do everything through their broker-dealer. The problems with that, Heidel discovered, were that his broker-dealer would get 10% of his initial planning fee, which it doesn?t presently, and it would be ?signing? the planning contract above his name, characterizing him as an investment advisor representative of the broker-dealer. 8 Investment consulting services are offered at Morgan Stanley only through investment advisory programs and are not available through traditional brokerage accounts and products. Please speak with a Morgan Stanley Financial Advisor to further discuss the differences between brokerage and advisory products offered by Morgan Stanley. 9 Further, your financial advisor may have a specialty. Some advisors like to hone in on certain demographics, such as the high net-worth market or clients in retirement. Others will specialize in an investment product such as insurance needs. This will give you a better understanding of the financial planning process and perhaps lead you to becoming a more knowledgeable consumer. 10 Financial advisers may help their clients invest for both long and short term goals. It is the financial adviser's duty to determine the clients' goals and risk tolerance and then to recommend appropriate investments. Generally, a longer time horizon allows for the advisor to recommend more volatile investments with potentially greater risks and rewards. Such investments include direct investment in stocks or through collective investment products such as mutual funds and unit investment trusts/unit trusts. 11 Don't hire an advisor just because he is personable. Some financial advisors are especially good at coming across as friendly because that is part of the sales process, but that's not the most important consideration. 12 Your choice of financial planner will serve you best if you have a clear understanding of your needs and goals. While the meat of financial planning is typically the same everywhere, it's the available options and extras that make a difference. For instance, does your planner offer tax advice, and what type of investment strategy do they have? Would they handle all of your investment accounts or only your retirement account? Make a list of exactly what you need from a financial professional and then determine whether he or she offers you the appropriate services for the price you would be paying. 13 Deciding on the right financial planner, like picking the right car, is an important step that requires you not only to do some research and shopping around, but also to think about what you need and expect. Keep in mind that this article provides only a basic guideline of what you need to consider, so take your time and make sure you've covered your grounds. Just like the regret of buying an unreliable or unsuitable car, a bad decision on a financial planner can be a long-term burden in more ways than one. A poor advisor will not only prove to be a wasted expense but also a cause for lost profits, money saving opportunities, and even sleep! 14 People tend to expect too much from their financial advisors when it comes to investment performance and they tend to expect too little when it comes to other things. To expand on this a little bit, some people think of their financial advisor as a professional stock picker. They have unreasonable performance expectations and when they don't see those results, they are disappointed. Obviously, those expectations are unrealistic and people need to keep this in mind going in. 15 The information in this Internet site is directed at, and is intended for distribution to, and use by, persons in the U.S. only. It is not intended for distribution to, or use by, any person in any other jurisdiction. The Total Merrill brand is used to refer to the broad range of brokerage, investment advisory (including financial planning), banking, trust, mortgage, and other financial services and products offered by Merrill Lynch. The nature and degree of advice and assistance provided, the fees charged, and client rights and Merrill Lynch's obligations will differ among these services. 16 This model minimizes conflicts of interest. It is the required form of compensation for all members of NAPFA. A Fee-Only financial advisor charges clients directly for his or her advice and/or ongoing management. No other financial reward is provided, directly or indirectly, by any other institution. Fee-Only financial advisors are selling only one thing: their knowledge. 17 Based on the information you gather, you should consider your overall comfort with an advisor. If you don't feel completely comfortable telling your financial advisor everything about your finances, you can't take full advantage of the planning process. 18 One quick and easy test for competence is offered by California-based financial planner Errold Moody. He calls it the 'HP 12C' test. He claims that at least 75% of 'financial advisors' cannot operate a financial calculator capable of determining things like the 'present value of an annuity.' (The 'HP 12C' is a financial calculator manufactured by the Hewlett-Packard Company.) This is a good test that will eliminate incompetent advisors from consideration. Unfortunately, it still leaves the dishonest ones in the pool. A dishonest advisor skilled in the use of a financial calculator can cheat you that much faster. 19 NAPFA has always maintained that an advisor who is compensated solely through commissions faces immense conflicts of interest. This type of advisor is not paid unless a client buys (or sells) a financial product. A commission-based advisor earns money on each transaction?and thus has a great incentive to encourage transactions that might not be in the interest of the client. Indeed, many commission-based financial advisors are well-trained and well-intentioned. But the inherent potential conflict is great. 20
References
|
|