What do financial advisors do? The most common answer might be that they give you sound advice regarding your finances and how to manage it effectively. That’s true, and that is the broadest job description for a financial advisor that anybody can state. When you think about that statement, it’s necessary for these professionals to do research and study to come up with unflawed financial advice.
In this kind of field, experience plays a huge factor when making decisions and actions. The phrase, “experience is the best teacher”, is very much applicable in this field, especially because people are dealing with money and risks. Financial advisors may already know the ups and lows, have encountered various situations and navigated different financial problems.
Financial advisors can help you become more financially independent, but how? What do they do exactly? In this article, we will talk about the roles of financial advisors and how they would be of help.
Assess Your Financial Condition
The first step a financial advisor does is to make you answer a questionnaire or interview that makes up different sections of various topics. This will help them evaluate your financial status. They will get a picture of all your assets, liabilities, and expenses, where you get your income, sources, pensions, other investments, and if you have possible future financial obligations.
These pieces of information are the basics for your financial advisor to know your current financial health. For your sake, you should be honest about these data. Besides, you are hiring a financial advisor to help you manage your money.
For the investment section of the questionnaire, you will be asked about your risk tolerance level. You will be questioned if you are okay with investing in high-risk investments with a high possibility of loss but provide high returns. Or if you are risk-averse, this indicates that you prefer low-risk investments, which is an investment at no loss but also returns low interest. Questions such as these, along with other factors, will give your financial advisor an idea of how you want to allocate your assets and the type of investments you prefer.
There may also be an assessment regarding your current financial management issues like tax and insurance concerns. The way you manage your taxes and life insurance provides your financial advisor your current estate plan, which, of course, they will be needing. The main point of this initial assessment is for your financial advisor to understand your present financial status and future financial plans.
Constructing Your Financial Plan
After obtaining all of this information from you, your financial advisor’s next step to create a comprehensive financial plan, including the milestones you are targeting, the path of your financial life, and estate planning.
The financial plan contains the summary of your current gains, assets, short- and long-term liabilities, investments, and net worth. In short, these are the key findings on your answers in the questionnaire and what you have discussed with your advisor. The most important of all is the analysis done by your advisor written down on the proposed financial plan. This section provides different analyses on several points like your risk tolerance, family concerns, estate plan, and more monetary issues. After which, they will provide an investment portfolio that is most suited for you.
Based upon the summary report, your financial advisor will introduce various possible scenarios for your retirement and establish a concrete plan based on these scenarios. These are the best and worst scenarios they could get.
For instance, if you’re worried about outliving your money, your financial advisor can prepare a contingency plan to prevent it from happening and can make arrangements for your assets to be turned over to your beneficiaries. Suppose you get married, your financial plan will include your partner and consider every financial endeavor.
Now, if you come to terms with your financial advisor, it is time to take action.
Action Plan
A financial advisor is someone who helps you in each aspect of your financial life. They don’t just provide you with an investment portfolio, but also how you handle your finances, budgeting, debt management, and any money matters. However, most come to financial advisors to seek investment advice.
Investments
Financial advisors are professionals when it comes to investments. So if your advisor already knows your risk attitude, he will now create an asset allocation plan. This plan presents the percentage of assets you are to invest in on different forms of investments.
For example, if you are risk-averse, then your asset portfolio has a likely higher percentage on a certificate of deposits, bonds, and money market holdings. On the contrary, there may be higher percentages on stocks, corporate bonds, and real estate if you are more likely to tolerate risks. Your risk tolerance level isn’t the only thing that financial advisors consider when creating your portfolio.
Your adviser also recognizes your age, years before retirement, and when you need the money in adjusting your asset allocation. In Mississippi, the law requires every financial advisory firm to make an investment. This means that every firm has experienced investing one way or another.
Debt Management
Debt slows you down in achieving your financial goals. While it is not necessary to hire a financial advisor to get out of debt, they can help you get out of the grip of debt faster. They can encourage you and provide advice, as well as show you that it is more advantageous to have a debt-free life because you stop paying for the past to prepare for the future.
Budgeting
If budgeting is not your cup of tea, you can seek out the advice of a financial planner. Budgeting is not only doing a monthly account, but you create a budget plan to reach a financial objective. You might be planning on buying a car five years from now, or send your child to college in five years. A financial advisor can help you figure out what actions to take to save up for that. Budget for the big goals and see your dreams come to reality.
Estate Planning
If you die, where will your assets go? Estate planning is all about that. It contains your will, life insurance, estate taxes, and everything that you wish your lawyer or your trusted financial adviser would do with your assets when you depart this life.
Retirement
Are you preparing for your retirement? You can start young, and the more you can take advantage of compounding interest. A retirement plan is essential because if you retire from your work, you still have expenses to make for twenty more years.
Plus, having a retirement plan allows you to experience the luxury of retirement, enjoying your grandkids, and of traveling. A financial advisor can make you wealthy, protect your assets in the long run, and stretch out your retirement savings. They can strategically plan your investment accounts and when to tap into government funds.
Tax Planning
Dealing with taxes can be overwhelming. Professional financial advisers can help you deal with that. They can guide you on how you can get more refunds or pay fewer taxes in any way. Or you can leave the receipts to them and let them work on it.
Regular Financial Monitoring and Update
One of the responsibilities of a financial advisor is to update their client regularly about their portfolio and investments. Your advisor will meet you to review your progress, and if you have any questions, you can always contact your adviser. You also have to discuss with your financial advisor if you anticipate vital changes in your life that might affect your finances, such as having a baby, getting married, moving out, or a new job. When you acquire the services of a financial advisor, open communication is necessary to maintain a good relationship and good finances. They are your partners.
Who Needs A Financial Advisor?
Anyone. Anyone of any age, status, or net worth can work with a financial advisor. You don’t have to have plenty to hire a financial advisor. You can hire one to help you get rich. Financial advisors have different levels of expertise and areas of focus, so find the one best suited for you. Even if you think you are doing well with your finances, an adviser can propose more strategies to improve your current financial health.
Managing finances can be time-consuming. Another good reason to hire a financial advisor is when you don’t have time to look at and study the stock market situation. Or, you simply don’t have an interest in such things. Plus, their expertise can lead you to better choices than you might make on your own. These are just a few reasons why you need a financial advisor, and there are a lot more.
Now, if you need help managing your money, investments, or any financial issues, Jim McKennon can assist you. He is a financial advisor in Brookhaven, Mississippi. With more than 50 years in the financial service industry, you will surely get the best out of a financial advisor. Give us a call today at 601-990-2102 or send us a message at jmckennon@virtuecm.com. You may also check out our website for more information.
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