A financial advisor is a person who, whether working independently or as part of a company, provides help on various issues related to finance and personal economics. Among other topics, they often work on issues such as investment selection, retirement planning or estate planning. At first glance, it might be thought that working with financial advisers is a necessity for people who do not have the knowledge or time to personally take care of these issues. However, this is not necessarily the case.
On the contrary, many of the great personalities of the world of the economy and the financial markets hire the services of these advisers. In the same vein, Bill Gross is popularly known as “The King of the Bonds” thanks to his extensive record of accomplishment of success as an asset manager for decades in the fixed income market. However, Gross receives financial advice from Morgan Stanley.
It so happens that successful financial planning is not just a matter of technical knowledge or access to information. Maintaining an objective mentality and carrying out a disciplined process are absolutely central factors. From this point of view, having a person in charge of guarding our interests and helping us to avoid the most costly mistakes can be an important advantage. When analyzing the services of a consultant of this type there is a wide range of issues to consider clearly, suitability and honesty are key aspects and there are international certifications such as CFA, Chartered Financial Analyst, which can result Valuable from this point of view.
To obtain the CFA designation, a financial advisor must pass three different levels of exams on investment, economics and ethics, among others. In addition, it is necessary to have practical experience of more than four years in the industry and to commit to comply with the code of ethics of the association. It is also advisable to have a clear understanding of the compensation system under which a financial advisor works. Some charge their fees directly from the customer, while others get a percentage of commissions on buy-sell transactions on different types of instruments. None of these systems is necessarily superior to the other.
However, when dealing with transaction commissions, it is important to be careful about the possibility that this leads to too high an activity level. If the financial advisor receives income each time we buy and sell, he or she may be encouraged to make a larger number of transactions than is convenient from the investor’s point of view.
As for direct compensation systems, in some cases a percentage is charged on assets and returns. There are also advisors who charge an amount of fixed monthly or annual money without it being related to the asset base or the returns of a specific year. It is important to select a compensation system that is in accordance with the objectives and needs of each client.
A very interesting question to ask a financial advisor is in what you invest your own money. The client should not necessarily replicate this strategy, since the goals and risk tolerance of the advisor and his client do not have to coincide. However, it is never too much to verify the concordance between the opinions of the adviser in question and the fate he gives to his own capital.
Technology support is one of the areas that have gained more importance in recent years. In fact, purely online advisory services are enjoying remarkable success, as customers value the comfort and privacy that these business models provide tremendously.