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When evaluating the differences between financial advisors be sure you are comparing apples to apples.  One way of doing this is evaluating how the advisor is paid.  The following excerpt discusses some of the responsibilities an advisor has to their client and looks more in depth at fee-based advisors.

To read the complete article visit Wikipedia

Financial advisers may help their clients invest for both long and short term goals. It is the financial adviser’s duty to determine the clients’ goals and risk tolerance and then to recommend appropriate investments. Generally, a long time horizon allows for the advisor to recommend more volatile investments with potentially greater risks and rewards. Such investments include direct investment in stocks or through collective investment products such as mutual funds and unit investment trusts/unit trusts.

If the client has shorter term goals, the adviser should recommend less volatile investments with shorter time spans. Such investments could include cash deposits, certificates of deposit, and short term bonds. While these types of investment generally have lower returns there is less volatility and there is less likelihood of losing principal capital. Although short-term investments can guard against loss of capital, their value can be eroded by inflation over longer periods of time.

Fee-Only financial advisors

As defined by the review materials for the Certified Financial Planner exam and the National Association of Personal Financial Advisors, fee-only financial advisors are compensated solely by the client, typically achieved through a combination of hourly fees (including retainers), financial planning fees, and asset management fees. Neither advisors nor affiliates may receive commissions, rebates, awards, finder’s fees, bonuses or other forms of compensation from others as a result of a client’s implementation of the individual’s planning recommendations. The fee-only model of compensation reduces the potential for conflicts of interest between the advisor and the client in that the advisor is not beholden to insurance companies, particular investments, and other financial companies.

A clear distinction should be made between brokers, who often refer to themselves as “Fee-Based” (receiving both fees and commissions) and Fee-Only (someone who never receives compensation or incentives from a third party.)

A fee-only advisor may reduce conflicts of interest such as:

• advising a client to buy products and make investments when holding cash and other liquid assets may have been a more suitable recommendation at that time.
• an incentive to generate commissions through the unnecessary buying and/or selling of securities (also known as churning).
• an incentive to convert non-cash assets such as real estate and collectibles to cash and securities so that the advisor can generate a commission.
• an incentive to make recommendations that pay higher sales commissions to the advisor when a less expensive alternative may have been available.

Working on a fee-only basis allows the advisor to:

• Customize an investment portfolio that is designed to help the client realize short-term and long-term investment goals.
• Provide simplified performance reporting, making it easy for clients to monitor their accounts.
• Support the client with ongoing professional advice, timely information about accounts and updates on the world’s financial markets.
• Manage a client’s portfolio and make investment changes–without commissions–as a client’s objectives or the economic climate changes.

It is worth noting that:

• Operating on a fee-paying basis may make the advice too expensive to obtain for the broader market otherwise catered for by commission-based advisers. If a client must pay a flat fee of $1000 to their adviser as a lump sum, this is less manageable for all but the wealthy, rather than the more manageable option of paying through regular charging and commissions. However this is not to say that fee-only is more expensive than paying by commission; commissions earned by brokers can add up over the course of a year, especially if many changes are made. It is worth noting that many fee-only advisors charge an annual fee that is deducted on a quarterly basis.
• On the other hand, if an advisor charges a flat percentage (e.g. 1% of total assets under management) for all clients, the advisor may not be able to afford to service clients below a minimum net worth.
• Asset based advisors may have the prerogative of managing all of a client’s manageable monies. Although this is a particular bias for asset-based advisors, this can also lead to a more streamlined and efficient working relationship and service. However this may create a conflict of interest with regard to questions of the use of client funds. If a client inherits funds and is choosing to pay off debt or invest with the advisor, they should weigh the fact that the advisor is paid if the money is invested and not if the debt is paid off.
• While fee-only advisers cannot accept commissions, they may still have personal favorites amongst product providers and investment houses that lead to one provider being specifically favored over another when competing advice is given.
• If certain restrictions are not in place, there can be an incentive to take too much risk in a portfolio to generate additional gains that translate into “raises” for an asset-based advisor.

To be continued…

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Understanding what to look for and what to expect from a financial advisor is critical when it comes to selecting who will manage your investments.  The term financial advisor can be used loosely which makes it even more important to look at their designation and qualifications, along with how they charge their fees.

The following excerpt is taken from Wikipedia

A financial advisor, more recently often referred to as a financial planner, is a professional who renders financial planning services to individuals, businesses and governments. This can involve investment advice, which may include pension planning, and/or advice on Life insurance and other insurances such as income protection insurance, critical illness insurance etc, and/or advice on mortgages.

