When determining if you need a wealth manager, and which wealth manager to use, there is a large margin for error. The following article outlines common mistakes to learn from and steer clear of.

Top 10 Wealth Management Mistakes

by Akash Joshi

Visit Financial Express to view the complete article

1. Going it alone

And one of the biggest mistakes people make in this area of wealth management is to do it alone. “I think I can manage stuff on my own and after all I have the knowledge to handle it,” is the usual response. And after completing his post graduation in business studies, even Dhiraj Nikam felt this way. “But it gets more than that. I cannot concentrate on my profession and business and also manage wealth. This is a realization I had,” he adds.

Professionals like lawyers, doctors and even trained financial professionals need specialised wealth management support. And this is because it is not about placing monies in pre-designed compartments - 10% in fixed income, 40% in real estate 40% in equities and the rest in insurance. It is not a product of a software program, but a series of iterations that result in asset allocation, which is designed to meet your life goals.

Professional wealth management service providers go a long way in understanding you and your needs, your lifestyle and your family. They then come up with several plans that could enable you to grow and distribute your wealth. It is better to involve professionals here.

2. The right partner

By an extension of the previous mistake, often high net worth individuals tend to pick up more than one service provider. Vikas Agnihotri, CEO, Religare Macquarie Private Wealth says, “In India, clients provide only a portion of their portfolio to one wealth manager, hence the advice is suitable for only a part of the overall client portfolio. This is in contrast to international practice where investors engage with one wealth manager to provide holistic advice on their entire portfolio. It not only allows disciplined approach to investments but also helps clients achieve their investment objectives.”

And when you express your desire to chose a wealth management partner, there will be many who will line up for what is known as the ‘beauty pageant’ and will present their abilities to manage your wealth. Here, it can be said that it is better to avoid service providers who base their income on commissions from financial product vendors. These are advisors who, often enough, would peddle products based on the commissions that they receive and not the efficacy of the product itself and its match with your life goals.

While most financial planners and wealth managers would be good and competent, one can never be sure of their genuineness. Hence, doing a background check before deciding on someone is a must, for there are still those unscrupulous advisors lurking around, only waiting to catch their next prey.

Yes, the process of choosing a wealth manager should be even more carefully done, then choosing someone to employ. Hence, references are more important here, and, checking up with them equally so. It is, after all, your entire wealth and life you are going to be discussing with this person.

When you go to a wealth manager, note, most of them will have the gift of the gab, but under no circumstances should that intimidate you or make you passive. After all it is a service you wish to buy, hence it is important to ask questions, determine what their plan of action will be and how your money will be invested. Prepare a list of questions you would like answered, to put forth to your wealth manager. Remember, being free and open about talking to your manager, being able to disclose everything and, most importantly, having a comfort level and rapport with him is a must.

3. Clarity

Lokesh Nathany, national head of wealth management, Almondz Global Securities feels “One of the most important parts of wealth management is asset allocation. This is a critical area where many people have made mistakes, by jumping around too much or not changing at all.” And this happens because there is no clarity in why the wealth manager was approached.

“We often get clients who have come to us because their friends told them at a party that our firm had helped them get some quick returns. So here they are,” says a relationship manager with a global wealth management firm.

Though not water-tight, you have to have some clarity on the broad goals that you want to achieve in your life. These goals could be in the form of your children’s education, buying a farm house, children’s marriage, retirement and even beyond your demise.

4. Revisiting objectives

Obviously, as life goes on, objectives and goals keep changing. And when these happen, the wealth manager or the relationship manager must be consulted to reset the entire portfolio. And this is a critical aspect many clients tend to forget, says a wealth manager. In case you have a marriage plan changed to a closer date than planned then you would might have to liquidate a few assets that you have kept for that date. Now, which are the assets that you would liquidate and how do you restructure the portfolio? Such decisions must be taken after great thought, reckon experts. But revisiting objectives just because market circumstances have changed and reshuffling the overall asset allocation mix at regular intervals might not be the right thing to do. But if there are compelling reasons, like the huge bull-run in the past three years (which is not exactly short-term), revisiting objectives and a reshuffle might actually work.

Nathany adds, “Asset allocation, however, should be reviewed periodically and strictly. If it was decided your allocation would be 70% equity and 30% debt, during an equity boom this may change to a 90-10 ratio.”

