Monday, April 6, 2009

Financial Advising: What advise is good advice?

This is a guest post from Mike Huefner, a recent graduate of UB and an Intermediate Product Control Analysts for a major financial institution. Here he shares his insights on Financial Advisors (FAs).

What is a Financial Advisor? A FA is an individual with clients who advises them on their finances and portfolios. Yes, I realize that if I were to end my thought here I would have to apologize to the creator of this website because I am fairly certain the number of viewers would have dropped from 6 to 2 (of course I would still be frequenting the site). The simple question really is complex, the answer even more-so; but you would be surprised on how difficult of a question this might be for your advisor. Do you have a FA? Does your Dad? Does your neighbor? Have these FA clients stopped to think about exactly how much time and expertise the FA has dedicated to their portfolio?

Shortly after graduating from University at Buffalo I looked into a career as a FA. I was searching for a job where I could take all this new found academic knowledge and put it to use. I thought what better place to do this than as a Financial Advisor. The title itself was something that seemed almost as perfect of a fit for me as my girlfriend of 7 years. (I know thats a senseless plug, but that’s what ya gatta do to keep a girl for 7 years ha.) I began applying for financial advising positions locally, and despite my lack of professional exercise was able to land a handful of interviews. During one interview the company went into great detail about the six-week training session I would be part of. The training consisted of working with a firm veteran and learning the in and outs of success in the world of financial sales. "Financial sales?!" Sales is not what I endured those 8 AM economics classes for. I was not looking for a job that a drop-out working at the JC Pennies could do, and more than likely do better than me. Maybe there was more to this profession than they were alluding to and that they just don't want to divulge into nuts and bolts of the job on the first couple of interviews? I decided if this was to be my next career I best find out. Inquiring about the choices of financial products and services that I would have at disposal to discuss with clients resulted in a startling reply of “We have prepackaged services available.” Prepackaged services is nothing more than another term for 'catch-all' generic limited options. This was not a financial services branch which took employee knowledge and used it to make the best choice that suited the individual clients need. Each person is different and prepackaged products, even if brilliantly devised, can't satisfy everyone’s unique needs.

This experience made me somewhat hardened to the industry and in looking back, being offered a position straight out of college to manage others finance with my “expertise” is foolhardily in itself. In reality, what experience did I need to possess but the ability to sell? College students should not be the ones advising about retirement when most do not possess their own 401K. I would want someone that has been around the block with real knowledge. It is all well and good to study the collapse of Long Term Capital Management in the 90’s but what a prospective client should be looking for is someone that had their own money in the markets and experienced economic trends themselves. You want an advisor who has a vested interest in your success and has accountability. You don't want your money to be nothing more to your FA than the black and red that shows up on your Profit and Loss spreadsheet.

I write this article not in an attempt to knock at the Financial Services industry; the deep rooted recession has left enough writers taking on this cause already. FAs are necessary, perhaps to a greater degree in turbulent times. FAs can serve an essential purpose for individuals who need assistance in asset management. Whether this is out of convenience or necessitated by a lack of understanding of the markets; FAs do have an important place in this modern world. My agenda is not to bad mouth Advisors but for Investors to take a moment to think about the fundamentals and true purpose (sometimes heavily incentive based) of those advising them and to remind individuals of some key concepts that should be in the back of your mind before you entrust your lifesavings in another’s hands.


  • Do your research: This is your money and in the end you are going to be left holding the bag if your investments fail. It is imperative for an individual to conduct their own research before consulting a FA. If you are new to investing and do not know how markets interact or how investing really works then discuss this with your FA. For example, a 20 year old is more apt to want to hold a riskier portfolio than someone near retirement since they are young enough to take the bumps and bruises the market will deliver. A good question to ask would be what kind of options are available that typically yield higher returns; from there you can go back and research on your own. Get into it, that way you will have no-one to blame (or thank) but yourself.

  • Shop around: I know FAs that have been in the industry for decades who have helped individuals plan for everything from retirement to buying a pool, but there are just as many 'chop shop' advisors. It doesn’t hurt to shop around and ask questions. If you go with a FA be sure to  find one that's right for you. It might not be the one that cold-called you last Saturday afternoon.

  • Explore your options: Your parents’ generation might have been hard working but they weren’t always the most knowledgeable about financial matters. These days there is more to finance than T-charts and balancing checkbooks, and you know this. For those financially savvy, alternative means to investing may be something for you. A baby on a Super Bowl ad was able to trade at $8 dollars a trade and you can too.

  • Remember: Everyone has limits: Working for one of the largest financial service firms in the world, I have learned a lot about how markets react to news; the key word being 'REACT'. Anticipate is really what we're trying to do... but no one can predict how markets will move. Know that your advisor cannot predict what is going to happen, all they are able to do is help you manage your assets and risk.


All of this is common sense but in a world where bank stocks are trading at less than the value of the banks buildings and where gas prices rise no matter how oil performs in the world market; common sense has not only lost its commonality, it's been thrown out the window.


This article has been edited by Brian and does not necessarily reflect his opinion. That being stated, it's a great topic and offers a nice personal insight. Worth posting.

A few editor's notes/opinions:

-Whenever investing, past performance never guarantees future performance.

-FAs do provide many services that a well organized and financially in-tune individual can master themselves, but anyone with serious assets really should consult a third party. (i.e. A FA or personal accountant)

-Mike is absolutely right that the primary goal of the FA is to attain new clients aka they're in sales. They have to sell themselves and typically push designated investment packages. That screams 'conflicts of interest' to me.

-Financial advice is a great tool that we all need to acquire. Don't listen to the talking heads out there, learn the basics for yourself then get complicated if you must.


Thanks for reading





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