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Financial Advisory Services Guide – Concept, Types, And More

Most businesses lack the expertise to handle certain commercial operations which is why they choose Financial Advisory Services from a consultancy. If you have a startup and are in a confusion to allocate critical financial tasks to your employees with limited knowledge, now is the time to reach out to entities that offer the best guidance for your company’s success. In this article, you will learn the basic kinds of services offered by an advisory entity, their importance, and limitations in the industry. 

Financial Advisory Services

Meaning of Financial Advisory Services

Aids that involve the usage of one’s expertise in the financial domain to direct a company toward its growth or an individual in managing their finances are referred to as financial advisory services. These service providers have vast knowledge in the sector gained through extensive experience, discovery, and research. Their expertise in the industry lets the customer make quick and growth-oriented decisions. The main reason for businesses and individuals hiring financial advisors is their inexperience in the finance department. The service providers consider the historical data, market conditions, and the entity’s financial health to create a strategy for proper money management.

Different kinds of Financial Advisory Services

There are a variety of aids offered by the service providers based on their expertise.

Some of the Commonly Offered Services Are Discussed Below:

  • Investment management
  • Risk management
  • Retirement planning
  • Estate planning
  • Financial planning
  • Tax advisory

Investment Management:

The advice that guides an entity toward optimization of portfolio performance and minimization of losses through appropriate asset allocation is investment management. The data of the business is collected and studied along with carrying out in-depth research of the market to establish personalized goals. This goal-setting is then followed by the creation of comprehensive and cohesive plans to achieve them. 

Risk Management:

Having a high net worth can sometimes be a challenge as it requires individuals to diversify their investments in different markets. Different markets have a varying range of risks. Some risks are non-diversifiable and some are diversifiable risks. The former is unavoidable and contingent that influence the entire market. Such risks can only be managed with the help of smart financial advisors who can create investment portfolios with the ability to minimize their impact. On the other hand, diversifiable risks need investment strategies to reduce their effect on the investor’s financial status. Financial advisors carry out tests on the customer’s portfolio to test and find out future possibilities and then fix an efficient strategy to control the diversifiable risks. 

Retirement Planning:

Many individuals work their whole life just to generate a sum to help them create memories in their last days. Such income must be allocated sensibly to generate wealth and lead a fulfilled life. Financial advisors take the responsibility to guide potential retired employees on the optimum utilization and allocation of funds as they develop personalized strategies for money management through retirement planning concepts. 

Estate Planning:

This is one of the important services offered by financial advisories. Their role is to efficiently plan the allocation of the wealth to beneficiaries of the customer alongside setting a certain sum to support their current lifestyle. This planning is best suited to everyone with wealth in their bank accounts. 

Financial Planning:

As the name suggests, it is the planning of finances to tackle future uncertainties. The service providers consider the income, and lifestyle of clients to develop strategies and plans to help them get ready to face any kind of unexpected situations like a loss of job. 

Tax Advisory:

This kind of service enables the clients to minimize their tax liability through plans and strategies created by the advisors. In simple words, the experts help their customers to keep their taxes low through well-curated strategies. Some advisors may also assist their customers with IRS audits when required. 

Types of Financial Advisors

There are different kinds of financial advisors depending on the type of advice an entity needs.

Some of Them Are Explained Below: 

  • Investment advisors
  • Brokers and broker-dealers
  • Certified Financial Planner(CFP)
  • Chartered Financial Consultant (ChFC)
  • Financial coach
  • Robo-advisor
  • Wealth advisors
  • Financial therapist
  • Insurance adviser
  • Asset manager
  • Underwriter
  • Customer service representative
  • Enrolled agent

Investment Advisors:

As the word ‘investment’ suggests the person or a company with expertise in helping clients make investment decisions. These professionals must be certified under Securities Exchange Commission (SEC) to be called a Registered Investment Adviser(RIA) who can counsel clients on financial and investment planning. Some of the investment advisers also take up the responsibility of marketing financial products at an investment firm or a bank.

Brokers and Broker-dealers:

Let’s start by understanding the position of ‘broker-dealer’. A company or an individual who is accountable for the sale and purchase of securities like bonds, mutual funds, and stocks is referred to as a broker-dealer. A broker-dealer becomes a broker when they buy and sell securities on behalf of their clients. These entities are usually registered under SEC to work as authentic broker-dealers and brokers. They also hold membership in FINRA. 

Their rights to sell a financial product depend on the license they hold. For example, if a broker representative has passed the Series 6 exam, their rights are limited to dealing with specific products such as variable annuities, mutual funds, and other related products. On the other hand, an individual who successfully obtained a Series A license has the option to handle the sale of additional securities. 

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Certified Financial Planner(CFP):

Anyone who aspires to be a Certified Financial Planner (CFP) must obtain a bachelor’s degree from an authorized college or university. They have to pass the CFP board examination conducted by the main College of Financial Planning. These entities undergo various levels of training on finance-related topics such as estate planning, investment planning, ethics, and retirement planning to help their clients achieve financial goals. 