5. Panic / greed

Wealth management is a long term process and there will be times, especially in the bull-run, when you would be tempted to risk more. These are the times when long and detailed wealth management plans are often shelved, sometimes broken down to indulge in speculation. “One of my clients actually broke our relationship and placed all his wealth on the markets, he even borrowed and took large positions. And when the markets started to tank, he panicked. But then, around 30% of his wealth was washed out in three months,” says a relationship manager not wanting to be named.

It’s first greed and then panic, he adds. You might want to keep some funds aside for speculation, but do not interfere with your wealth management capital and your life goals, unless any of them have changed.

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.

When selecting a financial advisor it is important to make sure they’re competent, trustworthy and looking after your best interests. Here are some big questions to keep in mind as you review your candidates.

Seven Questions to Ask When Picking a Financial Adviser

by Shelly Banjo

visit The Wall Street Journal to view the complete article

As investors look for guidance in these troubled markets, one question looms above all others:

Whom can you trust?

The short answer is that you can’t. There are no guarantees. But you can be a lot more sure than many investors are today.

1. What’s in the adviser’s background?

“Think like an employer,” looking at a potential adviser’s criminal and regulatory record, as well as references from past employers, says Wayne Cooper, founder of Wealth Management Exchange, a social-networking site for high-net-worth investors.

You can find regulatory records for stockbrokers, investment advisers, insurance agents and their firms online, starting at Finra.org, the Financial Industry Regulatory Agency’s Web site. Finra’s BrokerCheck will tell you which states and regulatory organizations that brokers and their firms are registered with, along with the licenses they hold, the exams they’ve passed, and their employment history.

Following news of million-dollar frauds executed by Allen Stanford and Bernie Madoff, investors may be re-examining their own money managers. Dow Jones Newswires’ Shelly Banjo discusses ways to check up on your financial advisor’s credibility.

The site also lists any formal investigations and disciplinary actions initiated by regulators, along with customer disputes, certain criminal charges and financial disclosures, including bankruptcies.

For investment advisers with firms regulated by the Securities and Exchange Commission — usually those managing more than $25 million — go to http://adviserinfo.sec.gov and click on “Investment Adviser Search” to see part of the “Form ADV,” a document the SEC requires all investment advisers to fill out when registering.

2. What do the adviser’s clients say?

Don’t wholly depend on the reputation of a big firm or recommendations from friends, family or members of your country club. After all, Bernard Madoff would likely have gotten glowing recommendations from many noted people, says David Kudla, chief executive of Mainstay Capital Management in Grand Blanc, Mich.

People who refer you to an adviser may also have different goals than you. For instance, your golf buddy may want to retire before age 40 and doesn’t have any kids to think about. But you may be planning to retire at age 75 with money left over for your three kids. Thus, your financial plans and needs will vary drastically.

So, it can be helpful to ask for references from past and current clients in life situations similar to yours. When talking to the clients, get specific about their experiences. How often did the adviser communicate with them? Has the adviser ever admitted to making a mistake? How often do they evaluate their goals with the adviser? Has anything about their relationship surprised or disappointed them? Has the adviser performed well in bull and bear markets? Is the adviser ethical?

Then ask them for additional references from people the adviser hasn’t solicited, says Greg Rogers, founder and president of RayLign Advisory LLC in Greenwich, Conn. “Try to find six degrees of separation from the adviser,” he says. “You’ll get better information if you get indirect references.”

3. How does the adviser get paid?

Knowing how advisers get paid will help you tell if they’re working in your best interest. “It’s no different than going into a clothing store — when a salesperson says you look great, you know they have a bias to sell you clothes,” says Mr. Sonnenfeldt, the Tiger 21 co-founder.

Advisers use a bunch of compensation structures. They may get a commission on the securities they sell; charge fees, either flat or a percentage of the assets they manage for you; work at an hourly rate; or a combination of all of them. Ask advisers to detail exactly how they work and the total compensation picture from managing your portfolio. Be wary of anyone who shies away from answering these questions in a transparent way, Mr. Sonnenfeldt says.

Also ask about conflicts of interest. For example, if advisers work on commission, ask for their firm’s commission schedule and find out if there are a limited number of products or services they can recommend and why. If they can’t justify the limited choice, that’s a red flag. Meanwhile, if advisers take a percentage of assets as a fee, remember that they may be inclined to advise you to avoid moves that may reduce those assets, including charitable giving or buying a new house. Also be wary of an adviser who charges more than 1% or 2% of assets.

