Financial Advisor

A financial advisor is a person who provides investment advice and financial planning services to individuals, organizations, and governments.  The main function of a financial advisor is to improve a client’s finances.  This same function can be fulfilled by other professionals in the field including: Certified Public Accountants (CPAs), investment representatives, insurance consultants, attorneys with practices relating to personal finance or real estate, and financial planners.

With a financial advisor’s help, clients are able to achieve their desired balance of income investment, capital gains, and acceptable levels of risk by using proper asset allocation.  Financial advisors use various products to meet the needs of their clients such as stocks, bonds, mutual funds, real estate investment trusts (REITs), options, futures, notes, and insurance products.

Financial advisors an be classified on the basis their manner of compensation as ‘fee-based’ and ‘fee-only’ financial advisors.  A fee based financial advisor can receive fees paid by individuals, and also commissions paid to them by a brokerage firm, mutual fund company, insurance company, or investment partnership.  A fee-only financial advisor can only receive compensation directly from clients.  Fee-only financial advisors cannot receive commissions from a brokerage firm, a mutual fund company, an insurance company, or from any other source than their client.

Generally, financial advisors can also be categorized into personal financial advisors or business financial advisors.  Personal financial advisors deal with individual clients and business financial advisors deal with banks, insurance companies, and other businesses.

A personal financial advisor’s job begins with client consultation.  A financial advisor will take note of specific information regarding a client’s current finances and their future financial goals.  Using this information, an advisor creates a thorough plan that identifies problems, and offers remedies and solutions.  Usually, a personal financial advisor meets a client twice a year to update a client on the client’s financial situation and to get updated on any changes to the client’s lifestyle, which includes marriage, divorce, birth of a child or retirement.  On a client’s behalf, an advisor can purchase or sell financial products such as insurance and mutual funds or provide various services including will preparation or completion of annual taxes.

Business financial advisors work for banks, insurance companies, mutual and pension management companies, and securities firms.  An advisor makes sound financial and investment decisions in these companies.  Generally, financial advisors read the company’s financial statements, analyze prices, costs, sales, expenses and tax rates.  They analyze all these elements to project the future earnings of the companies and to determine the value of the company.  Financial advisors are also required in the merger and acquisitions departments of each corporate entity.  They assess and prepare detailed analyses of costs and benefits of any potential merger or company takeover.

The primary function of a financial advisor is to assist clients in planning and arranging their financial affairs, such as savings, retirement provisions, tax treatment and wills.  To maintain ethical practices, financial advisors must understand a client’s financial situation and their need for financial stability.  It is a financial advisor’s duty to see that monetarily a client’s risk is minimized, and money is maximized.

In general, under U.S. law, financial advisors owe their clients a legal duty to provide full and complete disclosure of all fees, and conflicts of interests.  If they are authorized to select investments for their clients, they must exercise discretion in selecting investments with only the clients’ best interests in mind.


Inside Financial Advisor