What Are Stock Options?

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A stock option is a financial contract that gives an investor the access, but not necessarily a responsibility to buy or sell shares of a chosen stock at a stated price for a quantified period. Stock options are traded by investors on exchanges. Sometimes, the price of the stock option might be lower or higher than the originally listed price of the stock. An employer can also offer a stock option to the employees; offering an employee the stock options gives them the right to buy a chosen shares at a fixed price for a quantified period.

In stock option, the seller of the option is referred to as an option writer; then, the seller is paid a premium from the contract acquired by the stock option buyer. There are two significant types of stock option:

Call Option: this is an option that gives the buyer the right but not an obligation to buy stock. When the worth of the primary stock increases, the value of the call option will also increase.

Put Option: a put option gives a buyer the right to sell a stock short. Contrary to the call option, when the worth of the primary stock increases, the value of the put option will drop. 

Understanding Options

There are specific terminologies that need to be explained to get a better understanding of stock option:

Expiration Date: the expiration date allows the investors to predict the particular date when a chosen stock will rise or fall. The expiration date assists the investors to price the worth of the put and call of the option. 

Styles: there are basically two types of stock options American and European. The European option is less common and is commonly exercised over mainly the expiration date. The American option, on the other hand, can be utilized at any time between the purchase and expiration date. 

Strike Price: the strike price is the value that the investor expects a chosen stock to rise or fall by. The strike price will determine whether a stock option should be exercised.

Contract: the contract denotes the number of available options available for an investor to buy. In stock options, one contract equals 100 shares of the primary stock. 

Premium: The premium is determined by multiplying the price of the call by the number of contracts acquired.  

Trading Option: based on the strategy an investor is using, options can be bought or sold. An investor has the choice of either selling or buying an option based on the approach he chooses. 

To finally conclude, I will give a real-world application to enable readers to understand the concept better. An investor can predict based on analysis a stock X will increase in value. The investor will place an expiration date for the stock. For the investor to earn a profit, the chosen stock would need to rise above the predicted price (strike price). If the price, however, falls, the investor will lose the premium (profit), and the options will be worthless.

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How do you Evaluate a Budget?

Do you have a long list of things you plan to get, and you have decided to have a budget for this? Setting a goal is essential, but you must have the financial buoyancy to meet those criteria levels as it is essential to the master plan. Evaluating a budget is a critical step in achieving your set goals with convenience. What a budget involves is reviewing the set budget, adding to it on a continual basis and adjusting the budget to meet your milestone demands. but first, before a budget can be assessed, there must be a set goal and a set budget.

The following steps should help you in evaluating your budget:

1.    Consider your present financial goals

The first thing to consider when evaluating a budget is to analyze and find your current financial objectives. As I said earlier, human needs can change with time hence the need to start with this step when evaluating your budget.

2.    Ensure your budget is capable of helping you reach your Goals

The next step is to ensure the current budget will help you to achieve your goals. Your budget and your goals move in line with each other; in the mathematical world, they would be termed to be directly proportional to each other. A change in one will have the same magnitude impact on the other.

3.    Improve your budget

Saving towards a goal is not as easy as most experts will describe it to be; therefore, drastic actions that reduce access to the save funds might be necessary. You need to find the wants in your budget that can be neglected to have a more efficient budget and do away with them. Some of these wants can be excessive food, traveling, games, and others. 

4.    Constantly audit your Budget

The last step to evaluating a budget is to continually check and make amendments to your budget as often as your need to change and ensure that it still in line with your goals. The auditing stage is an essential step in keeping the budgets in check. 

How often do I Need to Evaluate my Budget?

Human needs change with time, and so will the budget. There is no fixed time of assessing budgets; instead, it determines the individual needs; evaluating your budget needs to be done as regularly as your needs change. Sometimes it can be weekly, monthly, or yearly. However, evaluating a budget will not take as much time as setting your first budget.

The failure to plan is a step towards failure, but again planning the wrong way without the right budget will also lead to failure. Evaluating a budget is necessary to curb your spending, to ensure you are still heading towards the same financial goals.

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The Difference Between Asset Management and Wealth Management

Money management is an essential service for everyone, particularly those who earn and don’t have time to invest or who’re not experts in financial services. Poor control of money can lead to fewer returns for your hard work and reduced retirement plan. Everyone wants to be able to live comfortably and never have to worry about cash when they retire; this can only be achievable with a proper retirement plan. This article is aimed at helping you to understand the difference between asset management and wealth management as well as helping you make the right decision when you need the service of either one.