4. Where are the adviser’s checks and balances?

The most glaring red flag in the Madoff scandal was the lack of checks and balances. Mr. Madoff’s clients wrote checks and wired money to, and received statements from, Bernard L. Madoff Securities. The operation’s auditing firm, Friehling & Horowitz, had only one licensed accountant and was operating out of a storefront in New City, N.Y. Madoff investors relied on this firm to verify the authenticity of trades, the SEC said in a complaint.

When purchasing investments, make sure you are writing checks to a third-party custodian, like Fidelity Investments Co. or Charles Schwab & Co., not to your financial adviser directly. This way, “an adviser can make purchase decisions based upon my instruction, but they can’t run away with my money,” says Wealth Management Exchange’s Mr. Cooper.

Call the independent institution to verify it’s serving your adviser, and never send checks anywhere but that firm’s business address. What’s more, don’t allow your transaction confirmations and account statements to be mailed to your financial adviser instead of you. You should receive account statements from a third-party custodian.

Likewise, find out what auditors your adviser’s firm uses. Auditors are crucial, since they verify the existence of the assets your adviser manages. Each state has its own database to check if an auditor is licensed. (While you’re at it, check if your adviser has switched accounting firms or custodians recently, a move that could indicate trouble with the previous firm.)

5. What’s the adviser’s track record?

Advisers sometimes say they can’t easily describe their track record, since they tailor each portfolio to an individual client’s needs. But that excuse doesn’t hold up. “There are many ways to evaluate an adviser’s track record,” Mr. Sonnenfeldt says.

For example, you might ask: How many clients beat their benchmarks or are in line with their goals? How have clients similar to me fared during recessions? Can you combine all of your clients into a single portfolio and tell me how the overall portfolio did? Remember to ask about both short-term (one year) and long-term (10 years or more) records, and ask if your adviser is using absolute returns or returns relative to the performance of the market.

Next, use the advisers’ record to understand how they make decisions. “You can ask about performance, but what you’re really after is how the adviser processes decisions,” says Mr. Rogers of RayLign Advisory.

He suggests asking advisers to dissect a specific situation that has occurred to them. For instance, you could say, “ ’Take your worst investment and evaluate how you made the investment, monitored it and the decisions you made along the way to stick with it or get out,’ ” he says.

“If you feel they are dodging the question or putting a positive spin on everything, it’s a red flag,” Mr. Rogers says. “It could mean they’re not going to deal with or handle the tough decisions.”

Finally, be watchful for claims of all-too-consistent returns. No adviser can deliver 10% to 20% returns every year. More reasonable — and responsible — is an adviser who says they may get you 10% one year, 2% the next and so on, Mr. Rogers says.

6. Can the adviser put it in writing?

Ask for a formal written outline of the services the adviser will be providing and what fees you will be paying. By setting concrete expectations, you can determine if an adviser is going to, say, “help you set goals and do budgeting or just make investment decisions,” says Ellen Turf, chief executive of the National Association of Personal Financial Advisors.

For instance, you can ask advisers to spell out what they think you are trying to achieve and what they think you should do to get there, including investment strategies, specific benchmarks and suggested financial products. If advisers can’t explain their plan in simple terms, another red flag should go up. Secret strategies like those touted by Mr. Madoff are no longer acceptable, Mr. Sonnenfeldt says.

Also ask advisers to spell out who else stands to gain from your relationship — such as affiliated broker-dealers and insurance agencies — as well as exactly how much the adviser, the adviser’s firm and all those other parties will earn from your business.

Finally, find out whether the advisers are going to take on fiduciary responsibility, in which they are legally bound to act in your best interest. If advisers don’t take this oath, they’re only required to sell you products that are deemed suitable for you — and those may not always be the best fit for your financial situation or objectives.

7. What do other pros think?

Sure, you pay your adviser to do the heavy lifting, but it’s imperative that you double-check any big moves — especially in this turbulent economy.

That means knowing the basics behind your investments, insurance, estate planning and taxes, and then turning to other experts for confirmation. For instance, if your financial adviser recommends investing in commodities, read up on recent news affecting the commodities markets and then search out an expert and ask questions.

“Just like you would ask a specialist for a second opinion on your doctor’s diagnosis,” ask your accountant, lawyer and other financial professionals for their opinions on individual strategies, Ms. Turf says.

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.

When it comes to selecting a financial advisor there are several main factors to consider in order to avoid potentially costly financial mistakes.  The following article outlines 5 main things to keep in mind when making your choice in advisor.

