How to Work With a Financial Advisor
March 12, 2019
Description:
Your financial advisor is your partner in working toward a sound financial future. Here’s how to get the most from this important relationship.
Synopsis:
No matter what your level of investment experience or sophistication, you may benefit from developing a relationship with a financial advisor. Why? Because a qualified financial advisor is trained to analyze your personal financial situation and prepare a program designed to help you address your financial goals and objectives.
Financial advisors are often trained as accountants, lawyers, insurance agents, or stockbrokers — all professions that have a relationship to different aspects of your financial well-being. Because of this association with another profession, a financial advisor frequently will specialize in a specific type of financial planning, such as retirement planning or estate and trust planning. While their experience and qualifications often vary, financial advisors (also called financial planners or financial consultants) can earn various professional designations that can boost their credibility and your confidence.
Most people can benefit from professional guidance when they venture into the complex and confusing world of managing their financial affairs.
A financial advisor will be able to assess your risk tolerance, analyze your resources and current asset allocation, take into account your tax liability, and make investment recommendations in the form of a written financial plan that will help you to pursue your goals. The plan may help ensure that your current and future assets are used to their best advantage given your current financial situation and your financial goals.
How to Work With a Financial Advisor
A flurry of new investment products, the emergence of global investing, the shift from company-funded pension plans to employee-driven retirement plans (like 401(k) plans), and uncertainty about Social Security have all contributed to the increased need for qualified financial advice. No matter what your level of investment experience or sophistication, you may benefit from developing a relationship with a financial advisor.
What Is a Financial Advisor?
A qualified financial advisor is trained to analyze your personal financial situation and prepare a program designed to help you address your financial goals and objectives. It might be helpful to think of your financial advisor as a kind of doctor for your financial health.
Financial advisors (also called financial planners or financial consultants) can earn certifications or designations by completing accredited courses of study. Two of the most common are the Certified Financial PlannerTM (CFP®) certification, which is awarded by the Certified Financial Planner Board of Standards Inc., and the Chartered Financial Consultant® (ChFC®) designation, which is awarded by the American College of Financial Services in Bryn Mawr, PA. There is also the Registered Financial Consultant (RFC®), which is a designation awarded by the International Association of Registered Financial Consultants.
Financial advisors are often trained as accountants, lawyers, insurance agents, or stockbrokers -- all professions that have a relationship to different aspects of your financial well-being. Because of this association with another profession, a financial advisor frequently will specialize in a specific type of financial planning, such as retirement planning or estate and trust planning. Financial advisors are usually compensated in one of three ways.
They may:
Charge a fee for their time and service but sell nothing.
- Give free advice but charge a commission on transactions involving investment products such as mutual funds, stocks, bonds, and insurance products.
- Charge both a fee and commission on transactions.
- Although all three methods of compensating financial advisors are popular, some people prefer to simply pay a financial advisor for services provided, in much the same way you would pay an accountant or a lawyer for advice.
Benefits of Working With a Financial Advisor
Most people can benefit from professional guidance when they venture into the complex and confusing world of managing their financial affairs. A financial advisor will be able to assess your risk tolerance, analyze your resources and current asset allocation, take into account your tax liability, and make investment recommendations in the form of a written financial plan that will help you to pursue your goals. The plan may help ensure that your current and future assets are used to their best advantage given your current financial situation and your financial goals.
Building a Good relationship:
Knowing what to expect from your financial advisor can help establish a long and prosperous relationship. Here are some questions to ask to establish a working relationship with your advisor.
- What is your educational background?
- What (if anything) did you do before becoming a financial advisor?
- Do you offer specific or general recommendations?
- Will you help to implement these recommendations?
- Do you offer financial advice on non-investment issues, such as estate law or accounting?
- If so, at what point would you bring in someone else to help?
- How do you keep in touch with your clients?
- Do you initiate annual reviews or should I?
Building a Relationship
Many events may be catalysts to seek financial help, such as planning for retirement or establishing a college fund or even changing jobs, but once you have established a relationship with a financial advisor, you will probably find a number of other ways you can benefit from working with him/her.
At your first meeting, you and your advisor will identify your financial needs and investment goals.
Although it sounds simple, this can be harder than you think. Your advisor will be able to ask you the right questions to help you to determine what your goals are, just in case you aren't sure yourself.
To prepare for your first meeting, call your advisor and ask what specific documents and information you should bring. These may include essential documents such as wills, copies of insurance policies, pension information, and investment account statements. In addition, you should be prepared to answer or at least discuss the following questions:
Retirement
-- When do you plan to retire? In what style do you expect to retire? Do you have any retirement savings?
Income and Savings
-- What is your current income and rate of savings? Do you anticipate a change in jobs, leaving a job to stay home with children, or starting your own business?
College
-- Do you have plans to fund or help fund your children's education?
Disasters
-- Are you prepared for the unexpected? If you lost your job, had a serious accident, or contracted a serious illness, would you be prepared financially?
Estate Planning
-- Do you have a will? Have you considered the tax implications of transferring your estate to your heirs?
After you and your financial advisor have established your investment goals and objectives, your advisor will create a plan for you and review this with you. Among the objectives, the plan may include making sure you have sufficient insurance, that you have cash reserves to meet unexpected financial needs, and that specific short- and long-term goals are provided for. The plan may also involve reallocating some or all of your assets into more suitable investments that fit your risk tolerance and your investment goals. In addition, the plan will recommend where to invest future assets (regular savings or lump-sum payments) and how much you will need to save to achieve your financial goals.