Asset management and wealth management are both popular choices in the financial field; they are, however, similar yet, perform different roles for your money. Asset managers deal with the management of investments/assets, projection strategy, formulation of asset management, and other asset management services. Asset management is like a subset of wealth management that only deals with asset management for the client. Wealth management is a broader field than asset management that incorporates all financial services which embody asset management and financial planning. Wealth managers mainly work to oversee a client’s wealth and look for ways to increase wealth and protect it.

What is the difference between an asset manager and a wealth manager?

  • Based on their role, Wealth management mainly focuses on asset management and financial planning, while asset management is a much narrower field that focuses on asset management.
  • Based on the functionality, wealth management entails management of portfolio, management of investment, tax planning, retirement planning, estate planning, and all other services in financial planning while asset management functions as asset managers who do risk-return analysis for businesses, identification of suitable assets, strategy formulation for assets, and other asset management services.
  • Asset management aims at maximizing the clients’ returns on investments while wealth managers aim at balancing potential means of using the client’s money to preserve and maximize the wealth through any investment and financial strategies.
  • Wealth managers are more method obsessed and seek corporation gains from the organisation from financial experts, insurance agents, and others, while asset managers are narrower and more refined in their approach since they have a closer interaction with the market.
  • Wealth managers are registered as investment advisors, while asset managers are registered as broker-dealers.
  • A wealth manager is responsible for putting the client’s interest before his/her own while an asset manager is responsible for suggesting suitable products to their clients.
  • Most wealth managers are paid through retainer fees along with charges for the assets they manage, while asset managers usually work with payment based on commissions centralised around the sales of a product suggested to the client.

In conclusion, asset management is a subcategory of wealth management that majorly focuses on one key area, asset management, and all other services related to the area. Wealth management, on the other hand, is a broader field of comprehensive financial management that embodies asset management and all other financial services.

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What is the Difference Between Investment Banking and Wealth Management?

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The financial sector presents many career opportunities with the two top careers being Investment banking and asset management. Often times, people tend to mix up the two or believe they mean the same thing; however, they are very distinct in functionality and job roles. Nevertheless, both careers deal with handling money, if you are considering taking a career in the financial sector, you will be able to distinguish and correctly understand the role of each one at the end of the article.

What is Investment Banking? Investment banking is a segment of the financial field, which helps and offers financial services to corporate bodies and other financial circumstances, which include hostile takeovers, acquisitions, and mergers. Investment bankers may also manage short-term investments for their clients, and negotiate multi-faceted deals for the client. As expected, an investment banker must understand the factors that control the success and failure of a business and also be able to critically evaluate the company in a specific industry.

Similar to the market analyst, who is considered the most suitable for assessing stocks, Investment bankers must also be able to evaluate a business, based on the responsibilities assigned to an investment banker. They can be subcategorised into two, the account manager and the operation specialists.

The account manager works to advance and maintain the relationship with clients and ensure that all their needs are duly satisfied while the operation specialist deals with mainly executing all investment banking services.

What is wealth management? Wealth management deals with main individuals with high net worth. A wealth manager provides wealth management services to the wealthy. Mostly, a wealth manager handles one client at a time providing financial assistance, which entails an investment plan, money management, tax planning, estate planning, and retirement planning.  However, for clients with ultra-high net worth, the service of more than one wealth manager might be required, but they must work hand in hand towards achieving the same goals. The wealth management field can be subcategorised into two relationship managers and investment professionals. A relationship manager is enforced with the task to get to know the clients they work with to ensure proper working relationships while the investment professional is tasked with the responsibility to search for investment that is considered by and for the clients. 

What is the difference between Investment banking and wealth management?

  1. Investment bankers mostly focus on corporate clients while wealth managers deal with one client at a time.
  2. Investment bankers work for more hours than wealth managers due to the volume of clients they have to attend too and the full range of service they provide.
  3. The paycheque for investment bankers is higher than that of the wealthy bankers.

In a nutshell, the central role of an investment banker is to create financial capital for clients through Initial Public Offerings (IPO), mergers, and acquisitions, stock purchases, and other viable means and ensuring that the generated capital is available to clients in need of the money.  Wealth management, on the other hand, deals with handling and managing other people’s money majorly individuals with a high and ultra-high net worth.

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What Questions Should I Ask My Financial Advisor When Retiring?

