A personal financial advisor is entrusted with the job of evaluating the performance of companies or that of a portfolio of securities and providing valuable guidance to individuals regarding the suitability of investments.
Responsibilities of a Financial Advisor
A financial advisor is responsible for assessing market conditions, compiling and analyzing socioeconomic data, and advising clients on the best investment opportunity. He is expected to be comfortable with tax laws and insurance and suggest suitable investment alternatives. Working with detailed financial records and charts are all a part of the game. The advisor is also expected to forge relationships with clients by focusing on need-based sales of investment products. The advisor is required to have the knowledge of legal and regulatory requirements and the guidelines laid down by the Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission (SEC). Suggesting investments such as mutual funds, stocks and bonds; suggesting contributions to Individual Retirement Accounts (IRAs), retirement planning, real estate investment advice and many other services, come under the purview of his/her responsibilities.
Clarifying Risk and Reward
A financial advisor cannot ignore the client’s ability and the willingness to assume risks. The ability and the willingness to undertake risks coupled with the appropriate investment decision-making prowess will influence the return on investment. This is because risk and reward are directly proportional. Clients, who have a great deal of money and a long term investment horizon, may be better-off investing in more risky assets. People with a short term investment horizon need to have enough liquidity to meet their financial obligations. Hence, in such cases one of the duties of a financial advisor is to suggest investments that have a short maturity. Despite having the capacity for wealth generation, a person may choose not to invest in what he/she feels is a risky proposition. In this situation, the financial advisor should explain to the reluctant investor the concept of risk and reward, clarify the need for liquidity and make sure that time horizon of the investor matches the need for liquidity. A person, who is in his/her late 40s and has two children will generally have 3 time horizons. One coinciding with his/her retirement and the other two with the children’s college education. A good advisor will ensure that the return from investment coincides with the aforementioned time horizons when the need for liquidity is predominant.
Finding and Maintaining Relationships with Clients
Financial advisors essentially have the job of creating and maintaining their own client base. Client relationships have to be forged by suggesting superior management and wealth creation strategies. Meeting with clients on a regular basis, preparing and delivering presentations and seminars to clients are also important since they may enable the advisor to communicate the benefits of certain investments and the prudence of avoiding a few others.
A financial advisor should have one of the following qualifications: Certified Financial Planner (CFP), Chartered Financial Analyst (CFA) or Chartered Financial Consultant (ChFC). Although, people with Series 6, 7, and 63 may also be qualified to advise one regarding investments, it’s preferable if such advisors have at least 3-5 years of experience. Given that these advisors occupy a position of trust and confidence, advisors with significant assets register with the Securities and Exchange Commission (SEC). The Investment Advisors Act of 1940, a federal law that is enforced and interpreted by the Securities and Exchange Commission (SEC), applies to them.
Hopefully, the above article would have given one an idea about the responsibilities and the duties of a financial advisor. Choosing a financial advisor is a job that requires a great deal of thought and contemplation, since the advice that is dispensed may secure or ruin one’s financial position.