A financial advisor is someone who offers financial advice to clients on issues such as investment, personal budgeting, retirement etc. they are often referred to as stockbrokers. Stockbrokers deal with investments alone unlike financial advisors who have a larger scope. Financial advisors will study the economy and from it predict the possible future trends. They help their clients get out of debts. However, they really deal with anything regarding the financial wellbeing of their clients. The job requires being always updated on financial markets, continuously monitoring specific investments undertaken by your clients and being on the forefront of new investment strategies. All financial advisors must be confident about decision-making under all uncertainties and extreme time pressure. A qualified financial advisor must have excellent communication skills. He must know how to deal with failure and dissatisfied clients. Success in this job is highly dependent on the selling ability both in the acquisition of clients and the delivery of new ideas of investment to the client (Guy, 2009).
Getting a promising financial advisor is not an as easy. A lot of research is needed to avoid mistakes. Some of the qualities one needs to look for is; experience acquired, professional qualifications, reports of successes and failure i.e. the general portfolio of the financial advisors work. A financial advisor is actually someone you trust with almost everything you have. There is chance that he can mend you or at the same time destroy you. The greatest of tasks is finding someone who will put your interests first over all, even his own.
Every other financial institution has many financial advisors. They have different ways of payment. Some are paid on commission while others are paid on a per transaction basis. These advisors charge you any time they offer you a service such as offering advice, investment money or even anytime they do some work on your behalf. This can get costly depending on what you are doing (Brokamp, 2002).
Chances are that financial advisors paid on commission will put your interests first since they are aware if you do not succeed, the same fate will befall them. They may however encourage you to take greater risks since they want to gain more. However this may also lead to misguided ventures. Financial advisors paid per transaction basis may try to do as much as they can for you not paying close attention to profitability since they get paid regardless. However they can be trusted more than the previous since they won’t push you to take unnecessary risks.
The best of the benefits of financial advisors is their wealth of knowledge. They are well acquainted in various disciplines. Most have studied accounting, marketing, business trends, finance, credit management and other important courses. Such have the capability of making value out of your money. Financial advisors can be an asset if only they put your interests first (Jackson, 2006).
The greatest limitation with a financial advisor is the cost. They will actually help you to make wealth not forgetting that they will do so for a living. They will hence do so expecting something in return. This implies that even in the light of an advisor, things may just be as worse afterwards than before. Hence, there is no guarantee in using anyone’s advice. However it’s much better to get your advice from an expert than any other person without experience.
A degree is not a professional requirement for one to become a financial advisor, however this definitely in of benefit and adds on their credibility. Many companies and financial institutions require a minimum of a degree. Financial advisors also need a legal license to practice. They should also remain updated on financial matters hence the need to further their education on world financial matters and certification. Financial advisors also expect to work for long hours. The financial world is always active and hence a first building clientele must be busy. The benefits of having and retaining a financial advisor far outweigh those of not having one. Financial advising is a promising career choice for the determined hearts (Online Investment Advisors, 2010).
It is quite okay to invest on your own if you can afford to survive the many financial waves. However it would not at all be advisable to engage in an investment without the know how’s since it can land you into hell of a mess. One of the most disturbing questions is whether or not to use a financial advisor in your investments. Some people do actually have the basic knowledge of the way to invest safely on their own and could survive under favorable conditions. However, some conditions may land such people into great problems living them with scarcity of alternatives. This are some reasons some investors do well for quite some time but later to regret everything they have been doing. Other people with limited information about investment may not attempt to get into any form of investment.
Advantages of Do It your own approach
A lot of money is saved. Though investing on your own could be risky, it can be cost saving. A financial advisor will demand a fraction of your earnings. You cannot deliberately get into an investment with an intention of gaining experience but trying it your way may even make you better and self reliant.
There is a possibility that one can get the same results as in the case where a financial advisor was chosen. A well planned efficient strategy to achieve economically from a financial advisor may not always avail. This is the basic fact that most advisors don’t want to hear. The good job they will do is to diversify your portfolio and hence limit the risk you take. A good advisor will not escape from their primary responsibility by avoiding the realities but will strive to improve the client financially.
Investing on oneself can be satisfying: it is advisable to learn as much as you can to make yourself well acquainted to run your own investments. This is better so because you can always do what makes you happy with the best of skill and still enjoy positive results without having to spend more. The best of success would be to be a financial advisor in your awn establishments (Graham, 1986).
One can control and manage your taxes better: most of the mutual fund managers do not care about the taxes, what they care about is the figures so as to please their clients ignoring the implications of the law on such figures. With internet based investment sites you can get as much information required doing it yourself.
The potential performance in individuals is higher: You may not know how to design a good portfolio on the efficient frontier. It may not be necessary anyway since some individual goals may never be met by a financial advisor. Hence it is worth taking the risk and doing it yourself. If perhaps you want to buy stock which will grow in value exponentially to a given level over a period of time, you may never get an advisor who will accept such an assignment. Hence it is only worthy to do it your way (Graham, The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel, 2003).
Disadvantages of do it yourself approach:
One may not know how to design a portfolio: Qualified financial advisors will design the best portfolio which matches the risk forbearance levels of the client. This means that there are portfolios that best matches the clients’ levels of risk. An individual who can withstand high risk levels abreast his financial position will have a more efficient frontier unlike an individual who cannot afford to absorb the least of risks. An efficient frontier on the frontier the best of the possible returns for the risk it takes. Designing a portfolio is not anyone’s job. It requires both skill and experience. Joining together all the efficient portfolios for a given set of investment alternatives forms the efficient frontier as it is referred. The responsibility of the advisor is to analyze the risk levels of the client and then design a portfolio that provides the best of returns for the risk the client is willing or able to take.
