Financial Advisor: How to Choose the Right One for You
Who is the financial advisor and what requirements must he meet? But, above all, what are the advantages for a customer who decides to contact him? A practical guide to navigate the world of financial advice and discover all the characteristics of the financial advisor
The financial advisor (in English, financial advisor) is a professional expert in finance and related legal and tax aspects, with particular reference to the subject of investment services and capital management operations of companies, institutions or individuals (asset management) .
Obviously not all are the same.
In this article we try to shed light on this figure, on the requirements that he must have, on the advantages for the client who turns to him and on everything that, as a client, can be asked of this professional who plays a fundamental role in the management of the own heritage.
In fact, it is important to choose the right consultant to be sure of having an experienced professional at your disposal, capable of guiding us in understanding the financial markets and the ever-changing dynamics of the economic-financial scenario.
What does a financial advisor do?
The financial advisor helps their clients make investment decisions by offering personalized advice that aims to help them achieve their goals by creating a financial plan. He can work as an independent professional or within a financial consultancy firm.
What does independent financial advisor mean?
The financial consultant can work for a consulting company (by law he must be a sole agent, because the principal is jointly and severally liable for his work) or independently.
The "independent" financial advisor is in any case duly registered with the Ocf professional register and is authorized to carry out investment advice.
However, it should be noted that the independent financial consultant never comes into direct contact with the savings to be managed: for the execution of the recommended operations, he leaves the clients with the task of giving instructions to the qualified parties (for example, the banks).
What can the independent financial advisor do?
The independent financial consultant has the task of satisfying the investment objectives set by the clients (respecting, for example, the risk profile) and, more concretely, that of knowing how to choose on the basis of those objectives among the numerous financial instruments available on the market, as well as being able to diversify them by type or product case.
What can't the independent financial advisor do?
The independent financial consultant, in addition to not being able to manage savings directly, cannot even receive special assignments or powers of attorney for the direct fulfillment of operations, nor delegations to dispose of the sums or assets of the customers.
The independent financial consultant is called, in fact, fee-only: this means that he is remunerated in a fee (the fee) only by his client.
Brokers and promoters
If we talk about financial advisors, we must also make a distinction with other professionals in the financial sector: intermediaries and brokers.
Brokers are essentially insurance figures: they work only as insurers.
They operate without being sole agents. Their peculiarity is to be able to offer their customers the solution that best meets the needs of the insured on the market.
Years ago there was the figure of financial promoters, which today has been replaced by
financial advisor.
The promoters were intermediaries who had the faculty - unlike the bank - to offer “off-site” investment products and services, that is, not at the offices of the company they represented.
As is also the case today for the consultant, even the promoters could only operate on behalf of a single subject (bank, investment company, asset management company or other) thus resulting either as employees of that subject or its sole agents.
This has transformed the professional figure of the "promoter" (who proposes the purchase of a product) into a "consultant" (who merely advises on the basis of information and data).
How to choose your financial advisor?
Here are some good tips for points.
1) Possession of the title and actual experience
Those who provide consultancy activities must be authorized and possess the necessary certifications. So, first of all, you need to make sure that the financial advisor is recognized and qualified:
a) by registering with the register, which is enabling;
b) through further certifications issued by organizations (such as Efpa and Anasf - which both have a code of ethics to adhere to) or recognized associations.
2) Empathy and communication
In any successful relationship, the basic characteristics are empathy and right communication. It is important to ensure that the financial advisor has a natural spirit of cooperation and is able to:
a) listen carefully to understand the individual needs
b) knowing how to explain and convey information clearly
Consultants who have obtained a certification in questionology have precisely these characteristics.
3) Trust, availability and reputation
Another fundamental phase for the choice of the financial advisor is based on his availability and reputation, which become the basis on which to build the subsequent trust in him.
You have to try to understand what feedback the financial advisor has had from his previous clients and, above all, it must be easy to get in touch with him. When called, he must respond promptly and / or call back within a short time. Must be quick in giving the answers you are looking for: have monthly phone calls or quarterly meetings? Furthermore, he must use technological tools (for example, custom apps, document cloud, etc) that facilitate the speed and quality of communications with customers.
4) The principal (company)
It is good to evaluate the principal, or the company to which the financial advisor refers. There are four macro models of principal companies:
1) with a marked propensity for insurance,
2) with balanced asset mix,
3) with management orientation,
4) with dominant managed savings.
These four macro models are markedly differentiated from each other by service model and growth driver. A good financial advisor knows how to select the best client for his skills and for his clients.
5) Always think about the return / risk equation
He is mathematician. There is an inverse relationship between return and security: the higher the return, the more volatile the investment. And if volatility is added, the client has to accept a longer time horizon. We must therefore be wary of the financial advisor who promises returns.
6) Personal values
Understand the financial advisor's core values and assess whether they match the client's long-term financial goals. A trustworthy person will be able to tell what his core values are from a personal point of view.
What are the advantages of financial advice?
1) Customize investments, according to the objectives
Through a consultant, each investor will have a customized solution to meet their expectations. The financial advisor will recommend only the tools suitable to achieve the objectives, in full respect of the client's interests.
2) Reduce the investment risk
Since a financial consultant will guide the client towards the most efficient tools for the specific situation, thanks to him, a better cost - earnings ratio can be obtained. In this way it is possible to reduce the risks associated with the investment and, as a corollary, to increase the earning opportunities.
3) Long-term planning
The financial consultant, as the only contact person, will personally know the end customer and will be able, over time, to plan with him the investment of his own capital in the short, medium and long term, creating a real investment plan that will take into account all the dynamics of the customer's life. Since life can change, the consultant will be able to reshape the financial planning according to the new needs.
Five questions to ask your financial advisor
Before finishing this guidance article, here are some questions you can ask your financial advisor when you decide to use his / her collaboration:
1) How am I profiled?
This is one of the first questions that the consultant will answer (even if it will not be asked ...). The consultant will submit a questionnaire to you and will cross-reference the client's answers with the other data available to him. By discovering the client's profile as an investor, the foundations will be laid by both of them to start a personalized consultancy.
2) What happens if you have to divest?
It is important that the advisor be asked what happens if you need to liquidate your investment ahead of time. If the consultant knows this need he can design a better financial planning.
3) What are the advantages and disadvantages of a particular financial instrument?
It is important to have everything explained well: what need does a certain type of proposed investment satisfy? How does it work towards your investment objectives? If you are talking about a single product with the financial advisor, it is important to have an explanation of how and why it fits virtuously into your portfolio. That is: how does it fit into the overall portfolio? What function does it have? Does it reduce the risk? Does it increase the chances of achieving good performance? Does it raise the profitability of the portfolio in terms of coupons / dividends? Does it have a hedging function against some impending risk?
4) What risks does the investment have?
Nothing ventured nothing gained. If you don't risk it, you don't earn. But the risks must be consistent with the client's needs, his profile and his financial profile.
5) What are the costs associated with the investment?
Any entry and exit costs, management and performance fees (if any), consultancy costs, any penalties, etc. The various items must be explained well, how, when and why they come into play. In particular, it is also important to ask how much the consultation costs each year.
How much does a financial advisor cost?
A financial advisor earns a percentage of the invested capital. The Mifid 2 legislation also makes a careful check on costs, which must always be communicated to the customer with transparency. The cost of a good financial advisor pays off in full because it optimizes revenues and minimizes the risks that a client would have by operating alone. In short, his fee is transformed into an investment for the client himself. Good advice and a good overview of the financial market are worth gold. Literally.
Thanks for sharing this points for choosing right financial adviser , i am also doing my Online MBA course in finance form distance learning center and this info will surely help me.
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