The importance of the role of a financial advisor

A man who professionally renders investment advice and financial planning to individuals and business organizations is known as a financial advisor. He is responsible for the proper allocation of assets to maximize their net worth. To satisfy client requirements they use stocks, bonds, mutual funds and insurance products. They often receive a commission payment for the financial products that they broker, although the "fee-based" planning is becoming increasingly popular in the industry. A distinction can be made between the fee-based and fee-only advisors, as the later receive 100% of their compensation directly from their clients and have no outside conflicts of interest created by commissions or referral fees paid by other product or service providers.

A financial planner serves a number of purposes. They, for example give retirement planning to people. And for that he should have enough knowledge and unique strategy in the fields of budgeting, forecasting, taxation, asset allocation and financial tools and products . Investment tools such as 401(K)/403(B) Roth accounts, Individual retirement account/Roth IRAs, mutual funds, stocks, bonds and CDs are the ones used in United States for this purpose.

It is the duty of the financial advisor to determine the percentage of income which is necessary to take into account the tax liabilities, expected inflation and projected return on investment that on the other hand help to meet a balance by the client's target age of retirement. There are a few automated tools apart from this straight forward calculation that performs the job. Asset allocation is the financial advisor’s greatest contribution which determines the way one has to maximize the return on investment while satisfying the client's risk tolerance.

Another major task of the financial advisor is to help their clients invest for both long and short term goals. Apart from fixing the client’s goal and risk tolerance he recommends the investments which would be appropriate for the client. Time is an important factor here. The longer is the time to achieve the goal, the more recommendations he can make on investments with potentially greater risks and rewards. For example, direct investment in stocks/shares or through collective investment schemes such as mutual funds, unit trusts or investment trusts. Recommendations should be made on client’s goals and other terms. Less volatile investments are appropriate for short-term goals like cash, Certificates of Deposit, and bonds. Less volatile investments have lower returns and there is less chance to lose the invested amount. So they are more popular to guard against capital loss though their value will be eroded by inflation over long periods of time.