Financial Advisors
There are a few different financial advisors you'd find in the market, and it is important that you understand their offerings and responsibilities.
Remember: No one is responsible for your money, other than you. Unless of course someone can guarantee you growth, written on legal binding paper.
Financial Management Companies
Financial Management Companies have Investment Advisors (also known as Financial Advisors). These are the ones that tell you that they'll manage your money for you (say, at a fee of 1.5% per year, of money invested).
What they are really saying is:
1. Let's build a financial plan together and agree upon it
2. You won't have to deal with managing money on a daily basis. We'll do it for you.
3. We won't guarantee a return, since we're working on a plan that you asked us to work on. We're simply managing the money and the plan you gave us (even if we recommended the plan to you).
These are mostly least helpful for growth. Especially because they won't guarantee growth. They won't take responsibility for the return. They're simply working for you and your money, and offloading you from having to manage your money. Some people may argue they're helpful, which may be true. In my opinion, they may be helpful for people who have no time to do anything with their money, have at least a decade long time horizon and don't care for the rate the money grows, as long as it doesn't lose value.
Think of these like hired help, just like you'd hire someone to clean your home because you don't want to or don't have time for. Similarly they'll manage your money, and they get paid for their services. Their interest is to keep your account long enough, not essentially in maximizing for growth.
Wealth Management Advisor
These are the people, who can introduce you to a variety of investment options that you may or may not be aware of. They can talk about their trade-offs, and how an option fits or does not fit your financial goal.
It is essential to have a good financial planner, if you lack the knowledge. Having said that, this relationship can only work in your favor if the following are true:
- Knowing exactly what your financial goals are.
- The planner is exceptionally skilled
How would you know if the planner is exceptionally skilled?
There is no easy way. It's just like you would intervew a candidate before offering a job. However to evaluate the candidate, you need to know what to ask them. Hiring a bad candidate is often expensive, and can become overhead.
What do they mean by risk-level of an investment?
This is often confused term. We relate risk with threat, but what the risk really means here is volitality. In a low-risk investment, an inexperienced investor can't really damage the profitability too much, even if they take erratic decisions. In a high-risk investment, because of volitality, an erratic inexperienced investor can lose all it's investment value.
If you make investment decisions based on solid fundamentals, then time is your friend, and you'll always come out as a winner.