What is a Financial Consultant?
A financial consultant offers money management advice to people and businesses. Most people employ them for guidance on how to reach long-term financial goals, which may include a debt management plan, investment advice, or developing a savings plan. Organizations also work with consultants to make sure their business plans are financially viable and to manage money programs for employees.
Areas of Focus
Financial consultants generally focus on retirement advice, investments, and debt management, though some advisers help clients coordinate all of their financial goals. Corporations sometimes work with a financial planner on ways to deal with financial challenges. A business might request help with budgeting issues or ways to manage the company's debt. Some companies employ financial advisers to answer employees' questions about their benefits and retirement plans.
Working with a Consultant
People often hire a financial consultant after a life change, like a promotion or an addition to their family, as they may have questions about how to get good mortgage rates, when to start a college funds, or when to start saving for retirement. Most experts recommend that a person seek financial advice when making large investments — generally around $500,000 or $1 million US Dollars (USD) — as well. When choosing a financial consultant, it's important to shop around and ask detailed questions of each potential advisor. Questions to ask include what services he or she offers, what his or her approach to financial planning is, what kind of fee structure will be used, what type of licensing he or she has, and whether he or she has ever been disciplined. Additionally, people should ask potential advisors what kind of experience they have with working with people in their specific financial situation, as approaches to financial planning vary according to circumstance.
Working as a Consultant
Many financial consultants get their start by working for mortgage lenders, tax companies, or banks. Some eventually become self-employed, usually by establishing a private consulting business, which allows for flexible working hours and increased earning potential. Those who do this generally offer services in a specific area, such as insurance, retirement plans, or family finances.
There is no international standard of certification that a financial consultant must get before working, though most areas do have regional certification and licensing requirements. Generally speaking, any person providing financial advice for a living has to be certified before he or she can sell insurance, stocks, or mutual funds. In the US, qualifications include Certified Financial Planner® (CFP®), Chartered Financial Consultant® (ChFC®), and Chartered Life Underwriter®. Both the CFP® and ChFC® certifications are focused primarily on financial planning, while the CLU® certification is more focused on insurance, but also includes aspects of financial planning.
Consultants tend to use either commission-based, fee-only, or fee-based payment models, depending on the types of services provided as well as the cash flow of their clients. Commission-based advisers charge fees for financial services or products that they sell to clients. Most of the time, the commission is a percentage of the value of the financial products sold to clients. Critics of this type of compensation plan argue that this payment models can encourage consultants to sell products that are not ideal for their clients, but which yield higher payouts for themselves.
Fee-only advisers do not receive commission from services provided to clients. They're generally compensated with quarterly or annual fees, or by an hourly rate. In this type of compensation model, they also cannot receive any rebates or kickbacks from financial product providers, like insurance companies or real estate businesses. Fee-based consultants, on the other hand, receive both the fees that a fee-only adviser would get, as well as a commission on any products and services sold.
My first expense of the month is always a "saving" amount and I keep it aside in a different bank account. Once I reach some amount, I invest that for better gains. I am not a financial advisor nor consultant, just a regular stay at home mom.
The cash value is not the only difference in term and whole life insurance, and whether that matters or not is dependent on many variables.
The potential conflict of interest of a commissioned adviser should be considered. At the same time, I have seen fee based advisers write the plan, take a large fee for the plan, and then not have a vested interest in the success of the plan. Fee-based vs. commission based is a more complicated decision than meets the eye.
Subway11 - that is so true. Some Financial Advisors make huge commissions on products that may not be in your best interest. For example, many try to sell you a whole life insurance policy because they make thousands of dollars in commission. Instead of selling you a term life insurance policy which costs about 1/5 to 1/10 of the cost of the whole life policy for the same level of coverage. The only difference in the term life insurance policy is that there is no cash value. But does that really matter? Insurance is necessary for the protection of catastrophic events, not for investing money. Investment vehicles involve the stock market, not insurance companies.
With the turmoil in the economy more and more people seek the advice of Financial Advisors. The uncertainty in the markets makes many people uneasy of making their own investment decisions. Many contemplate issues regarding estate planning, insurance needs, and retirement funds. Seeking a fee-based rather than a commission based Financial Advisor is best. Commission-based Financial Advisors earn commission on the products that he or she sold. A fee-based Advisor offers financial advice and receives a set fee for the service and does not receive commission on the purchase of any financial products.
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