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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.

photo by ydocnameloc

Only a small percentage of financial advisors are Registered Investment Advisors (RIA). Federal and state law requires that RIAs are held to a fiduciary standard. Most so called “financial advisors” are considered broker-dealers and are held to a lower standard of diligence on behalf of their clients. The following excerpt discusses how evaluating the way an advisor is compensated can help you determine their fiduciary standard.

How Compensation Is Related To Fiduciary Conduct

To view the complete article visit FOCUSonFiduciary

One of the best ways to judge if your financial advisor is held to a Fiduciary standard is to find out how he or she is compensated.

Fee-Only Compensation -
This model minimizes conflicts of interest. A Fee-Only financial advisor charges clients directly for his or her advice and/or ongoing management. No other financial reward is provided, directly or indirectly, by any other institution. Fee-Only financial advisors are selling only one thing: their knowledge.

Some advisors charge an hourly rate, and others charge a flat fee or an annual retainer. Some charge an annual percentage, based on the assets they manage for you.

Fee-Based Compensation -
This popular form of compensation is often confused with Fee-Only, but it is very different. Fee-Based advisors earn some of their compensation from fees paid by their client. But they may also receive compensation in the form of commissions or discounts from financial products they are licensed to sell. Furthermore, they are not required to inform their clients in detail how their compensation is accrued. The Fee-Based model creates many potential conflicts of interest, because the advisor’s income is affected by the financial products that the client selects.

Commissions -
An advisor who is compensated solely through commissions faces immense conflicts of interest. This type of advisor is not paid unless a client buys (or sells) a financial product. A commission-based advisor earns money on each transaction-and thus has a great incentive to encourage transactions that might not be in the interest of the client. Indeed, many commission-based advisors are well-trained and well-intentioned. But the inherent potential conflict is great.

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 yewenyi

Choosing an advisor with fiduciary responsibility who, by definition, implements prudent financial management practices, is like taking precautionary life saving measures while in the water. An advisor with fiduciary responsibility will minimize short and long-term financial risk and identify investment opportunities that will lead to increased value, while always placing the clients’ best interest ahead of their own. The following excerpt discusses what fiduciary responsibility means for the 21^st century.

New Directions in Fiduciary Responsibility

by Stephen Viederman.  To view the complete article visit Institutional Shareowner

This vision of fiduciary responsibility carries new and redefined obligations for fiduciaries.

• Fiduciaries should be knowledgeable about the social, environmental, political and cultural issues that affect their portfolios and which are analytic tools integrated with more conventional financial analysis. These issues include among others climate change, labor conditions and human rights worldwide, diversity on boards and in the workforce, and product safety.
• Fiduciaries should use investment managers who have the skills and resources to implement an investment program that incorporates the interrelationships between financial decision-making and social and environmental issues, and who are also knowledgeable about these issues. This is not portfolio screening.
• Fiduciaries should review their entire portfolios, not individual assets or even individual asset classes. Single decisions affect total portfolios that in turn have societal effects. For large institutional investors the bottom line is portfolio-wide. This requires awareness that negative economic externalities (e.g. pollution) and positive returns in a single company (e.g. pharmaceuticals) may benefit a particular firm they own, but will likely damage the asset value of other firms they own.6
• Fiduciaries should develop proxy-voting guidelines, make them available to their beneficiaries, and disclose their actual votes on proxy resolutions. Fiduciaries are the stewards of capital entrusted to them to look out for all their beneficiary interests.
• Fiduciaries should demand greater transparency and disclosure from the companies in their portfolios on social and environmental issues as well as issues of corporate governance. They will also need to encourage best practice, and better practice.
• Fiduciaries should practice the same levels of transparency and disclosure they demand of companies on all aspects of their activities. Fiduciaries should explore the potential of alternative investments and alternative investment strategies to channel funds into new areas that are socially just and environmentally sound, as well as financially viable.
• Fiduciaries should ask their lawyers how to accommodate these new responsibilities and obligations, rather than ask if they can. Even in situations where a legislature has directed that the highest financial rate of return is the sole purpose of a pension fund, such as the case of New York, this new analytical approach to financial decision-making need not be an obstacle. Substantial research shows that consideration of the risks and opportunities that social, environmental, political and cultural issues raise can improve financial performance, or at least have no negative effect.

This view of fiduciary responsibility and the obligations of fiduciaries is not a radical approach to institutional investing. In fact it is very conservative because it makes best use of all available information that can positively and negatively affect financial returns. The transparency of analysis and action that results should help address not only long-term societal impacts of investment decisions, but also immediate needs for greater disclosure from companies.

The transition from the present view of fiduciary responsibility to a new view may take some time. But the debate on these issues must begin now to the benefit all beneficiaries, shareholders and stakeholders alike.

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 souloyster

Navigating the waters of selecting a financial advisor can be difficult, but by choosing one who has fiduciary responsibility, you are choosing an advisor that has a legal responsibility to put your needs ahead of their own. There are a number of important differences that separate advisors who have fiduciary responsibility from those who don’t. The following article outlines those basic differences.

Financial Advisors are Fiduciaries, so what?

Taken from Paladin Registry

Very few investors know the critical importance of selecting an investment fiduciary as their financial advisor. That’s because the financial securities industry deliberately blurs the distinctions so lower quality sales representatives can sell you inferior investment and insurance products for big fees and commissions.

It is important to know there are two primary types of investment advisors and not one. Following is a brief description of each type so you know the differences.

Fiduciary advisors have the following characteristics:

• They are Registered Investment Advisors or Investment Advisor Representatives
• RIAs and IARs are held to the highest ethical standards in the industry
• They frequently use job descriptions such as: Financial Advisor, Investment Advisor, Financial Consultant, Financial Planner, Money Manager
• They provide financial advice and services for fees
• They acknowledge they are fiduciaries when they provide investment advice and services
• Fiduciaries are required to always put their clients’ financial interests first versus their own needs for revenue and income

Non-Fiduciary advisors (sales representatives) have the following characteristics:

• They hold securities licenses, such as Series 6 and 7
• There are held to much lower ethical standards than RIAs and IARs
• Their job descriptions are sales representative, investment representative, financial consultant (noteoverlap with fiduciary advisors)
• Their licenses limit them to selling investment products for commissions
• They are not allowed to charge fees for their advice and services
• They are not fiduciaries because they are not RIAs or IARs
• The critical question you should be asking yourself is do you want a sales representative investing assets that will impact your standard of living during retirement and your financial security late in life? If your answer is no, and it should be, then you should limit your selection to fiduciary advisors.

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.