The Financial Advisor.pptx
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The document outlines the essential roles and responsibilities of financial advisors in guiding clients through the behavioral and emotional aspects of investing. It emphasizes the importance of understanding clients' financial goals, maintaining consistent communication, and employing a holistic approach to financial planning. Additionally, it categorizes different types of clients and investors, along with the principles and processes of effective financial planning.
The Financial Advisor.pptx
- 1. THE FINANCIAL ADVISOR Advisors need a handbook that can help them deal with the behavioral and emotional sides of investing so that they can help their clients understand why they have trouble sticking to a long-term program of investing. ~ Wiley; Behavioural Finance & Wealth Management
- 2. … a general term that refers to one who assists/helps clients manage your finances. Maintaining a systematic (consistent) approach to advising the clients. The Financial Advisor is.. … a professional who suggests and renders financial services to clients based on their financial situation. … one who provides clients with specialist advice on how to manage their money.
- 3. Assist clients to understand their financial health i.e. assessment – Questionnaires, interviews/discussion of financial assets and liabilities including goals etc ROLES OF THE FINANCIAL ADVISOR Synthesize client information for aid in constructing a comprehensive financial plan: Advisors use specialised knowledge and expertise to construct personalised financial plans that aim to achieve the financial goals of clients – simulations for potentially best and worst case scenarios Plan development and formulation of an action plan Financial advisors adopt a holistic approach to planning for clients that include savings, budget, insurance, tax strategies, investment horizon, etc Advisors check in with clients on a regular basis to re-evaluate clients current situation, future goals and plans – Financial monitoring Change Impact analysis – marriage, divorce, birth of a new born, relocation, promotions, buying/selling a home
- 4. RELATIONSHIP: THE CLIENT & ADVISOR The Advisor.. Understand your client’s financial goals. Try to understand the psychology and the emotions underlying the decisions behind your clients the goals. Tapping into your clients’ thought mode Maintain a systematic (consistent)/ methodical approach to advising clients. Aids record keeping, measurements and trends Deliver what the client expects / do your best to. Address your clients expectations in the service proffered Relationship should be mutually beneficial to both the client and advisor. practitioners lose clients that feel their advisors “DONOT” understand, or attempt to understand, their financial objectives Endeavor to be aware of holistic client
- 5. SAMPLE QUESTIONS: … FROM CLIENTS Why is this fund not up as much as that fund?” “The market has not done well the past quarter—what should we do?” “Why is asset allocation so important? …why am I spreading risk?” “Why should I invest in alternative investments?” “Why aren’t we investing in alternative investments?” “Why don’t we take the same approach to investing in college moneys and retirement money?” “Cant we just buy fewer stocks in order to get better returns?” How do I ensure my descendants will not squander what I leave behind?
- 8. FIVE-WAY MODEL: CLIENT TYPES The Adventurer—People who are willing to put it all on one bet and go for it because they have confidence. They are difficult to advise, because they have their own ideas about investing. They are willing to take risks, and they are volatile clients from an investment counsel point of view. THE RISK TAKER! The Celebrity—Love to be where the action is. …wary of being left out. Most really do not have their own ideas about investments. They may have their own ideas about other things in life, but not investing. As a result, they fall prey to practice of maximum broker turnovers. The Individualist—These persons tend to go their own way and are typified by the small businessperson or an independent professional, e.g. lawyer, CPA, or engineer. These are trying to make their own decisions in life, carefully going about things, having a certain degree of confidence about them, but also being careful, methodical, and analytical. These are the clients advisors seek! — rational investors with whom the portfolio manager can talk sense. The Guardian—Typically as people get older and begin considering retirement, they approach this personality profile. They are careful and a little bit worried about their money. They recognize that they face a limited earning time span and have to preserve their assets. They are definitely not interested in volatility or excitement. Guardians lack confidence in their ability to forecast the future or to understand where to put money, so they look for guidance. The Straight Arrow—These people are so well balanced, they cannot be placed in any specific quadrant, so they fall near the center. On average this group of clients is the average investor, a relatively balanced composite of each of the other four investor types, and by implication a group willing to be exposed to medium amounts of risk.
- 9. TYPES OF INDIVIDUAL INVESTORS Inverstor classifications can also be along three lines: The Emotional Average performance Seeker: desire for Index-like returns Value Seeker: increase allocations when asset valuations are bargains and decrease allocations when asset valuations are high.
- 10. EMOTIONAL INVESTOR …buys when everyone else is buying and sells when everyone else is selling. Effectively, like to be validated by other people’s actions. Usually represented by the investor who listens to the media, culture, and lets their emotions cause them to make bad decisions. Usually, they underperform the market averages because they buy at above average prices and sell at below average prices. In other words, they buy high and sell low. They normally end up disillusioned, and attimes bitter, believing the market is rigged. Most often end up quitting or eventually lose much of their money.
- 11. most popular and universally accepted type of investing strategy. Looks to invest passively in funds that follow indices in a bid to receive a “fair” or average rate of return. Normally, does well in bull markets but poorly in bear markets. Passive management produces average rates of return less expenses and fees. Best for investors who lack the time, knowledge, or desire to invest time and effort into individual investment opportunities. … nothing wrong with this choice, it is a choice. The Index Investor – Passive Management
- 12. VALUE INVESTOR Deliberate attempts to buy investment assets far enough below their intrinsic value as to provide a margin of safety. Requires effort, research, and an ability to not let the culture tell you what to do. Value investors make allocation decisions based on price and value - Purchasing assets for less than their real worth lowers risk and increases the probability of higher than average returns.
- 14. The Financial Plan: Definition ‘- a document containing a person's current money situation and long- term monetary goals, as well as strategies to achieve those goals.’; Investopedia “a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values and withdrawal plans.” - Wikipedia
- 15. Financial Planning: the act - involves analysis of clients’ age, wealth, career, marital status, taxation status, estate considerations, risk tolerance, investment objectives, legal concerns and other matters. – csi global Keys: …in building a Financial Plan. •Achievability •Accommodation of changes in lifestyle and income levels •Should not be intimidating in terms of client perception •Should provide for not only the necessities but also some luxuries or rewards – contingency options
- 16. Financial Planning: the process •Interview the Client – Establish the Client-Advisor Engagement. •Data Gathering and Determining Goals and Objectives. •Identify financial problems and constraints. •Develop a written financial plan. •Implement or co-ordinate the implementation of the recommendations. •Periodically review and revise the plan and make new recommendations.
- 17. Principles For Financial Planning Success Think long-term with goals and investing. Spend less than you earn. Maintain liquidity (an emergency savings). Minimize the use of debt. Consider personal habits and circumstances in building the plan e.g the impact of culture and tradition on spending patterns
- 18. Issues To Be Covered In A Financial Plan •Individual client Savings And Investing levels / abilities – Risk & Return ability/capacity •Paying Down Debt: Credit Cards, Mortgage, Line of Credits, Overdrafts etc. •Insurance – health care, Disability (keyman), Term Life insurance •Taxes: investing behind a tax shield (RRSP), offshore Investing •Retirement Planning – annuities, pension plans etc. •Estate Planning- wills & Trusts (Living wills), letter of Instruction, legacy concept & bequeathal – designation of beneficiaries and administrators including the attendant legal implications, Asset lists, Power of Attorney (POW), Issues Of Probate etc.
- 19. Fortuna Favi et Fortus Ltd., 118 Old Ewu Road, Aviation Estate, Lagos. +234 703 253 0965 (Nigeria), www.ffavifortus.com [email protected] Sourced & Compiled by: Olufemi Feyisitan Compiled and assembled by: Olufemi Feyisitan