Success as a Financial Advisor For Dummies
Book image
Explore Book Buy On Amazon
The financial advisory profession has no clear professional education or certifying standards. Even so, you need specialized knowledge to deliver value to your clients. To be a successful financial advisor, you must have the following six core competencies and be able to coordinate advice from various other advisors, including attorneys and tax specialists:
  • Asset (investment) management
  • Liability (risk) management
  • Budgeting (household or business focus)
  • Estate planning
  • Tax management
  • Behavioral finance
Financial advisors who provide a single holistic solution are often referred to as wealth managers.

Asset management

Broadly speaking, asset management is the ongoing assessment of where and why a person invests in any variety of assets. Assets can be grouped into the following three categories:
  • Tangible assets: All types of real estate, commodities (for example, precious metals), and collectibles
  • Intangible assets: Intellectual property, human capital, and goodwill
  • Financial assets: All types of financial instrument and manufactured products (for example, stocks, bonds, mutual funds, and derivatives)
Your job in this area involves maximizing the use of the client’s assets to help achieve his goals.

Even if you focus on only one of a client’s three asset categories, your asset management program needs to include a risk assessment across all assets. Risks specific to a portfolio (collection) of assets include

  • Market price volatility: How much the price moves up and down
  • Liquidity: How quickly, with no capital loss, assets can be converted to cash
  • Correlation of price movement across portfolio holdings: How each holding’s price moves relative to other portfolio holdings’ prices
  • Concentration of asset type: How many eggs does the client have in one basket (degree of diversification)

Many investment portfolio tools are available that can improve your insight into a client’s portfolio risk. For example, Morningstar offers several professional services to financial advisors and asset managers to properly design, manage, and monitor investment portfolios.

Liability management

Liabilities and assets are flip sides of the same coin. As a financial advisor, you need to manage both sides. If a client with a great asset portfolio is blindsided by an unexpected and unprepared for life event, the resulting liabilities can quickly wipe out the assets or slowly erode them.

liability-management-plan A sample illustration of a liability management plan.

Your duty is to guide your clients through a process of identifying possible and probable risks and then to find the most appropriate cost-benefit solution that aligns with the client’s risk tolerance. Risks include the following:

  • Unexpected death: Losing a household’s breadwinner or a business’s key employee
  • Expected death: Loss of an elderly or ailing relative, which, without proper planning, would place the burden of liquidating assets on heirs
  • Disability: A client’s short-term or long-term inability to earn employment income
  • Economic recessions: Economic conditions that depress assets, challenging retirees to make ends meet
  • Inflation: The slow and often indiscernible reduction of purchase power that retirees often fail to plan for
  • Diagnosis of serious illness: Illness that triggers the one-two punch of lost income and high medical bills
Although most clients would prefer to discuss how to make more money in the stock market, an unexpected liability can do far more damage to a household’s net worth than a bad investment. As a financial advisor, you’re doing a great service to allocate as much, if not more time in your client discussions to this area of financial planning. See How to Read Liability Accounts for Financial Reporting.


Psychologically, budgeting is a mental third rail for most clients. People are adaptive, and when a certain amount of money flows into their checking account each payroll cycle, those funds have a funny way of disappearing completely, just in time for the next direct deposit. Without a family budget, your clients are unlikely to be able to free up any money to put toward their financial goals.

Many people try budgeting and give up because it’s too complicated and the record keeping is too involved. Your job is to simplify it for them. You can find plenty of tools for simplifying the budget process: personal finance software, such as Quicken; budgeting apps for your client’s smartphone; even a basic Excel budget template you can download online may be sufficient.

The key first step is to gain a clear understanding of the client’s income and spending patterns. Only then can you properly advise clients on how to modify their spending today in order to achieve future goals and obligations.

Estate planning

All clients have an estate comprised of all their assets. Estate planning is the process of determining how assets will be distributed to heirs or beneficiaries after one dies or is incapacitated. However, estate planning isn’t restricted to financial assets. With estate planning, clients can, for example:
  • Create a will naming heirs and an executor
  • Limit estate taxes by establishing trusts
  • Name a guardian for any surviving dependents
  • Name or update beneficiaries on life insurance and qualified plans
  • Request funeral arrangements


Part of financial planning involves minimizing the amount of taxes your clients pay, so they have more money to put toward their financial goals. Common tax-reduction strategies include the following:
  • Buying a home instead of renting living space to take advantage of homeowner’s deductions
  • Maximizing contributions to tax-deferred annuities, such as an IRA
  • Paying healthcare bills with pre-tax dollars by using a health savings account (HSA)
  • Paying child-care bills with pre-tax dollars
The net tax impact of the 2017 Tax Cuts and Jobs Act on a per household basis remains to be seen. States are likely to adjust their taxes in response to lost federal revenue, so the impact is likely to depend on the state in which your clients live. Some tax-saving strategies that worked in the past may no longer be beneficial.

Your job is to help your clients navigate the ever-changing tax landscape to take advantage of any tax savings they qualify for.

Taxes shouldn’t be the tag wagging the dog of money management. Paying taxes is a symptom of having made money, which is the ultimate desire for any investor.

Behavioral finance

Behavioral finance involves understanding the emotional and psychological factors that influence a client’s attitude toward money and how it affects her financial decisions. For example, a client who had a relative who lost a lot of money in the stock market may get the jitters when you present investment options.

To serve your clients well, you need to be able to not only crunch numbers and offer financial advice but also understand their financial goals and the motivations that drive their financial decisions. By understanding your client’s motivations, you’re in a better position to offer advice that addresses their concerns and aligns with their aspirations.

About This Article

This article is from the book:

About the book author:

Ivan M. Illán, CFS, has directly raised and managed over $1B in assets from both institutional and retail clients. He's the founder and chief investment officer of an independent wealth management firmbased in Los Angeles. As a Forbes Contributor, an Investopedia Premier Advisor, and Five Star Wealth Manager, Ivan's insights are published routinely on both the financial advisory profession and capital markets.

This article can be found in the category: