What Can You Expect from a Financial Advisor?
Taking an active role in your finances not only increases your chances of becoming wealthier, it also makes you a better investor. But that doesn't mean you have to go it alone. The best financial advisor for you is one who complements your existing knowledge and skills, and helps you gain insight and confidence in making financial decisions.
To that end, there are several types of financial advisors, and each type puts a slightly different spin on their roles. The type of advisor you choose will dictate the services you'll receive. Financial advisors include:
The most encompassing is the money manager, who actually makes all decisions for you once you've agreed to a general style and purpose; with these professionals, you will have virtually no part in the day-to-day decision making process, though you will be kept abreast of the activity in your portfolio.
Financial planners help map out long-term strategies and advise you on all aspects of your personal finances, but you make the final call about what actions are taken.
Investment analysts and advisors focus primarily on trade recommendations and don't really look at your overall financial picture; again, here you have the final say-so as to which trades are made.
When you work hand-in-hand with a financial professional, regardless of the type, you will receive frequent reports regarding both your personal financial status and current market activities. More frequent personal interaction with your advisor will help you build a better relationship with your money and, by extension, your financial life. Your participation level is up to you, but the more involved you get, the sooner you'll be able to captain your own financial ship. For this reason, it's critical to work with a professional who's available to you and willing to work with you. Avoid those financial professionals who try to keep you at arm's length and are hard to connect with.
Two key pieces of your decision are control and access — the advantages traditionally associated with institutional investors. When you invest in a no-load fund, for example, your access is basically limited to a toll-free telephone number and you have no control over the underlying investments. When you hire a financial advisor, though, you're engaging an investment consultant with whom you can interact, ask questions of, and learn from.
Your financial advisor should monitor your portfolio's performance, help you change your asset allocation strategies when appropriate, and alert you to major changes in the markets. Additionally, your advisor should help you stay focused on the long term. Many investors get emotionally involved with their money — which is certainly understandable, given the high stakes involved. But a good advisor will stop you from buying high and selling low, or making unsure, emotional decisions based on short-term results.
This makes working with an experienced professional financial advisor even more critical when the markets are in decline. Everyone can make money during bull markets, but advisors who can get you through bear markets with your nest egg intact — or even bigger than it was before — are well worth your money. You should expect your advisor to help you preserve your wealth (as much of it as possible) even when the markets are crashing. He can employ emergency investing tactics, with your knowledge and approval, to keep your financial goals on track.