Ideally, the financial adviser helps the client maintain the desired balance of investment income, capital gains, and acceptable level of risk by using proper asset allocation. Financial advisers use stock, bonds, mutual funds, real estate investment trusts (REITs), options, futures, notes, and insurance products to meet the needs of their clients. Many financial advisers receive a commission payment for the various financial products that they broker, although “fee-based” planning is becoming increasingly popular in the financial services industry.

A further distinction should be made between “fee-based” and “fee-only” advisers. Fee-based advisers often charge asset based fees but may also collect commissions. Fee-only advisers do not collect commissions or referral fees paid by other product or service providers.

Some investment advisors only charge a fee based on the assets managed for the client. Typically they charge about 1.0 to 1.5% per year to make the investment decisions for the client. They do not collect commissions.

Designations

An “investment adviser” can be anyone whose vocation is consulting with clients with an intent to better their financial situations. The term can apply to Certified Financial Planners (CFP®), Certified Public Accountants (CPA), investment representatives, insurance consultants, attorneys whose practice surrounds personal financial or estate matters, or financial planners. A financial planner is one who specializes in outlining comprehensive financial plans and strategies encompassing most or all of a client’s financial areas.

Financial Adviser Qualifications

The Chartered Financial Analyst (CFA) designation, the Certified Financial Planner (CFP®) designation, the Chartered Life Underwriter (CLU), The Chartered Financial Consultant (ChFC), Chartered Retirement Planning Counselor (CRPC), Registered Financial Consultant (RFC) and the Masters of Science in Financial Services (MSFS) are all advanced specializations that require elaborate course work to obtain. These professional designations are issued by organizations such as the Chartered Financial Analyst Institute, the Certified Financial Planner Board of Standards, and the College for Financial Planning.

Goals

The main purpose of a financial adviser is to assist clients in the planning and arrangement of their financial affairs, such as savings, retirement provisions, tax treatment and wills. To ensure ethical practices, financial advisers must understand a client’s financial situation as well as their need for financial stability. Finance can be complicated and any adviser has responsibilities ethically to see that a client’s risk is minimized, and monetarily, that money is maximized within the established risk boundaries.

Retirement Planning

One of the major services that financial advisers offer is retirement planning. A financial adviser should have knowledge of budgeting, forecasting, taxation, asset allocation, and financial tools and products to establish realistic goals and the strategy by which to reach them. In the United States, this will include the use of several investment tools such as 401(k)/403(b) Roth account(s), Individual Retirement Accounts/Roth IRAs, mutual funds, stocks, bonds and CDs.

The financial adviser determines what percentage of the available income is necessary-taking into account tax liabilities, expected inflation, and projected return on investment-to meet a minimum balance by the client’s target age of retirement. This is a fairly straightforward calculation, and many automated tools do this. The financial adviser’s greatest contribution is asset allocation: determining how to maximize the return on investment while satisfying the client’s risk tolerance.

To be continued…

For additional tips on selecting a financial advisor visit paragonwealth.com

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

photo by Robert Petros

Financial advisors play an important role in helping you to make the right investment decisions.

Depending on the type of financial advisors that you choose, they can make your life easy or difficult. It is critical for you to learn about different types of financial advisors, so that you may understand which of them suit your requirements.

Visit Economy Watch to view the complete article.

Qualifications

Title of financial advisors depends on their qualifications. Make it a point to confirm the qualifications of a person who claims to be a certified financial advisor. Remember to inquire about credentials of a person who passes him or herself off as a “financial planner” or financial consultant” The different types of financial advisors strutting around with fancy titles may only end up confusing and misleading you.

Certified financial planner

To become a certified financial planner, a person has to complete and pass a course conducted by Certified Financial Planner Board of Standards. A certified financial planner helps you to take educated decisions about taxes, insurance, investments, retirement, and estate planning.

Chartered financial consultant

A person become a chartered financial consultant on completion of an 8-course curriculum conducted by American College of Bryn Mawr, Pennsylvania. A certified financial consultant helps you on matters related to investments, taxes, retirement, insurance, and estate planning.

Chartered financial analyst

A person who is a chartered financial analyst, has been conferred that credential by Chartered Financial Analyst Institute. To become a chartered financial analyst, a professional has to pass several rigorous tests and has to be working in investment industry. Areas of specialization for a certified financial analyst include securities analysis and money management.

Personal financial analyst

A personal financial analyst has to be certified by American Institute of Certified Public Accountants. A person has to pass rigorous examinations before being certified by American Institute of Certified Public Accountants. This professional helps in matters related to financial planning.

Registered investment advisor

A registered investment advisor is one who has been given a license by Securities and Exchange Commission to offer investment advice.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

In the following video, Dave Young, President of Paragon Wealth Management, discusses why the size of an investment firm so important when determining who should manage your money.  He talks about the benefits of a small investment firm and the advantages they have in managing a portfolio.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.