“Financial advisors” is an umbrella term that covers professionals who provide a variety of services including investment management, financial consultation, and wealth planning. They can help you manage your money in the most optimal manner possible.
A good financial advisor will identify your monetary goals and create a plan that will help you accomplish them. While financial advisors are equipped with multiple skills, their basic job is to help you invest your money in accordance with your goals. These can include budgeting, debt repayments and reduction, minimizing tax liability, saving for college and/or retirement, donating to charity, or generating income.
Once your financial advisor has worked out a plan to achieve your specific goals, he/she will also help you understand the investment strategies to keep you abreast of everything.
Ideally, you should choose a local financial planner who is well-versed in your state tax laws and investment-related regulations. So, residents of Gainesville, for example, will do well to work with reputed Florida financial advisors for the most desirable outcomes.
Let’s take a look at how a financial advisor works to help you meet your financial goals.
Gathering Your Information
In order to devise an optimal financial plan that caters to your unique needs, your financial advisor will begin by inquiring about your income, expenses, assets, and liabilities. He/she will also check if your pension and/or other income sources will be sufficient to meet your projected retirement needs and other long-term financial obligations.
You may also be asked about your risk tolerance and risk-taking capacity to gain a better understanding of how your assets should be allocated. Your preferences will be taken into account here. Other financial areas such as insurance, tax, and estate planning will also be touched upon.
After understanding your current financial situation and your future goals thoroughly, your financial advisor will be ready for the next step.
Formulating a Workable Financial Plan
Armed with your information, the financial advisor will use his/her knowledge and expertise to devise a robust financial plan, which will serve as the guiding light towards your financial future.
The plan will include a summary of your financial data gathered by him/her. Depending on your current net worth and the estimated income at retirement, the plan will present potentially best and worst-case scenarios, including the possibility of running out of money. This is done to figure out the steps that need to be taken to prevent such undesirable possibilities.
Your financial advisor will consider realistic withdrawal rates (in retirement) from your portfolio assets. The plan will also include survivorship issues and financial outcomes for your partner/dependents in the case of your death.
Of course, the plan will be discussed at length with you and you can make the necessary changes before approving it.
Taking Appropriate Action
Most people work with financial advisors to receive sound investment advice. If you’re among them, here’s how your advisor will help you.
Typically, the advisor will set up an asset allocation that suits your risk tolerance and risk capacity. This will help determine how your finances will be distributed across different asset classes.
For risk-averse people, the advisor will pick more government bonds, certificates of deposits, and money market holds; whereas a higher number of stocks and corporate bonds and even real estate investment options will be chosen for those who are comfortable with taking risks.
Your asset allocation will also depend on your current age and the time left before you retire. Further, the applicable laws and company investment policy will be considered at the time of buying and selling financial assets.
Analysis of Recommendations
It is crucial for you to understand the recommendations made by your financial advisor in terms of how your money is being deployed and why. Make a note of the fees you are paying to your advisor and the money being spent on buying funds for you.
Typically, your advisor will make recommendations based on how soon you need the money, your investment horizon, and your goals.
When in doubt, ask your advisor why they have recommended specific investments and if they’re receiving commission for selling them. Go ahead only when you’re convinced that the recommendations are in alignment with your future goals. If they aren’t, explore other options with your advisor until you find something that fits your needs.
Constant Monitoring and Updates
Your advisor’s role doesn’t stop at giving investment advice. Once your plan is in place, your advisor will send you regular statements to apprise you of your portfolio. He/she will also review your goals and progress as well as answer your queries, if any, at regular intervals.
Do bear in mind that you need to let your advisor know about upcoming or ongoing changes in your life that may have implications on your financial future. This includes life events such as getting married/divorced, starting a family or adding a child to your family, buying/selling a home, switching jobs, receiving a pay raise, and so on.
If you frequently find yourself struggling with managing your finances, you know you need a watertight plan for where and how you can save and invest. The services of an expert financial advisor can be helped immensely in this regard. They bring a professional perspective to managing your money by taking a comprehensive look at your existing corpus and making suitable suggestions to help you navigate complex financial matters such as tax planning, debt payments, estate planning, saving for retirement, and more. Having a dependable financial planner by your side will help you cut unnecessary costs, save money, and plan your wealth wisely for the future. It will also help you feel more secure of your current financial situation with the peace of knowing that you’re on the right track.