How To Avoid Your Own “Madoff  Moment”

by A. Todd Black, CFP

Visit Dogwood Capital Management to view the complete article

There are five fundamental issues that all investors should understand about their financial advisors and the companies that employ them. I call them the five “C’s”:

1. Character

The most important aspect of an advisor-client relationship is character. Who can we trust? It’s the most critical and the hardest trait to judge in choosing a financial advisor.

Father Todd Belardi, LC, is the Formation Director of the Boy’s School at Pinecrest Academy, a private Catholic school in Cumming, GA that was recently honored as one of the “Top 50 Catholic High Schools” in the country. He is responsible for the integral formation of the boys, so I thought he would have a unique perspective on assessing character.

Father Belardi defines character as “an ensemble of virtues, or the capacity to choose wisely as a matter of habit.” He considers the following aspects in assessing character:

- The presence of a spiritual life
- Family life and priorities: is the person a good husband and dad?
- Genuineness: do they put the interests of other before their own? Is he hard working? Does he have a strong will? Is he faithful to his word? Does he do what he says he’ll do? Does he serve in the community?

Most people choose to trust someone simply because they like them. I fall into that category. I like just about everyone that I meet. But merely liking someone is not a good enough reason to trust them with your life savings.

2. Competency

What skill set does the advisor bring to the table? Most advisors begin their careers as insurance salesmen and then branch out into financial planning as their experience broadens. Initially their careers are product sales driven. If they survive that stage of their career they move into giving financial advice. Anyone can call themselves a “financial advisor”.

The Certified Financial Planner (CFP) license is the benchmark for financial planning compentency in the United States. CFP licensees have met rigorous educational requirements and have taken an oath to act in their client’s best interests. This is also known as a fiduciary oath. A fiduciary is legally, ethically, and morally obligated to put the client’s interests before his own. Many product sales oriented advisors are not held to that standard.

3. Compensation

What is the advisor incentivized to do? Is he paid a commission to sell a product, a fee for giving financial advice, or a fee for managing portfolios (or a combination of the above).

Many professionals that hold themselves out as financial advisors are actually selling insurance products (life and annuities being the most popular - because they are the most lucrative for the product seller). I’m not suggesting selling insurance is a bad profession. It’s a great profession and I know some awesome agents. But there is a conflict of interest when an agent can win a trip to Maui if you put your life savings in a certain product. I met a couple whose former advisor sold them a variable annuity to place in their charitable remainder trust so the insurance salesperson could win a trip. Unfortunately, it was not the right product for their needs. That’s the downside to product-focused advice.

I’m a member of the National Association of Personal Financial Advisors (NAPFA), the nation’s leading organization dedicated to the advancement of Fee-Only comprehensive personal financial planning. It’s made up of like-minded Certified Financial Planners that are client focused rather than product focused. This removes the conflicts of interest that plague the product-driven financial industry.

4. Chemistry

Shared values are a very important aspect of chemistry. I married my bride because we have the same values (and she’s smart and beautiful). Consequently we get along very well because I know where she’s coming from and she knows where I’m coming from.

In an advisory capacity, I’m working with families that have similar values to mine. It allows me to give them the best advice possible to accomplish their goals.

Communication and rapport are also critical to the success of any relationship.

5. Custodian

Trust but verify!!!

The safest place to keep your assets are in brokerage accounts with the big custodians. I use Charles Schwab for our client’s accounts. There are tons of reputable custodians out there (Fidelity, Vanguard, TD Amertrade, etc.). I like the big third-party custodians because clients can view their accounts online and the custodians send them a monthly statement. When a trade happens, clients get a trade confirmation explaining what it is that was purchased and at what price.

I avoid limited partnerships like the black plague. I’m not a big fan of them because the limited partners have no control or say over their money or the terms in which they can get it back. They are also less stringently regulated and have less transparency. Many speculative investment managers use these vehicles for this reason. Hedge funds are commonly limited partnerships as are energy investments (0il and gas drillers are the most common). Obviously, I’m not saying that all hedge funds and all oil and gas investments are bad. Some are quite profitable. But I’m not investing my clients’ money in them.

Another reason I avoid limited partnerships is because they are effective vehicles for perpertuating fraud. Ponzi schemes are easily implemented through limited partnerships. The vast majority of limited partnerships are run by ethical general partners, but the downside to being a limited partner outweighs the benefits for my clients.

Write checks out to the custodian directly, never to the advisor or his firm.  I’ve had dozens of people write checks to me or Dogwood Capital Management only to tell them, “No, you’ve got to make the check payable to ‘Schwab’” with your account number on it.” In Madoff’s case, his investors were writing checks to his firm which was responsible for the fraudulent reporting that enabled him to do what he did.

