Financial adviser
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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. A further distinction should be made between "fee-based", i.e., they charge fees and collect commissions, and "fee-only" advisers. 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.
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[edit] Financial Planning
[edit] Goals
The main goal of a financial advisor/planner is to develop relationships with clients in order to reach their dreams/goals of their future financially and to maintain that relationship. In order to ensure ethical practices, financial advisers must understand a client's financial situation, as well as, their need for financial stability. Clients should understand that advisers/planners cannot help all clients, but it is imperative to have a financial professional take a look at your financial position to see if your financial goals can be achieved. Remember that they are professionals. Finance can be complicated, especially in the world today, but understand that your adviser/planner has responsibilities ethically to see that your risk is minimized and monetarily your money is maximized.
[edit] Retirement
One of the major services that financial advisers offer is retirement planning. The financial adviser will typically have great knowledge in the areas of budgeting, forecasting, taxation, asset allocation and financial tools and products in order to establish realistic goals and the strategy by which to reach them. In the United States, this will include the use of several investment tools such as 401(K)/403(B) Roth account(s), Individual Retirement Accounts/Roth IRAs, mutual funds, stocks, bonds and CDs.
The financial adviser will determine what percentage of the available income is necessary--when taking into account the tax liabilities, expected inflation and projected return on investment--in order to meet a minimum balance by the client's target age of retirement. This is a fairly straightforward calculation, and there exist many automated tools that do this. The financial adviser's greatest contribution will be that of asset allocation: determining how to maximize the return on investment while satisfying the client's risk tolerance.
[edit] Investing
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.
If the client has shorter term goals, the adviser should recommend less volatile investments with shorter time spans. Such investments could include cash, Certificates of Deposit, and short term bonds. While these types of investment generally have lower returns there is less volatility and there is less likelihood of losing principal. Although short-term investments can guard against loss of capital, their value can be eroded by inflation over longer periods of time.
[edit] Independent advisors in the UK
Under UK polarisation rules the concept of the Independent Financial Adviser or IFA was born. To be independent of any insurer or other third party interest allows for recommendation of products from any source. Non–independent (known as 'tied') advisers are therefore company representatives who can only recommend products approved by their company. Conflicts of interest may arise where remuneration is linked to the product recommended. Since 1st December 2004 the Financial Services Authority (FSA) has introduced a new classification of multi-tied adviser who may represent more than one company. Examples of multi-tie advisory networks include Intrinsic Financial Services [1] and Openwork (formerly Zurich Advice Network) [2]. It is a central and defining criterion that an Independent Financial Adviser must be willing, able, and, crucially, authorised by the FSA to accept payment from clients by fee rather than by commission, and this must be outlined in the introductory meeting. Advisers who are paid commission cannot call themselves independent.
UK Financial Services Authority Polarisation Rules [3]
[edit] Regulation
In the United States of America, the FINRA regulates and oversees the activities of more than 5,050 brokerage firms, approximately 172,050 branch offices and more than 663,050 registered securities representatives. A financial adviser or stock broker should be licensed to provide any consultation on investment in securities. Typical licenses needed to promote the sale of stocks are the: Series 7 (stock broker exam), Series 63 (state exam), and Series 65 or 66 RIA Registered Investment Advisor Law exam. Generally, any adviser who charges a fee for investment advice would need to also have the Series 65 or 66 license. Thus, anyone can call themselves a financial planner but they would still need FINRA licenses to provide advice for a fee or be registered as an investment adviser with the Securities and Exchange Commission in the USA. Many brokerage firms still claim an exemption for their employees who sell fee based products and services.
[edit] See also
- Certified Financial Planner
- fee-only financial advisor
- Investment advisor
- Registered Investment Advisor
- Stock broker
- Stock trader
[edit] External links
- NAPFA National Association of Personal Financial Advisors
- NAIFA National Association of Insurance & Financial Advisors
- FPA The Financial Planning Association
- AIFA Association of Independent Financial Advisers - UK Trade body
- AAFM American Academy of Financial Management
- FSA website Financial Services Authority
- €FPA €uropean Financial Planning Association
- IFA Promotion Directory of IFA's in the UK Authorised to trade by the FSA
- 10 Questions to Ask When Choosing a Financial Planner - helpful advice to assist in selecting a Financial Planner.