Chartered Financial Consultant (ChFC):

The individuals with a ChFC certification have knowledge similar to the CFPs. However, they are also trained on additional topics such as behavioral finance or special-needs planning. These individuals are granted the certificate of course completion by the American college that educates them on finance-related topics and trains them to handle clientele products through various programs. 

Financial Coach:

Individuals who are experts in guiding people on the basics of financial management are called financial coaches. These professionals educate clients on how to manage expenses and savings. They can also be called professionals who direct clients to build wealth while investment representatives guide wealth management. 

Robo-advisor:

A robo-advisor is an automated system to manage the investments of clients. Computer algorithms are incorporated into them to develop and manage investment portfolios as per the given financial goals. This kind of service has more involvement of artificial intelligence and less human interaction. Robo-advisors are affordable and an investor can start availing of the service with as little amount as possible as per the terms and conditions. The positive aspect of robo-advisory services is that their maintenance fees are low compared to the ones charged by other forms of advisers.

Wealth Advisors:

Professionals who help wealthy clients in managing their finances are referred to as wealth advisors. These experts guide clients on investment diversification and financial planning. Not just that, certified individuals can also guide clients in all sorts of areas like tax help, estate planning, health insurance, and charitable giving. 

Financial Therapist:

A professional who can combine financial coaching and behavioral therapy to improve a client’s money mindset is a financial therapist. These entities understand that saving, investing, and budgeting are not easy for people and can sometimes trigger strong emotions. This is why they act as therapists to help investors deal with negative feelings and trauma related to financial management. 

Insurance Adviser:

The primary duty of an insurance adviser is to provide clients with advice on insurance investments. They are good at counseling clients on investment options and carrying out an analysis on their investment-related risks. They also guide the bread earners on tax navigation on their investments. 

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Asset Manager:

An asset manager is the one with the responsibility to guide an individual or a corporate entity on their investment portfolios. Their expertise in counseling people on choosing options to reach financial goals makes them one of the best entities to contact for advisory services. They also have the responsibility of preparing statements and reports for their clients to measure their investment plan’s success rate. 

Underwriter:

A certified member of a financial organization with the ability to evaluate the risk of clients’ investments and assist them in making sensible financial decisions is an underwriter. They charge a fee from customers to offer their services. They have the skillset to prepare schemes for investments or purchases to safeguard a financial institution from risks. 

Customer Service Representative:

They are also known as financial service representatives. One of their duties is to recommend financial products to their clients for proper management of their finances. They are obligated to develop and maintain professional relationships with customers and keep them posted about their financial health. Counseling clients on debt management and money-saving techniques are also part of their profile. 

Enrolled Agent:

A professional with the primary duty of organization and preparation of tax information for their clients is called an enrolled agent. They acquire the skills to assist clients in managing complex tax structures from multiple states and years. They possess the knowledge to show clients the applicable tax credits and advise on tax management. This kind of advisory service provider is very respected and contacted as they ensure to offer services by adhering to the set government regulations. They can also take up the charge of submitting tax files on the Internal Revenue Service (IRS) portal on requests from the clients.  

Benefits of Financial Advisory Services

It is important to understand the significance of availing of financial advisory services to save time, money, and energy for the involved parties. Here are some benefits of reaching out to a financial advisor.

  • Identification of financial objectives
  • Development of personalized financial plan
  • Tracking the progress of achievement of goals

Identification of Financial Objectives:

Many individuals can’t set financial goals due to a lack of understanding of their economic health and their needs. A financial advisor will help the confused human to find out their goals by gathering the required data to prepare and arrange benchmarks as per their priority. The creation of benchmarks is a crucial task as it leads to the setting of timely targets. These targets can be linked to debt reduction, investment returns, or savings. Targets will shed light on the progress in regard to the achievement of the goals alongside prioritizing them as per the requirement. This in turn can assist the client in quick decision-making when unexpected situations take place like choosing to pay off debt with high interest rates instead of investing in stocks. 

Development of Personalized Financial Plan: 

As mentioned earlier, not many people are well aware of their financial situation. A financial advisor can take the responsibility to show customers their total financial worth and related information like liabilities, assets, debts, credit score, income, and expenses. Once the financial position of the client is found, the professional will create a plan to close the gaps and generate wealth. The setting of financial plans is then followed by providing assistance with investment strategies to align with the client’s risk tolerance alongside considering tax implications. 

Tracking the Progress of Achievement of Goals:

There is no point in creating goals and plans when there is no monitoring. The main aim of having goals is to achieve the client’s objectives. Financial advisors set milestones to keep a check on the spending habits of the customers to assist them in managing their finances. Having milestones in place gives clarity to the investors about their movements toward fulfilling the objectives. Amendments to the plans can be made if the results of milestones don’t meet the objectives. Similarly, if the outcomes are fruitful, the client can continue following the advice of the advisor to reach goals and acquire quick-decision making skills in relation to expenses and investments. 

