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From Wikipedia, the
free encyclopedia A financial
adviser is a professional who renders investment advice and financial
planning services to individuals, businesses and governments. Ideally, the
financial advisor helps the client maintain the desired balance of
investment income, capital gains, and acceptable level of risk by using
proper asset allocation. Financial advisers use stock, bonds, mutual funds,
real estate investment trusts (REITs), options, futures, notes, and
insurance products to meet the needs of their clients. Many financial
advisers receive a commission payment for the various financial products
that they broker, although "fee-based" planning is becoming increasingly
popular in the financial services industry. |
A further distinction should be made between
"fee-based" and "fee-only" advisers. Fee-based advisers both charge fees and
collect commissions. Fee-only advisers do not collect commissions, and thus
do not face a conflict of interest created by commissions or referral fees
paid by other product or service providers.
Financial planning
Designations
A "financial advisor" can be anyone whose
vocation is consulting with clients with an intent to better their financial
situations. The term can apply to Certified Public Accountants (CPA),
investment representatives, insurance consultants, attorneys whose practice
surrounds personal financial or estate matters, or financial planners. A
financial planner is one who specializes in outlining comprehensive
financial plans and strategies encompassing most or all of a client's
financial areas.
The Certified Financial Planner (CFP)
designation, the Chartered Life Underwriter (CLU), The Chartered Financial
Consultant (ChFC), and the Masters of Science in Financial Services (MSFS)
are all advanced specializations that require elaborate course work to
obtain. None of these designations are issued by regulatory agencies and
none is necessarily indicative of any level of professional competence.
Goals
The main purpose of a financial adviser is
to assist clients in the planning and arrangement of their financial
affairs, such as savings, retirement provisions, tax treatment and wills. To
ensure ethical practices, financial advisers must understand a client's
financial situation as well as their need for financial stability. Finance
can be complicated and any adviser has responsibilities ethically to see
that a client's risk is minimized, and monetarily, that money is maximized.
Retirement Planning
One of the major services that financial
advisers offer is retirement planning. A financial adviser should have
knowledge of budgeting, forecasting, taxation, asset allocation, and
financial tools and products 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 adviser determines what
percentage of the available income is necessary—taking into account tax
liabilities, expected inflation, and projected return on investment—to meet
a minimum balance by the client's target age of retirement. This is a fairly
straightforward calculation, and many automated tools do this. The financial
adviser's greatest contribution is asset allocation: determining how to
maximize the return on investment while satisfying the client's risk
tolerance.
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