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Advisors often help their clients plan their finances and ensure that they are using their money wisely. But what do they really do?
This article takes a look at the job description of a financial advisor, and discusses some of the tasks that they may be responsible for.
If you are interested in becoming a financial advisor, or if you are just curious about what they do, then this is the article for you.
What does an Independent Financial Advisor do?
Unlike agents (insurance/unit-trust agents), Independent Financial Advisor do not work for banks, investment firms, or insurance providers. Often their role is to provide unbiased financial advice, as well as helping clients to set investment portfolios, plan budgets and manage risk. Their relationship focuses on helping their clients to achieve wealth through the future while managing their personal financial commitments and debts.
The financial advisor is responsible for helping clients to make informed decisions about various financial products and services, such as savings plans, annuities, life insurance and various investment vehicle.
Independent advice comes from experts who are not affiliated with companies who could have a financial interest in the investment you are considering.
Independent Financial Advisors differ from salespeople; they provide you with a more objective analysis of your financial situation than the advice you would get from an agent who is representing the banks or insurance companies.
Financial Planning Process
First and foremost, you are an advisor to your clients. You are there to help them plan their finances and ensure they are using their money wisely.
You are not a banker, stock broker or insurance agent. Selling products is not your priority. You are there to help your clients to make the most of their money.
You will help your clients to understand their finances better and how they can use their money to achieve their goals. Generally, a full financial planning engagement involves the following the processes:
Identify your client’s needs and objective.
As an advisor, your first task is to gather information from your clients, before you can analyse and interpret that information to help them make informed decisions about their financial situation.
First, you will ask them what their financial objectives are, talk to your clients about their financial plan.
From my experience, some clients have very ambitious objectives. Do not discourage them. Break down the objective into smaller goals, i.e. 1-3 years goals. Show the client that this needs to be achieve and let the client decide whether if the goal is achievable.
Besides your client’s financial objective, you will also need to understand their needs and whether if they have any dependents that are relying on your client, financially.
Your client’s “objective” is like the sky, most people would always want to reach higher; but “needs” is like the gravity holding us grounded. The presence of both is important.
Anyway, when it comes to the planning process, the more information you have, the more objective and detailed your advice will be.
Gathering information and document from clients
Unknown to many, financial planning is an activity regulated by Securities Commission Malaysia. It is important to have a proper documentation of the information collected from the client. (A good financial advisory firm will have the admin support to help you with this process.)
Here is a checklist of some documents that I would usually ask from a client:
- A copy of NRIC/passport
- Employment statements
- Business ownership/income documents
- Life insurance policies (self/family)
- General insurance policies (self/family)
- EPF statement
- Bank statements
- Investment statements
- Other assets and investment statements
- Loan documents
- Individual tax returns
Please note that the list above is not exhaustive, as it may vary from client to client. These information collected by the us will be used to develop a financial plan. Also, do note that some clients will not provide you with all the information above. Some clients may only provide you with the information that you need to plan.
Analyse and develop a plan for your clients
Here comes the fun part (at least to a PlanNERD like myself). Once you have the information, you will analyse it and develop a plan that can help your clients achieve their objectives and meet their needs.
Personally, I love the number crunching work. Using the information that I gathered earlier, and plot their financial journey for the next 20-30 years and beyond.
There are a few types of plan that you can deliver, depending on which service did your client engage you to perform, however, for a full financial plan, here are the areas that should be covered:
- Financial Objectives
- Net-worth statement
- Cash flow statement
- Asset allocation
- Life goal analysis – Current state
- Retirement analysis – Current state
- Life goals and retirement strategy – Proposed state
- Comparison of Current and Proposed state
- Risk management – needs on death and disability
- Tactical investment strategy
- Action plan checklist
Plan presentation and delivery
After all the work above, you can present your plan to your clients. This step is to ensure that your clients understand what you have planned, if applicable, make changes to any additional information that you have obtained from them.
Always give your clients sufficient time to read and understand the plan. If they have any questions, they should ask you.
Remind your clients that this is a financial blueprint that both you and the client worked together to ensure the client’s financial objectives are met.
When the client approves the plan you presented to him earlier, now you will need to assist your client to handle all the changes required.
This may involve restructuring their investment portfolio, or redeeming and surrendering unnecessary insurance policies. It all depends on your Action Plan Checklist.
The Action Plan Checklist will also clearly state who (advisor or client) will be responsible for which action, along with a suggested deadline.
Tell your client that this step may involve a lot of changes. Questions and objections may arise from other stakeholders such as a close family member or their existing insurance/investment agents. Always provide your client a clear reason why you are making this change; refer them to the financial plan when necessary.
Communication is key.
Once any changes are made, keep track of all the changes as it will serve as a record for future reference.
Review and monitor your client’s progress
After the implementation of the plan, the client should be asked to review the progress. This is usually done once a year, or if there is any major change in your client’s lifestyle.
This is a good time to review the progress made and if any changes are required to be made. If the client is satisfied with the progress made, then no changes are required.
If the client is not satisfied with the progress, then the advisor will need to review and analyse the situation.
Ask the client for a report of any concerns. Again, communication is key.
The financial advisor’s job is the responsibility of helping clients to make informed decisions using various financial products and services. Using the above steps to guide your client to see their own financial roadmap.
Instead of selling products for just one aspect of your client’s need, you are able to provide a more holistic plan for your clients.
This would create a tighter bonding between you and your client as they will appreciate that you have helped them achieve your goals and objective.
Be an independent financial advisor
If you are considering of becoming a financial advisor, I have written a thorough guide on how to become an Independent Financial Advisor in Malaysia.