After you and your advisor have agreed on a plan of action and implemented it, all you need to do is schedule annual financial reviews to make sure the plan works to your satisfaction and that none of your goals have changed over time. And if you have major changes or events in your life, keep your financial advisor informed of these. Some examples include a change in marital status, the birth of a child, a change in income, or receiving an inheritance.
Taking Charge
To work successfully with a financial advisor, you need to build a solid relationship based on trust and mutual respect. And most important, you need to be involved. Often, the least successful relationships are those in which the client is not very involved.
By deciding to consult a financial advisor, you have begun to take charge of your finances. A professional financial advisor will help you identify your investment goals and create a plan that may help achieve them. In the years to come, your advisor can become a trusted friend and confidant. And together, you will have implemented a strategy to that seeks to maximize the earning power of your assets so that they are working toward creating a more confident financial future for you.
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This week on LPL Market Signals, Chief Equity Strategist Jeff Buchbinder and Chief Fixed Income Strategist Lawrence Gillum, discuss potential stock and bond market impacts of the airstrikes on Iran over the weekend. Tracking: #1072379
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“Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you .” Morgan Housel, The Psychology of Money I do believe parts of the stock market are due for a reality check. But our big-picture, combined with our investment process says to hang in there. Connect with us now, especially if anything has changed for you. Remember April and Tariff Tantrums? Portfolio risk still matters Does is feel like stocks have done better than they actually have this year? Last year was a bumper year. And this year many have likely already forgotten the sharp April tariff tantrums. In recent history, market reality checks have been brief. For example, COVID caused stock markets to drop aggressively, followed by a wild recovery. Then 2022 reminded investors that taking imprudent risk can burn you. This rapid cycle of loss and recoveries makes it easier to get complacent. Yet, historical patterns suggest this isn't the time to ignore risk. It's easy to take on more risk after enjoying strong returns. But this can be dangerous—history doesn’t repeat, but it often rhymes. Let’s talk portfolio risk; risk can = rewards; but at what price? Let’s take a humble breath. Recall the math and logic of portfolio losses. Bigger portfolio risks require a higher pain tolerance. Large portfolio losses are hard to recover from. If a $100,000 portfolio loses 20%, it drops to $80,000. To get back to even requires a 25% return on your $80,000. It’s easy to take on more and more risk when we are being rewarded. But many experienced retirees know, “easy come, easy go.”
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Well it’s the end of the year. I just searched on Google for “market outlook 2018.” I came up with a little over 58-million “results.”
So should you be investing in stocks in 2018? The quick answer: It’s likely a prudent part of your portfolio. But it depends on your circumstances, right?
It’s apparently popular to throw your hat in the ring.
A mantra that you hear among disciplined professionals is to “stay the course.”
Then you hear “sell high, buy low.”
Who’s right?
The relief of a disciplined strategy is that it can be tailored to you. And tailor we think you should.
Yes, it’s possible that an investor may not utilize stocks in their portfolio at all. Or you may decide to go “all in” with a diversified stock portfolio.
(Side effects from tailoring a strategy may include increased confidence & persistence, apathy toward daily market reports, and increased focus on what really matters.)
Let’s begin with the “Why” of investing for you. Then you can request 15-minutes on the phone discuss your “how.”
So “Why Should You Invest”
Life changes and our “why” of investing ought to transform with life. Some invest for sport – they like the risk/reward of investing – they’re in it for the thrill. I don’t hang with this crowd.
Most of us ought to invest for things we want. Our money & our goals are serious. By investing in a diversified portfolio we can pursue things we want.
1. Living A Comfortable Retirement: Retirement is a noun. It’s up to you to really design and live a retirement that reflects you.
2. Purchasing a Home: Home is a place to live. It can take a down payment.
3. Passing an Inheritance on to Family:
4. Student Loan Shield: This idea is important for many Millennial graduates. Student loans can dominate your budget. But instead of accelerating those payments, what if you paid your required payments, and then invested the additional money that you were going to pay against your loan balance?
5. Emergency Reserves: You probably have read that it’s prudent to keep a relative healthy amount of cash in your checking/savings. Once you’ve achieved that, then you can consider investing additional funds. Go a step further and consider a non-retirement account for you and your house. You can spend this on cars, vacations or use it just as described in #4.
The Dow Jones has seen positive results, so far, in 2017. It’s unusual and sort of uncomfortable as the independent financial advisor. Why is it uncomfortable?
What would sting & linger longer? Finding $20 in the parking lot? Or finding a $20 parking fine on your windshield?
We’ve been finding a lot of metaphorical “$20’s” (i.e. “positive results”) in our portfolios this year. So the second we find a parking fine (or a few in a row) we’ll be sure to ask if stocks are still the right place to park our money.
Complacency can work against us, Dear Clients. Just keep recalling your long-haul strategy and your “why” of investing.
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Peter Mullin is an independent financial advisor registered through LPL Financial. He lives in Rogers, MN with his family. He was born and raised in St. Cloud, MN. Mullin Wealth Management is located in Waite Park, MN.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk including loss of principal.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly. No strategy assures success or protects against loss.