A Financial Advisor is a professional who provides specialized financial services and advice to individuals, businesses, and governments. These services can include investment advice such as pension planning, portfolio review, and asset allocation. They can also include insurance sales, estate planning, and retirement plan administration.
This financial professional is simply someone who helps the investor meet their financial goals and obligations. Unless the investor provides the advisor investment discretion, the investor will maintain control of assets at all times. Most advisors are bound by a legal fiduciary responsibility to act in the best interest of the client at all times.
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Financial Advisors will use investment vehicles such as stocks, bonds, mutual funds, options, and futures to help meet the needs of the client. The types of investment services provided are based around the risk tolerance, financial history, income requirements, and other determinants that the client specifies.
These professionals are compensated in a few different ways. The growing trend in compensation includes fee-only advisors. A fee-only investment advisor charges a percentage of the assets that the client has managed. So, for example, if a client wants the advisor to manage $100,000 and the advisor charges 1% of assets, then the fee would be $1000 per year. Other advisors are known as fee-based advisors. This is an older way of compensation which includes both fees and commissions.
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How to Hire a Financial Advisor
Just like anything else, all advisors are not created equally. Follow the steps below when hiring a new professional for the first time.
Ask the advisor who they are, exactly what services they provide, and exactly how they are compensated.
Ask them if they are affiliated with a Broker/Dealer. A broker/dealer will usually have less responsibility to their clients and are more interested in generating commissions. It is best to hire an independent investment advisor who has no association with anyone. This will ensure objectivity when the advisor is helping you meet your goals.
If you are interviewing a financial advisor that is both a stockbroker and investment advisor, make sure that they make it clear in what capacity you will be served. Investment advisors are held to a much higher standard. You should generally seek to be served by an investment advisor when seeking financial advice.
Ask the financial advisor about their typical types of clients. See if they can provide some general feedback about how they help their clients.
Figure out who their competitors are and in what ways they are better.
Inquire about how progress will be measured and what the goals of the advisor will be for your account.
The first place you should look when searching for a financial advisor is to your family and friends. They will provide you with the most honest feedback.
If possible, look for a financial advisor who is constantly continuing their education. Financial regulations are constantly changing and an educated advisor will provide better advice.
Where to find a Financial Advisor
When searching around for a financial advisor, it is best to search in your local area. Local advisors will understand the needs of the local community and have a better insight when providing advice.
Large corporations, while very well known, may not be the best choice for you. Lots of times they are restricted to offering certain types of advice. Other times, they may be just too busy to provide you with the level of service that you deserve.