Where to Look for Financial Advice
Giving financial advice is one of the most regulated career choices, and with good reason. Providing consumers with the means to build their wealth takes knowledge and understanding, especially when there is risk involved. For advisors in the United States, basic education credentials include a bachelor's degree. Further to this, advisors will also undergo a rigorous certification process which allows them to become a Certified Financial Planner (CFP) or Chartered Financial Consultant (ChFC).
There are a number of financial advisors who choose to specialize in their fields, and some certifications that are recommended by the National Association of Personal Financial Advisors (NAFPA) include Personal Financial Specialist (PFS) and Chartered Financial Analyst (CFA). Advisors may also be required to register with their states in order to provide their specific type of service, such as insurance, investments, and more. Registering with the Securities and Exchange Commission (SEC) is also a requirement for those who wish to provide financial advice on investments.
What to consider when choosing a financial advisor?
One important factor in selecting an advisor is to consider precisely what kind of guidance you are seeking and for what purpose. Financial advisors can be identified as offering very specific types of knowledge or advice, for example, they may be called:
- Investment advisor
- Pension advisor
- Financial planner
- Mortgage advisor.
They may be known as brokers if they’re dealing with investments, including shares, mortgages or insurance for your home or your car. Whatever names they use, however, they are all still regulated by the relevant governing body and there are very particular stipulations in each category.
Since January 2013, advisors who deal with investments, pensions or retirement income products have to have a high level of qualifications. Mortgage advisers and those who recommend equity release products must have specific qualifications in their respective specialist areas.
Insurance brokers, like mortgage advisers, are paid by commission. This will apply to any insurance product they sell; however, they don’t normally charge an additional fee.
Financial advisors offering all-round advice in many different areas are classified as either restricted or independent. For example, as advisers, they may be restricted to the number of providers they can choose from or by the type of products they offer.
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Finding the Right Financial Advisor for you
In many ways, it makes sense to opt for an adviser who can deal with a wide range of product providers rather than just one or two, as you will know you’re getting the widest choice. However, when it comes to investments, you may prefer to select a specialist in your area of interest, as their detailed knowledge may be superior to a generalist advisor. In all cases, you need to be clear about the type of service they offer and the likely costs before you decide whether or not to get advice from them.
If you plan to invest in unit trusts or shares, you may feel perfectly confident about buying these directly from a particular fund or broker without taking advice. However, remember that these products can be more difficult to understand and to manage than cash savings products. This means that not taking advice may mean you are missing out on some of the options available to you.
To make an informed decision, ask yourself these key questions:
• Do you have sufficient time to do the necessary research?
• Do you have the required level of knowledge, experience and skill when it comes to investing?
• Can you afford to lose any money?
• If things go wrong, are you prepared to take responsibility for any bad investing decisions?
Having considered this, if the answer to any of these questions is ‘No’, then you should consider seeking financial advice.
How to Compare Financial Advisors
Once you’ve answered the important questions and researched suitable financial advisors you need to know what to ask of potential companies you’re considering. These enquiries are relatively straightforward, and will help you differentiate between the half dozen or so advisors you may have shortlisted.
First of all, check the services being offered to be sure they match your needs. Then get a clear picture of the fees and any commissions that may be charged. If your potential financial advisor is not independent, check which services and products they may be restricted to. Ask about qualifications and whether these are above the minimum level required – always a good sign. Find out if the advisor has other clients in your financial position and also what additional fees they may charge for ongoing advice in the future.
You will want to be aware of the general ‘going rates’ for financial advice, so check out some company websites or comparison sites beforehand. For example, you might find that, although the average US rate for an hourly fee is about $200, these can vary between $100 and $700. Similarly, a set fee for a specific piece of work can cost hundreds or thousands of pounds. Monthly fees can be based on a percentage of your investment amount or may be a flat fee. Remember that an advisor must deliver an ongoing service to charge you an ongoing fee, although you can pay off an initial charge over time.
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Financial Advisors Skills and Qualifications
A trainee financial advisor can find a job with basic qualifications, including good grades in English and Maths, backed by work experience in a related field, such as sales or customer service. There are also apprenticeships available and roles as a paraplanner, providing administrative and research support to a fully qualified financial planner.
