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| paula0000 |
 Posted: Wed Feb 23, 2005 4:51 pm Post subject: Financial advisors... |
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Investing Manager
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| What exactly does a financial advisor do? Do they overhaul your finances...SOrry to be so ignorant about this. |
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| pride |
| Posted: Thu Feb 24, 2005 6:12 am Post subject: |
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Investing Associate
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| Financial advisors look at your overall financial condition and make suggestions from there. They try to sell you life insurance if you do not have any, try to refi your mortgage, and try to get you saving with them by purchasing mutual funds. A financial advisor's main function is to sell you a product. These guys have a lot of sales training, with very little finance training. Ask them what beta is and most of them couldn't give you a definition, or they could just say a measure of risk without elaborating. The best types of financial advisors are those who do not work on commission, but get bonuses on how much money they have under mgmt. These guys have an incentive to put you in the best possible investment for you. Brokers from Merrill Lynch get paid on commissions, and these commissions come from where they place your money. If a merrill broker puts your money in a no load mutual fund, that brokers makes no money. However, if he puts you in an A share mutual fund, that broker gets paid about 3.75% up your investment up front (They call this a sales charge, but it's merely a way for brokerages to make money). Do your own HW first and then go to a financial advisor and see if he adds any value. Most do not. |
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| eyesandearsjami |
| Posted: Thu Feb 24, 2005 2:10 pm Post subject: |
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Member Of The Month! February
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Pride,
Unfortunately a few bad worms in the profession have led you to believe something that is completely untrue. A true financial advisor does NONE of the things that you have written.
| Quote: | | They try to sell you life insurance if you do not have any, try to refi your mortgage, and try to get you saving with them by purchasing mutual funds. |
A true financial advisor spends time with you to find out what your needs are. When do you want to retire, What type of money personality do have (aggressive, passive, moderate) and etc... Yes a financial advisor will ask if you have life insurance, and they should. Life insurance is an integral facet of your estate planning. If somone is the sole wage earner, has three children and a spouse it would be extremely important that they have enough life insurance to cover expenses and replace the income that would be lost if the wage earner died. For a financial advisor not to ask about insurance would constitute malpractice. This would be equivalent to an accountant not asking for your W-2 when doing your taxes.
Advisors might suggest that you invest in mutual funds. However, they would make sure that those funds best meet your needs. I have many clients who I help find money market accounts, cd's and high interest savings. Why do I do this, various reasons, but every time it is because I've met with my clients and found that this is what would best suit them at this particular point in their life. If you find an advisor who doesn't attempt to find out about your needs and merely suggests you invest in something without explaining it, run away fast. This person is not a financial advisor.
| Quote: | | The best types of financial advisors are those who do not work on commission, but get bonuses on how much money they have under mgmt. These guys have an incentive to put you in the best possible investment for you. |
Not really. Although there is nothing wrong with the way that these advisors work it isn't really better than one who works on commission or charges fees by the hour. First of all these types of advisors do not get bonuses. They charge fees for Assets Under Management. Which means that they charge around 1.7% to 2.6% annually as a management fee for their services. (For example if you have $100K invested you would be charged $2,600 in fees each year, not accounting for investment increases.) To justify these types of high fees you better be getting a great return and excellent extra services. These fees are normally charged regardless if the account increases or decreases in value! Also, a beginning invester with less than $500K can't afford to use this type of advisor, it just doesn't make fiscal sense. Also, most will not take on new accounts of less than $500-750K.
For a beginning investor it makes much more sense to go to one of the other two options. They could go to a fee based advisor who will charge around $125 per hour to help them select the funds (usually no-load or index traded funds) that are best for them. Again this is not very effective if someone has only a few hundred or thousand dollars to invest. But they can be of great assistance in helping you determine what is the best thing to do for your entire financial future. From help determining the best way to finance your home to helping you locate low cost home insurance.
The last way is to go to a commission based advisor who could work to find out what is best for you. If a mutual fund, annuity, cd or etc. is best for you then he/she will help you invest in it. There are many "loaded" B, C and R shares that have lower annual expense charges than no-load funds. The advisor is then paid from these companies with NO sales charge to the client. The advisor might also suggest an index stock such as a Spyder or QQQ and only charge a $50 or less commission. Advisors who work on commission can be fantastic ways for those who have little money to begin investing cost effectively.
| Quote: | | If a merrill broker puts your money in a no load mutual fund, that broker makes no money. However, if he puts you in an A share mutual fund, that broker gets paid about 3.75% up your investment up front (They call this a sales charge, but it's merely a way for brokerages to make money). |
After years as an advisor I know no mutual funds that will pay an advisor 3.75%, none. I would suggest this though. A shares are usually not the best for fees. An exception is if you have a large amount to invest with many breakpoints that bring the sales charge down to a small level.
In sum I agree with what pride said about doing your homework. Meet with several different advisors, every one that I know gives a free first get to know you meeting, and find the one that best fits you and your personality. When you do I believe that you will find that almost all good advisors will bring a ton of value.
Jami |
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