Accounts should be registered in your name or the name of your trust (however you manage your finances). If you have your assets in a pooled account (like a limited partneship), you do not have easy access to your funds.

These five “C’s” can be very helpful in assessing whom you are entrusting your life savings with and can go a long way towards preventing an investor from experiencing his own “Madoff moment”.

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.

The following video will give you suggestions on how to select a financial advisor. The seven steps discussed, are tools developed to assist you when it comes to choosing a wealth manager.

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 pim van den heuvel

To conclude the evaluation of what it means to be a financial advisor it is important to look at regulations and specific requirements for firms in the United States.

To read the complete article visit Wikipedia

In the United States, a firm registers as an investment advisor with the Security and Exchange Commission (SEC) or a state, depending on the amount of assets that receive continuous and regular supervisory or management services (Assets Under Management, or “AUM”). For a firm to register with the SEC, it must have over $25 million of AUM at the time of registration or within 120 days of the effective date of the registration. If a firm has less than $25 million of AUM and doesn’t anticipate having $25 million or more within 120 days of the effective date of the registration, then it must register with the individual state(s) as an investment advisor. If a firm has $30 million or more of AUM, then it must register with the SEC. Firms with more than $25 million and less than $30 million of AUM can be registered with either the state or SEC. The SEC’s definition of AUM is outlined in the Form ADV Part 1 and should be thoroughly reviewed and consulted prior to beginning the registration process.

Certain multi-state advisors may also register with the SEC, as well as certain Internet based advisors. If an advisor does not qualify for registration with the SEC, the adviser must register with the states where it maintains an office, as well as each state where its clients are located. There are de minimus exemptions in most states, typically exempting from registration those advisors with less than 6 clients, but the exemption varies from state to state.

Common examples of investment advisors include pension fund managers, mutual fund managers, trust fund managers and also individuals, partnerships, or corporations that have registered under the Act, and those who fall within certain exemptions. Stock brokers (known as “registered representatives” under U.S. federal law and licensed in the various states) are not necessarily (and normally are not) registered investment advisors.

In general, under U.S. law, investment advisors owe their clients an ongoing fiduciary duty to provide full and complete disclosure of all fees, conflicts of interest, and if so authorized, to exercise discretion in selecting investments with only their clients’ best interests in mind.

In many cases, a registered investment advisor (RIA) is a corporation or partnership while the person actually providing the advice is an investment advisor representative (IAR) of the advisor organization. Investment advisor representatives and individuals registered as investment advisors are sometimes certified as a Certified Financial Planner (CFP) practitioner by the Certified Financial Planner Board of Standards, Inc. or a Chartered Financial Analyst(CFA) holding a charter from the CFA Institute after they have passed the appropriate examinations, have agreed to abide by a code of ethics, and have maintained the required continuing education credits. The CFP and CFA credentials are not, however, required for registration as a registered investment advisor.

The registration process to become an investment advisor is becoming increasingly complex, with examination requirements, books and record retention and increased state regulation of smaller investment advisors.

Regulation

In the United States of America, the FINRA regulates and oversees the activities of more than 5,050 brokerage firms, approximately 172,050 branch offices and more than 663,050 registered securities representatives. A financial adviser or stock broker should be licensed to provide any consultation on investment in securities. Typical licenses needed to promote the sale of stocks are the: Series 7 (General Securities exam), Series 63 (State Securities exam), and Series 65 or 66 RIA Registered Investment Advisor Law exam. Generally, any adviser who charges a fee for investment advice would need to also have the Series 65 or 66 license. Thus, anyone can call themselves a financial planner (although care must be taken not to be confused with a Certified Financial Planner), but they would still need FINRA licenses to provide advice for a fee or be registered as an investment adviser with the Securities and Exchange Commission in the USA. Anyone in the business of providing financial advice can call themselves a Financial Advisor. There currently isn’t any regulation on the use of this title. To be called a Financial Advisor and charge a fee for advice, one must pass the FINRA Series 65 test-The Uniform Investment Adviser Law Examination. An individual claiming to be a “Registered Investment Advisor” (RIA) or “Investment Advisor Representative” (IAR) must pass the FINRA Series 7 and Series 66 exams or just the FINRA Series 65 exam. Many brokerage firms still claim an exemption for their employees who sell fee based products and services.

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 TheBusyBrain

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.