Banking has changed dramatically in the last decade. Where once we relied on old-school quants (those who specialize in math and finance) to provide the answers, today’s bankers are trained to be generalists, capable of handling anything from mortgage loans to securities valuation. This new breed of financial expert is more commonly referred to as a ‘banker,’ ‘financial advisor’ or, simply ‘advisor.’
In keeping with this evolution, the way we manage our money and weigh investment opportunities has changed as well. Gone are the days of blindly following the stock market ups and downs, investing in equities or real estate based on their latest price performance. Today, we are much more scientific in our approach to investing, combining in-house market data, social media, and even scientific studies to form a full picture of the economy, and how to better our financial situation.
The Evolution Of An Investment Advisor
The title ‘investment advisor’ doesn’t exactly evoke an image of a badass engineer who built a time machine and uses it to trade millions. (Okay, maybe it does a little.) Truth is, the field of investment advising didn’t even exist a few decades ago.
Prior to the modern era of financial technology, the way an investor would approach their money was quite different. A financial advisor would help a family manage their estate, providing an overview of the different types of investments available and tips on how to best utilize them. They might suggest an annuity as a prudent investment for married couples, or an insurance policy against ill health. These days, an advisor’s role is much more specialized, handling the bulk of the day-to-day client engagement, while other service providers take a more supporting role.
The Science Behind Smart Investing
Even before the advent of AI, high-quality market data was accessible only to the wealthy. Today, the cost of trading platforms and market data has plummeted, making it available to even the most amateur of investors. This wealth of information makes it possible to craft a smarter, more data-driven approach to investment. The irony is not lost on us that the very people who were limited in the resources available to them are now able to harness the power of big data and advanced analytics to better manage their money.
This new age of smart investing is not limited to market data, either. The ability to keep up with the latest news stories and events has never been easier. With the click of a button, a financial advisor can maintain continuous communication with a client via phone, email, or online chat. This level of engagement dramatically improves the quality of advice, since the advisor is forced to respond to questions and manage the client’s experience. It also makes the process much more transparent, with the client able to monitor the progress of their investment and ask questions at any time.
How To Find The Best Financial Advisor For You
If you’re reading this, I assume you’re either in the process of trying to choose a financial advisor, or have already made the decision and are wondering what to do next.
The first step in finding the right professional to serve as your financial advisor is to understand what qualifications they may possess that will make them better suited for the job than others. The CFP Board, a trade association that promotes the profession of financial planning, offers some solid suggestions about what to look out for in an advisor. The CFP® Board has developed a Rating System that provides clients with an objective method of comparing and assessing the competence of their financial advisors. Clients can use the CYB® Score (Competence, Yield, and Billing) to determine how well a given advisor meets their needs. The CYB® Score is explained in more detail on the CFP® Board website, where you can also download an example of how to calculate your own CYB Score.
CFP® Board’s Rating System Explained
It’s important to take some time to understand how the CYB Score is calculated. Begin by reviewing the three qualities that the CFP® Board considers most important in a financial advisor: competence, yield, and billability.
To begin with, the Competence dimension looks at whether or not the agent is capable of providing the services they promise. You’ll want to look for brokers and advisors who have a proven track record and are widely recognized for their expertise. Furthermore, you should feel confident that they have the knowledge needed to provide sound advice on your behalf.
The Yield dimension measures the financial planner’s success at generating and preserving capital, including both short-term and long-term interests. High-yield investments are generally considered to be those that have higher dividends, interest, or capital gains. To get the best return on your investment, you should look for an advisor who has a history of consistently producing high yields.
The Billing dimension assesses the ability of the agent to provide timely, high-quality service. Billing is simply the act of charging clients for the services that they consume. So, you should look for a financial planner who has experience in charging their clients for their services and who understands the importance of maintaining good billing practices.
Why Should You Use An Investment Company Rather Than A Personal Advisor?
Now that you have an idea of the kinds of questions to ask your advisor, it might be time to consider whether or not to go with an investment company instead of hiring a personal advisor. There are pros and cons to both options, so it’s important to understand what you’re getting into.
The benefits of using an investment company are numerous. For one, you won’t be taking the liability of managing your personal finances. The company you choose should be able to handle all the transactions for you, so that you don’t have to worry about entering in all the necessary data, or worse, making mistakes due to inexperience. For another, you don’t have to worry about finding an office space for yourself. An investment company will usually have someone in mind that can help you find a quiet space that is suitable for handling all your financial planning needs.
The benefits of hiring a personal financial advisor are also numerous. For one, they can provide a wider range of services. Most firms only deal with stock market investments and annuities, while personal advisors can provide guidance on everything from real estate to college savings plans. Furthermore, you have the ability to set your own hours, so long as you meet certain minimum requirements. This is especially beneficial if you are self-employed, since you can set your own working schedule and be free from distractions that might otherwise keep you from focusing on your business.
The decision to go with either option is definitely personal. If you are looking for a hands-on approach from an experienced team, then an investment company is the clear choice. If you value the ability to set your own hours and have flexible working conditions, then a personal advisor might be a better option.
Bottom Line
Choosing a financial advisor is not an easy task, and it’s worth taking the time to find someone who fits your profile. Before making any decision though, you should carefully consider the type of services you need and want. The last thing you want is to choose someone who promises to give you investment advice and then does nothing more than hand you over to some broker who makes all the orders for you. As for which one you should choose, that depends on your needs and the kind of service you want.