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Have you been saving for your retirement or you are just hiring a financial advisor to start saving for your retirement, with either one, there are some questions you should ask from your financial advisor to clear things up and help you understand the service you will be getting for your payment. Hiring a financial advisor is the best way to save for your retirement; they will provide you with a suitable retirement plan that will enable you to have a fun-filled and lasting pension without having to worry about cash. Preparing for retirement isn’t only about financial planning, but it also requires emotional readiness; a financial advisor can provide both to their clients. Let us take a look at the top 5 vital questions you asked a financial advisor in preparation for your retirement:

What does my retirement plan look like?

The first step to retirement planning is to envisage what the client considers as the ideal retirement; this considers their hobbies, how to replicate the benefits they get at work, where they would like to visit after retirement (travel plans) and other relevant questions. The methods for retirement will vary from one client to another, so, an ideal and practical retirement plan can be made up based on the comfort and plans of the client. This is more of an emotional preparation than the financial one.

How do I pay you?

This is an important question to ask when hiring the financial advisor for your retirement plan. A financial advisor can receive payment hourly, one-time fee, one-time fee with incentives based on investment advice, and payment based on the amount of money they manage. It is essential to know how your financial advisor will be paid to avoid incurring unexpected future charges, most time, it is advisable to work with a one-time payment fee with your financial advisor.

What am I getting for my money?

If you have decided about the mode of paying your financial advisor, the next big question is to understand what the hired financial advisor is going to offer you for your money. It is crucial to know if all you will be getting is mainly just a retirement plan, or the financial advisor will advise on investment plans. Understanding what you get for the amount you are paying will help you predict what you are getting after retirement.

How much should I save?

Preparing for a retirement plan shouldn’t affect your current expenses, although it might reduce your spending but without changing your primary responsibilities and lifestyle. A financial advisor can help you make a perfect savings plan for your retirement if you ask. The amount to save for retirements will differ based on future plans after retirement, such as travel, healthcare, and hobbies. 

Should I pay off my Mortgage?

This is another excellent question to ask your financial advisor; the decision to retain or pay-off your mortgage depends on how long you plan to live in your present home, the financial cushion, and the ease of getting a home equity loan in cases of emergencies. Based on these factors, a financial advisor can offer you’re the best advice for your mortgage.

In conclusion, a financial advisor is in the best place to help you plan for your retirement; however, you need to understand the extent of the service they are offering to you.

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Is Being a Financial Advisor Stressful?

The only thing that comes to mind when people hear “financial advisor” is how high they must earn. But, if you are considering a career or plan to do an in-depth study about financial advisors, then you might need to take into account more than just their earning. The need for a financial advisor is increasing in the modern world, and so is the stress associated with the work. Being a financial advisor can come with tons of pros and cons. A recent survey has shown that financial advisors go through more stress than their clients.  An increase in the reputation and status of a financial advisor brings stress to it. 

What are the pros and cons of a Financial Advisor’s career?

Pros

Unlimited Income Potential

So we start with the quite evident and prevalent benefit of being a financial advisor. Based on the pricing structure of financial advisors, there is no limit to how much a financial advisor can earn per annum.

Work Schedule Flexibility

Financial advisors get to strike a balance between their personal life and work once there is a sustainable client base. Starting the job can be very tasking as you need to land your first client to progress and earn; however, after building a strong client base network, the financial advisor gets to work with a more flexible schedule.

Offering meaningful advice

The success of a financial advisor is when an investor benefits from a suggested investment. Although financial advisor can sometimes provide advice for personal gain, still a success in the financial life of a client equals success for the client’s financial advisor.

It is a high growth industry

The financial advisor industry is one of the fast-growing industry, and the understanding plus need for one grows at an exponential rate. More people intend to get a good retirement fund so they can enjoy their old age, and investors want to earn more from their investments. As the world grows, more people will require the help of a financial advisor in every financial sector.

Exciting work prospects

Financial advisors get to work with multiple clients while their career lasts. The financial advisor industry is an interesting one, and you tend never to get bored as you get to interact and educate different people.

Cons

High-stress industry

Financial advisors don’t only manage the finance of their clients but also have to manage their emotions as not all investment advice yields a profit on a short term basis, and most clients tend to panic over time.

