In this series, we have already discussed a variety of different aspects of financial advisors and the financial advising industry: Types Of Firms In The Financial Advising Industry, Financial Advisor Fees, Financial Advisor Designations, CERTIFIED FINANCIAL PLANNER™ (CFP®) Designation, Fiduciary Duty.
However, we have not talked about what financial advisors actually do. Financial advisors typically serve clients in a couple of different ways.
Depends a lot on firm structure
As we discussed in a previous post, there are different types of firms in the financial advising industry. The firm structure will greatly impact the how the advisor serves clients.
For example, if the advisor is just an insurance agent, employed by an insurance agency, then they will likely focus on selling insurance. They will (hopefully) still take the time to understand your financial situation and make sure that the product is a good fit for you. However, the firm structure will likely impact what exactly the advisor is doing for you.
As mentioned before, there is a big difference between an advisor who is really just selling a financial/insurance product and one who is giving advice. Salespeople are (typically) focused on evaluating whether or not you are good fit for the product they are selling.
Financial planning
For advisors who are giving advice, financial planning is a common service that is offered. Financial planning involves understanding your financial/life goals and developing strategies to achieve them. Financial planning can be offered as a stand-alone service, or can be auxiliary to managing investments or other services.
Financial planning will typically involve at least several meetings. The advisor will discuss your current situation, as well as your goals, problems, and pain points. A plan will be developed to achieve your goals, or at least move you in the right direction. It is important for the planning to be comprehensive – I have seen a number of situations where a client is focused on one problem, but they really have another (much more important) problem that we should focus on.
Financial planning can take different forms and can involve a lot of analysis. However, at the end of the process, it should be boiled-down to specific action steps. Here are some examples of what the action steps may look like:
In order to live the way you want in retirement, you need to save 18% of your income between now and when you retire.
In order to protect your family, you need to buy $800,000 of term life insurance.
In order to minimize your long-term tax burden/risk, switch from making traditional 401k contributions to Roth 401k contributions.
When helping clients with financial planning, a variety of financial planning areas may be covered, including: budgeting, planning for major purchases, saving for college, retirement planning, investment positioning and strategy, debt management, insurance, estate planning, tax planning, employment benefits, stock options, Roth conversions, inheritance planning, student loans.
Investment management
As mentioned above, some financial advisors dealing with investments are just selling a product or fund. However, by “investment management” I am referring to ongoing management.
With an investment management service, an investor will typically open up accounts at a brokerage firm, and the investment advisor is given authority to make trades within the accounts.
The advisor will typically want to understand your overall financial situation and plan before deciding on the best asset allocation for you – or how conservative or aggressive to be. Then they will select the best individual securities and initiate the transactions. Adjustments will be made to the portfolio as necessary.
Tax Preparation
Although it is not very common, some financial advisors will also prepare income tax returns for clients. Around tax time, the advisors will gather your tax documents and prepare and file your returns. It can be more efficient for your financial advisor to help prepare your taxes, because they are already informed about what you have going on financially.
If you have any comments, questions, or ideas for future posts, please let me know
I hope you found this post helpful and educational. If you have any comments, questions, or ideas for future posts, please let me know. You can reach me directly via email at crawford@ulmerfinancial.com.
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