The Importance of a Good Investment Advisor
Twenty-first century financial management requires constant focus on too many facets for most people to be effective in using the available financial instruments to increase their value of their investment portfolio. An investment advisor with the correct profile can make all the difference in the wealth creation efforts of the individual. Even though some advisors have become famous for their dishonesty, most financial experts care about their clients and provide invaluable advice. Every financial advisor has a different specialty, and the investor must find the one that will work in his best interest at the risk level that is within his tolerance level.
Advisor's Character
Referrals from people in your life provide the most reliable way to find a trusted financial advisor because of their personal experience. Each of the following characteristics must be present prior to trusting anyone with your hard-earned money.
• Honest – Every certified advisor is registered with the Financial Industry Regulatory Authority, FINRA, which is the regulatory body that tracks every licensed financial advisor. If the advisor has ever had complaints filed against him, the records are published and made public on www.FINRA.org. The user simply has to click on “FINRA Broker Check” at the far right to access the detailed history of the financial advisor.
• Motivated – Effective financial advisors will initiate annual reviews of the portfolio to address life events and make changes that will support the financial goals. Whether the advisor is paid through fees or commissions, the advisor’s motivation must be to increase the financial value of the client’s portfolio.
• Informed – State regulations require that certified financial advisors complete a minimum number of training hours every year to stay compliant with regulatory guidelines. In addition to the legal requirements, the advisor must stay up-to-date with countless details associated with financial instruments that will be useful to reaching the goals of each client.
Advisor's Services
While the investor is living life and working hard to earn money to invest, the advisor actively conducts his business to increase the income on the client’s portfolio. His emphasis must be to find the best possible financial instruments for each client to accomplish the following:
• Monitor risk – High risk financial instruments require active management to alert the client to large fluctuations in the value of the account. Each client can tolerate a different risk level that the effective advisor will monitor and adjust according to market performance.
• Compose portfolio – Advisors must offer suggestions to spread the risk of the investments to prevent large fluctuations in the portfolio’s financial value. Protecting the principle in the investments is essential for the long-term health of the investment portfolio.
• Recommend innovations – Informed advisors filter all the new investment instruments to find the best options for each client’s personal risk tolerance level and financial goals. All recommendations must be for the benefit of the client and not just to generate income for the advisor.
Read up this Fisher Investments article for information about what advisors and investment companies can do (or check out this FI book on Amazon).
Advisor's Limitations
When the financial markets are underperforming, experienced advisors realize the limits on their ability to increase the value of client portfolios. Every investor must understand the limits that are imposed on the financial advisor’s ability to grow the value of client investments under the influences of these external forces:
• Market trends – Long-term investment growth is difficult, if not impossible, to maintain when the financial markets are not gaining value. Some short-term income can be realized, but the advisor cannot create income in low-performing markets.
• Economic calamity – The financial sector of each country’s economy will have a direct impact on every individual investor’s ability to earn income on their investments, and the financial advisor cannot mitigate the risk. Investors must work with the advisor when economic trends require shifts in the investment mix and the risk level of the portfolio.
• Government regulation – Recent economic events have caused additional regulations to be imposed on every aspect of investment activity. Certain aspects of these regulations will limit the financial instruments that are developed. Even the most experienced financial advisors must work within the guidelines of all financial regulations.
Final Consideration
Earning money is the first requirement for creating an investment portfolio, but managing that money can require more time than most people have to spend. Good investment advisors are invaluable when the investor wants to realize long-term investment gains and build wealth that is secured against mercurial market fluctuations. After the investor’s financial goals are set, the advisor’s services must be focused on reaching those goals with the same fervor as that of the investor. Every good advisor will be honest with the investor and work diligently to reduce the impact of market forces on the value of the portfolio. Annual reviews will reveal progress toward the goals and adjustments will be made for the investor’s benefit alone.
