Financial Advisors Print E-mail

Goals
The main purpose of a financial advisor is to assist clients in the planning and arrangement of their financial affairs, such as savings, retirement provisions, tax treatment and wills. In order to ensure ethical practices, financial advisors must understand a client's financial situation as well as their need for financial stability. Finance can be complicated and any advisor has responsibilities ethically to see that your risk is minimized and monetarily your money is maximized.

Retirement
One of the major services that financial advisors offer is retirement planning. A financial advisor should have knowledge of budgeting, forecasting, taxation, asset allocation and financial tools and products, in order 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 advisor will determine what percentage of the available income is necessary--when taking into account the tax liabilities, expected inflation and projected return on investment--in order to meet a minimum balance by the client's target age of retirement. This is a fairly straightforward calculation, and there exist many automated tools that do this. The financial advisor's greatest contribution will be that of asset allocation: determining how to maximize the return on investment while satisfying the client's risk tolerance.

Investing
Financial advisers may help their clients invest for both long and short term goals. It is the financial advisor's duty to determine the clients' goals and risk tolerance and then to recommend appropriate investments. Generally, a longer 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 advisor 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.

 Independent advisors in the UK
Under UK polarisation rules the concept of the Independent Financial Advisor or IFA was born. To be independent of any insurer or other third party interest allows for recommendation of products from any source. Non–independent (known as 'tied' agent) advisors are therefore company representatives who can only recommend products approved by their company. Conflicts of interest may arise where remuneration is linked to the product recommended. Since 1st December 2004 the Financial Services Authority (FSA) has introduced a new classification of multi-tied advisor who may represent more than one company. It is a central and defining criterion that an Independent Financial Advisor must be willing, able, and, crucially, authorised by the FSA to accept payment from clients by fee rather than by commission and this must be outlined in the introductory meeting. Advisors who are only willing or able to be remunerated by commission cannot call themselves independent.
 
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