Graduates can get on to a graduate scheme with a bank, or other financial institution. Regulators also require other qualifications, which you can usually get while already working.
The skills needed to be a financial advisor include excellence in communication, using computers and maths. The capacity to research and analyse financial information is vital, as are good report writing skills and an ability to negotiate sales.
During a professional career, a financial advisor can achieve further qualifications at different levels. In the US, there are main bodies that award qualifications for financial advisers. The principal one is the Certified Board of Planners Inc. which offers professional financial services qualifications right through from beginner to degree levels. This is a very strict regulator that assures consumers that a certain code of ethics is adhered to.
American College provides advisors with the Chartered Financial Consultant (ChFC) certification, while the Investment Management Consultants Association (IMCA) provides their students with the Chartered Investment Management Consultant (CIMA) certification.
Many advisors go on to further their studies with MBAs and other financial certifications in order to specialize in their chosen fields. The constant learning and development is integral to the success of a financial advisor, as financial conditions – and even instruments – constantly evolve.
Which are the Top Rated Financial Advisors in the US?
There are several online sites that regularly review and rank financial advisors, and this is certainly the case in (yyyy). Among the companies noted for their investment advice, for instance, are:
- Wells Fargo Advisors
- Merrill Lynch
- Morgan Stanley Wealth Management
- JP Morgan Securities
Geographical location can often influence a decision on which financial advisor is right for you, and many investors choose to select a company within or close to their specific region. You will find that all regions are well served by financial advisors, whereas if you’re searching for a specialist and live far away from a major urban area, it may be a little harder to identify an appropriate financial advisor close to home.
Some investment brokers are also useful when it comes to financial advice regarding trading activities, however, you have to bear in mind that usually they have a level of vested interest in your trading activities. This is reflected in their relationship with clients and can sometimes lead to a client seeking independent financial advice elsewhere. There are also other reasons why client-advisor relationships go wrong, so it’s best to know exactly what your options are should you find that you have made a choice that you come to regret.
Problems With a Financial Advisor
It doesn’t matter what type of investment advice you are seeking, a life insurance product, a variable annuity or an investment fund, it’s important that you know any recommendations that your advisor is making are truly in your best interests. Sometimes clients uncover their advisors’ interest only after a transaction has been made and the advisor has received a healthy commission. A financial planner is there to help families and individuals make important decisions. After all, these will often have an impact on your retirement plans.
Financial planning software today is efficient and can be scaled according to the client. The downside, however, is that some financial advisors get into the habit of inputting data rather mechanically, without paying sufficient attention to the recommendations the software then makes. Ideally, your financial advisor should take a more personalized approach, so they are actually producing results that reflect your views about your assets and priorities.
Unfortunately, some financial advisors who have been in business for a considerable time do not keep up to speed with developments, and this can be an issue. Changes to tax laws and investment solutions, for example, means that advisors who don’t keep up to date may not give the best advice. Lack of time can also be an issue as sometimes an annual review is not enough. Your advisor should be on hand to respond whenever you need them, so continuous dialogue is an important feature of a good client-advisor relationship.
Your New Financial Advisor – Take the Right Steps
When you are seeking a good financial advisor, personal recommendations from your friends and family can be a help, however, bear in mind that it can sometimes take years to discover whether the advice you were given was appropriate. On balance, it’s better to check out qualifications and reputations of advisors after thorough research.
Some types of financial advisors are restricted in terms of the products they can offer and the kind of advice they can give. Independent financial advisers can recommend without restriction all types of pension products and retail investment products from companies across the market.
Remember that it makes sense to use an advisor when seeking to make an investment in an unfamiliar area, particularly if you are aware that your personal level of knowledge and expertise may not be good enough. Some advisors only deal with specific products, such as mortgages or insurances, so make sure the one you choose is highly qualified in your chosen product.
Find out about all fees and commissions payable, including fees for ongoing advice. Always check an advisor’s qualifications before you make a commitment to a specific financial planner. Sometimes client-advisor relationships go awry, and the cost is usually to the detriment of the client.