Wednesday, January 8, 2014

A Guest Post on Getting Financial Advice

Jeffrey Arsenault, Old Greenwich is a well-known professional in the field of finance. His expertise in the field of hedge funds, fund of funds, risk management, portfolio management, and investments make him one of the most sought-after resource persons in the industry. He is the founder and principal of Old Greenwich Wealth Advisors (OGWA), a New York-based investment management firm.

The guest post below was written by Jeffrey Arsenault.


Investor Options: Discount Broker, Full Service Broker, or Wealth Advisor

Turning an investment into a successful one is something that every investor aspires to do. To achieve such a goal it is important to have keen financial knowledge and the ability to choose the right investment based on a set of criteria. This proves to be a daunting task for the average investor, so the best decision is to select a wealth advisor with good consistent track records and favorable reputation, who offers testimonials, provides timely reporting, and gives you a feeling of comfort, not one of intimidation.

Basically, here are the options today most investors have:

Do It Yourself

Open an account with a discount brokerage. Individuals will need to analyze, as well as make a final decision when it comes to choosing the right allocation of an asset and identifying which investments to buy or sell, and you will need to daily monitor your portfolio. If you have the knowledge, tools, motivation, and time to plan and execute investment strategies, then this would be the most cost effective. But remember, stock analysis tools, data feeds, and charting software are all fixed cost attributes of doing it yourself, and you will need to clear these costs just to make a profit. Charting software can cost $500 to several thousands of dollars, data feeds are at minimum $75 a month, financial analysis tools are $100 a month, and newsletter subscriptions are at minimum, $20 a month.

PROS - You are in the driver's seat and in control of the whole situation.
CONS - You have little knowledge of how fast you are going or how stable your car is, you can crash your car due to your lack of experience, and then it is all over.

Full Service Broker

Another investment option is seeking a full service broker. Such a person may provide the investor with some recommendations and give ideas about the current status of the stock market. The investor would have to review material from the broker and decide if he agrees or disagrees and invest accordingly. The broker earns a commission for every trade you make on his recommendation.

PROS - You are in the driver's seat with your mother-in-law in the back seat.
CONS - Do you listen to her or not? Is she really a seasoned expert; what proof do you have?

Wealth Advisor

One option that was less likely prior to the JOBS Act of 2012 is that seasoned wealth advisors are permitted to advertise and accredited investors stand to benefit with this new ruling. Wealth advisors handle and execute every investment decision. This individual acts as a financial planner and wealth manager, but the difference is that the wealth manager does all the work, leaving the investor merely as an observer.

PROS - You are now the passenger and the driver is Mario Andretti, Michael Schumacher, and Dale Earnhardt Jr. etc. Experienced drivers with track records.
CONS - Too busy making money for regular phone calls and you need to wait for your periodic report to find out the value of your overall investment. This is for long term capital.

Of the three available options, most investors select number 1 or 2, believing they have enough experience and time to make these decisions alone or with a stock broker's assistance. But I ask you, would you stitch yourself if you were not a doctor, or tune up the car if you were not a mechanic--then why invest if you are not an experienced investor? The stock market is constantly evolving, and many average investors or full service brokers would not have predicted the current situation we are in, but many wealth advisors have done so accurately. Full service stock brokers usually are compensated by commissions earned per trade, but wealth advisors pay is based on the performance of your investment.

Why seek professional advice from financial advisors?

One common and sensible reason for an investor to seek advice from a professional wealth or financial advisor is when an individual receives a good sum of money, e.g. inheritance. The average person already has a job and specializes in that task and does not have much time to do investment research and watch the daily movements of a stock, ETF, or fund. If that same person has children and a spouse, it can only be concluded that the spouse and children will feel neglected since time is taken from them and allocated to another task outside of work. From my experience, specialization generates success, and to try and become the jack of all trades and the master of none is a road to failure. So why try and invest on your own especially in such a complex market as we have today?

Finding the right one: what to consider

Planning the cash needed for future use is quite complicated, and having a professional adviser is useful. But how can an investor find one? It is not enough to find one who is capable of assessing the investment risks and second-guessing the current performance of the financial market. In order to find the right one, here are some things to consider:

--Referrals from colleagues, friends or family members always matter. Any of them should have had experience dealing with an advisor and has ever since been managing finances successfully.
--Seeking a lawyer or a certified public accountant would also be acceptable, since it is possible that they might give recommendations.
--Make sure that in seeking one, he or she is considered an independent financial adviser or IFA. He or she is an individual who is not biased, and can provide expert advice, as well as sell product from any provider within the market.
--Go online. Everything and everyone can be searched online, and it holds true when it comes to finding advisors on the Internet. Typing the right set of words in the search box will provide the investor a lot of choices as to who to speak with.
--Meeting up with the preferred adviser personally is imperative. It is also vital for the investor to take control of the interview, since it will help him or her obtain additional information and insight.

Investors, whether or not they are experienced, can greatly benefit from hiring professional advisers. Making the right choices in investment will make every venture successful, and finding the right adviser can greatly contribute to that possibility.

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