(If you want a quick guide for beginners how to start investing in the Philippine stock market, you can download your free ebook here.)
You have been hearing a lot about the wonders of investment. Good investments will indeed enable you to enjoy the passive income you desire. However for many new beginners, investing can be a very challenging and intimidating task. Where should I start? Should I invest in bonds? Stocks? Forex?
That is when people usually hire a financial advisor.
So, what exactly does a financial advisor do?
According to Investopedia, a financial advisor is someone who provides financial guidance to clients for a fee. They specialize in different services such as insurance, estate management and more, depending on the license they hold and the type of training they receive.
Financial advisors can be a huge help if you select the right one. It is essential to ask yourself a few questions before you decide to hire a financial advisor:
- Do you have a good knowledge about how investment works?
- Even if you lack knowledge, are you willing to go do the necessary research?
- Do you have the time to monitor the market and make changes to your portfolio? Are you confident in doing it yourself?
If you answered “yes” to any of the questions, a financial advisor may not be necessary. Yet, there are several things to consider before you go and hire one immediately. Firstly, financial advisors are salespeople first and many of them will try to advocate as many bonds and stocks without considering your needs. I had a personal experience with this as a company came down to my school to recruit aggressively for new financial advisors. No prior financial knowledge was required. Rather, a penchant for sales was preferred. This shows that the financial company was more interested in generating sales than considering the interests of clients.
Secondly, there is no guarantee of results even with a financial advisor. The stock market is famous for its volatile nature. Engaging the help of a financial advisor does not mean that your money will multiply and transform you into the next Warren Buffet. Plus, the service of a financial advisor does not come cheap. The returns are not worth it if the money you intend to invest is not a large sum.
Lastly, we have the internet! There are loads of online tutorials and websites offering good tips and advice on investment in general. Best thing of all, they come free!
On the other hand, this does not apply to all financial advisors. Financial advisors can be a great help if chosen right. Here are some tips to aid you in the search for a good financial advisor:
- Make sure that the financial advisor has the correct qualifications – A financial advisor should be CFP (Certified Financial Planner) certified. The CFP is a rigorous test, ensuring that individuals actually acquire satisfactory knowledge of financial investment before being allowed to obtain the certificate. Thus, making sure that your financial advisor has a CFP certificate is a good place to start.
- Ask for referrals – A good financial advisor does not need to advertise his or her services. The clients do it for him or her in the form of recommending new clients. You can ask for a referral from friends, family and colleagues who are managing their finances successfully. Online forums are a good place to search for honest reviews and recommendations
- Make sure your financial advisor does not work on commissions – It should be an hourly fee, a fee charged per transaction, or even a percentage of your money handed over to them to manage. DIscuss with your financial advisor and be certain of the fees you have to pay to him or her. Financial advisors who are commission based will tend to try to introduce bonds, regardless of your interest, in an attempt to earn more commission.
- An investment plan – A good financial advisor will sit with you to discuss about your long term goals and propose an investment plan to achieve your goals so that both of you agree on how your money is going to be managed. In addition, the financial advisor should always be in contact with you, giving you updates regarding your portfolio. Always make sure that both of you are working towards the goal you set in the beginning.
In conclusion, there is no standard answer whether a financial advisor is needed or not. You have to access your own abilities and evaluate whether you can handle your portfolio without help. If you decide to hire a financial advisor, do take the necessary precautions and steps in the search for a good financial advisor who will take your needs into consideration so that it will be a win-win situation for both.