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Drawbacks of Financial Advisory Services

Though the benefits of the advisory services outweigh the limitations, there are a few things to discuss to help you understand the concept of hiring a professional to guide you on money management. Here is a list of drawbacks attached to choosing financial advisory services.

  • Costs
  • Inefficient advisor
  • Uncertain risks
  • Less control

Costs:

Every firm or a person who is ready to assist you with the management of finances charges a certain sum. The fee structure differs from entity to entity. For example, one portfolio manager may demand a specific percentage of your yearly investment performance as their fees. Whereas some may ask you to be okay with an ongoing annual fee. A few service representatives will include a one-off service fee in the agreement. It means you have to identify your financial limits and then choose a professional to help you make money-related decisions. That doesn’t mean you cannot afford to avail of the financial advisory services. You must reach out to a professional if your wealth is unmanageable else you could lose more money than you make.

Inefficient Advisor:

This is no brainer; if you do not spend time researching the top and most reliable financial advisors, you are bound to lose money, time, and energy. Signing a contract with any random service provider is a bad idea. If the chosen entity is inexperienced and lacks the skillset to push you in the right direction, you have no option but to suffer from losses. Not just that, it is important to find a professional who can make you understand complex concepts in a simple way to let you make the best decisions. Be open and try to get all your questions answered in the first consultation to move forward with the relationship. 

Uncertain Risks:

Finding a trustworthy advisor is not the end of the deal because there is no guarantee that your money will grow with their involvement. If any of the drawn policies or strategies fail you will be the one suffering and not them. Though this might seem hard, with the right references and knowledge you can come across entities that mitigate risk and maximize returns.

Less Control:

One of the main reasons for people to choose investment bankers or any related advisors is their inability to handle their finances. This means the assigned professional will manage your portfolio and may even influence your investment decisions. This indicates that you are sometimes forced to follow their steps even if you don’t feel like it. There are chances for a manager to ignore your goals and only focus on their business or personal profits. Not to forget their unnecessary suggestions to purchase financial products to keep their business running. This is why it is necessary to have the right contacts to help you find reliable professionals. 

Conclusion:

It is silly to expect everyone to have knowledge and expertise in dealing with their finances. Money is a resource with a high value. Such a resource must be handled by an entity with great knowledge and skills. Most of the common citizens and businessmen lack the ability to identify their financial strength because of which they make grave mistakes and lose money. Financial advisory services are a boon to anyone with partial or no financial literacy as they cater to the needs of almost everyone. 

Investment management, risk management, retirement planning, estate planning, financial planning, and tax advisory are the common types of financial advisory services. These are offered by the concerned entities like Investment advisors, Brokers and broker-dealers, Certified Financial Planner(CFP), Chartered Financial Consultant (ChFC), Financial coaches, Robo-advisors, Wealth advisors, Financial therapists, Insurance advisers, Asset managers, Underwriters, Customer service representatives, and Enrolled agents. 

The main purpose of reaching out to a professional for money management is to identify the client’s financial objectives to develop personalized plans to track the progress of the implemented strategies and policies to arrive at a better monetary position. However, there could be reasons for some people and organizations from backing out from availing of the services like higher costs, inability to find a reliable professional, fear of losing control over their finances, and being exposed to uncertain risks. 

Any individual or company can avail of financial advisory services to get better at decision-making and thereby improve their financial position. All one needs to do is do some homework to find a trustworthy and affordable financial advisor. 

FAQs

Q. When should or should not I opt for financial advisory services?

If you are an individual or a company with an intention to meet your financial goals with the help of an expert, you must choose financial advisory services. That being said, ensure to consider your financial strength and limits before advancing a sum to the professional. In short, get support from an advisor when you have financial goals and can afford their services without going bankrupt. 

Q. What are the most prevalent kinds of financial advisory services?

Investment management, risk management, retirement planning, estate planning, financial planning, and tax advisory are common types of services available for everyone. These are divided based on the nature of the service that is offered to their clients. For example, investment management is in place to assist customers willing to improve their asset allocation and thereby improve their wealth status. This could also include reviewing financial statements and reports that display the status of liabilities, expenses, incomes, and other related categories for the betterment of the financial position. 

Q. Do all the financial advisers do the same work?

No, because there are different types of service providers based on their expertise level and area of specialization. They are named after their area of expertise. You can choose Investment advisors, Brokers, broker-dealers, Certified Financial Planner(CFP), Chartered Financial Consultants (ChFCs), Financial coaches, Robo-advisors, Wealth advisors, Financial therapists, Insurance advisers, Asset managers, Underwriters, Customer service representatives, or Enrolled agents as per your requirement.  

Anuja Maniyala is a intern at IIM SKILLS. She worked as a creative content writer for AADOX and Quoteslyfe in the past. She has identified her passion for writing after working as a banker in some well-known companies like Wipro and HSBC. Her current target is to become an author of a unique and creative self-help book. Her enthusiasm and curiosity to learn about the human mind and behavior makes her different from the rest of the world.

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