Our anxiety influences our investments: Most of us individuals are irrational about our money as economists have studied and found out. We almost always doubt the decisions we do make. Fear also takes the better part of us not knowing that this is a setback. We actually hate to lose more than we love to win. This only causes stagnation if not setback. We don’t need experts to reveal to us these simple facts about ourselves. We are the only people who have the first feel of any direction our finances take. Hence we are best placed to identify the risks we can be able to absorb. Financial advisors do not take emotions into consideration when preparing the efficient frontier. They only evaluate your condition and place you in the best position of the frontier (Janofsky, 2010 ).
Time limitation: A financial advisor will dedicate his/her time on analyzing your financial position and preparing a portfolio. For an individual, it is difficult to spare all the time to do this.
Lack of discipline: Doing it your way will most definitely mean some element of indiscipline and abrupt change of plans. This may not at all yield. First of all there will be interference of the initial set targets alongside frustration of the initially set success standards. This only means that chances are you will lose in your quest to gain and probably you may not even get started.
In this approach there is a possibility of one losing hope in the investment process: When there be a lot many challenges on the way one may get tempted to quit. Study shows that most of the individuals who invest on their own will do worse in their performance than their own funds. This is because they will get in and out rather than stick to where their funds are.
Analysis of do-it-yourself and financial advisor
The world we are living in today is filled with free investment materials. The information held by any financial advisor is made available through the internet. However this problem has created its own problems. There is now too much information that the financial advisors find it difficult to keep up with this information. This has made the investment world complex and confusing. Investment requires five basic requirements which are stipulated below:
Access to information: It can be assumed that all the investors have access to any required information. If today you are near an internet enabled computer you have all the required information at the click of a button. Information ranges from taxes, stocks, mutual funds and investing. If you are a frequent internet user then you may have access to information that is more than enough for you to do it yourself.
Desire to seek that information: Many people fail in life because of lack of information and the desire to have the information. Many people want their investments to be successful but they don’t want to bear the cost of making it happen. Many people lack the desire, motivation or passion for finance and investment. If you want to invest on your own you must desire to know much more and keep abreast of new information.
Time to find that information: Getting the information is no longer a problem. However two important issues emerge, first of all you must create time to research and acquire the right information. Most of the people who invest by themselves devote their time in seeking information through the internet, reading of books, magazines etc. this may not be as regular but some critical moments call for devotion in seeking helpful information. Not everything you read or hear will work for you. For this reason you need to filter this information and get what you just require. This could however be most challenging considering that most do-it-alone investors lack professional skills to filter information. You must be able to obtain the right information for your case so as to avoid the challenge of failure.
Resources to easier acquisition of useful information: Amidst the presence of a lot of free information there are also some software and subscription resources that do make the research process far much easier. Financial advisors do invest most of their resources into software and publications on financial planning, investment planning and retirement planning. This information may be catered to professionals only. If you must invest on yourself, then it is important to devote some of your money into books, software and subscription services.
There is needed to form a network of investors: Most of the successful investors know that unity is strength. The greatest asset that one can have is people. A famous Chinese saying states that if you are planning a harvest in a couple of months, then plant beans, if you plan to harvest in a couple of years then plant trees, but if you a planning a lifelong harvest then plant people. It is a fact that you cannot make it alone in life. In investment we need social networks to help in pooling of ideas. It is advisable to hold discussion sessions with fellow investment partners. Holding a brilliant idea for yourself may work against you or even fail to bear any fruit. However shared information and ideas will strengthen them and subsequently add value to your life as an investor.
How to find the right financial advisor: If the above outlined requirements do not suit you, then it’s only necessary to source for a financial advisor. This however may be as challenging as trying to find the best investment. In the financial industry it is still too easy to become a financial advisor. This makes it quite hard to get the person who is just right for you. A few exams would be enough to qualify you to sell investment products. There are investments which will do well for you while others will cause you more trouble than you had. This is the same case which applies to financial advisors. You can get one who will make you grow and expand. At the same time you may just land yourself onto a disaster. Some advisors are resourceful while others are just there to make money and exploit their clients. The great challenge is first of all to understand the qualities of a good financial advisor and one whom you can work well with.
Qualities to be considered in finding a financial advisor
If the above qualities are necessary to become a good investor, then it means that even the financial advisors you are looking for must also possess the same qualities. However most of the financial advisors are just advisors by name but lack these important qualities. A good advisor must have the time, experience, knowledge, resources and the passion to know more about investment.
Quality advice will go beyond success in investment: Most of the prospective investors will go to financial advisors not to get quality advice but they only want to be told how to invest their money. However goof financial planning and tax planning goes beyond good investment planning. Every helpful financial advisor should recognize this truth. Good financial planning is far much important than excellent financial planning.
Advice is far much important than the product utilization: Every good financial advisor understands that advice is the distinguishing characteristic. The products used are just instruments that yield only when the background idea is given the required attention. Most of the financial advisors focus too much on the product because their minds are conditioned on the pay but not the quality of the reward to the client. The best of the financial advisors across the world focus more on the advice. The reward from the advice is just an extension of the laid down platform. Investors who are concerned with the objectivity of the advice can get that service from a couple of advisors. Today there are many financial advisors who offer mutual funds on a no load basis. In the near future there will be many fees for service financial advisors who will charge not for result but just for advice offered.
At the end of it, it narrows down to two key issues of trust and competence. A financial advisor for any optimistic investor must be competent in his field. Some of the qualities to look for are education, experience, industry association membership and references. You must also look for someone you can trust. a financial advisor will handle the most important assets in your life, hence the need to well examined. You therefore need to ask yourself whether you can afford to work with him/her for a long period of time. Some disappointing occurrences from financial advisors will make investors to attempt investing on their own. These are mostly the people who will develop the desire to research on investment topics to make it possible for them to do it their way.