Continuous prospecting

The job requires a financial advisor to continuing searching for clients to build a strong client base. Prospecting is stressful, time-consuming, and capital intensive. Building a strong client base over time is the most challenging part of the job

Regulatory and Compliance requirements

To perform their duties, a financial advisor must be licensed to advise and sell products to clients. Obtaining the license for operation is a lengthy process, and also, advisors are required to subject themselves to continuous learning to maintain a professional license.

The job of a financial advisor is a tasking one and can, therefore, most times, be stressful and time-consuming. Unlike the general image, most clients paint a financial advisor as “an effortless and balling job,” they tend to undergo more physical and mental stress than the clients.

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Can A Financial Advisor Help With Debt?

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No one likes to be in debt, but many will wonder if hiring a financial advisor to help manage debt isn’t just procuring additional debt due to the “huge price” attached to hiring one. Hiring a professional to handle your mortgage is one of the safest ways to get out of debt while maintaining cash flow for your monthly maintenance. Right, you still have to pay a financial advisor, a considerable percentage of people who try to handle debts on their own end up going bankrupt and incurring more mortgages, so it is an obvious choice hiring a financial advisor is a necessity and not an option. 

How will a financial advisor help manage your Debt?

A financial advisor will provide you with a plan which enables you to pay off your debt and take control of your finances to enjoy a debt-free future.  The financial advisor will offer you the following:

Create a budget

Most times, debt is incurred due to unknown reasons, and without finding out the reason why you are in debt, it might be impossible to get out of it.  A financial advisor will analyze your account history and find out why you are in debt; this way, they can cut out the unnecessary spending. Afterward, the financial advisor will provide you with a realistic budget that covers your essential expenses while leaving funds to pay down debt. However, you might have to do away with some spending or even have to work a second job in the plan; but it is undoubtedly practical, and you will be debt-free in no time.

Debts from multiple sources will attract different interest rates. A financial advisor will analyze and categorize your mortgage based on the interest rate, debts with a low-interest rate is considered “benign debt” while high-interest debt is regarded as “toxic debts.” Toxic debts will incur more liability every month and will prioritize as urgent as they are more damaging.

Consolidating debt

To pay back a damaging or toxic loan, it might be essential to take another loan, but you want to avoid making another loan with a “killing” interest rate. A financial advisor is best suited to advise you on the loans with the best interest rate to cover up for your debts. A financial advisor can weigh the long term implications of present financial actions; therefore, in the best position to guide you in the matter relating to it.

Creating a sustainable financial plan

Creating a sustainable financial layout is perhaps the most important a financial advisor will offer you in paying back your debt. Financial advisors will analyze your previous spending history while differentiating your wants from needs.

This way, they can draw a sustainable business plan, which entails your vital spending and removing the unnecessary one for the period of paying your debt. With a viable financial plan, your family doesn’t have to be affected while paying back the debt.

In conclusion, most people in debt end up incurring more debts while trying to handle the situation on their own. Hiring a professional is the best option you have to pay down your debt while still taking care of your key responsibilities.

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What Are Reasonable Fees For A Financial Advisor?

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To reach your financial target and also to have enough saved for your retirement, it might be advisable to hire the service of a financial advisor. Many years ago, hiring a financial advisor with a low budget might have been impossible, but, in recent times, anyone can readily afford to employ the service of a financial advisor based on their needs. As affordable as the fee of hiring a financial advisor might be, no one wants to pay excess for the service they are receiving from a financial advisor. Most financial advisors will generally work to their own benefit in terms of payment. Therefore, it is always advisable for employers to know why they are hiring a financial advisor and which service they are going to receive to decide the right amount to pay for the service.

On a general note, it is better to work on a fee-based or fee-only payment model with a financial advisor rather than a commission-based or one as there is more openness in payment structure with the previous than the latter. Based on the service, a financial advisor is offering, the ways of charging a customer might vary.

What is the average financial advisor fees based on service?

Robo-advisors

Robo-advisors operate like a robot and provide online-based services that enable you to choose the right investment or select a suitable retirement plan. A Robo-advisor will build your portfolio and monitor them, making use of computer algorithms. They can also offer online planning tools and calculators, but Robo-advisors don’t provide personalised investment or customised financial plans.

The fee structure for Robo-advisors

Robo-advisors charge an average AUM fee range of 0.25% – 0.50%, which implies that on a £50, 000 accounts, they will receive £125 – £250 per annum.

Online financial planning services

This type of financial advisor operates online like the Robo-advisors but offers services like the traditional human, financial advisors. Financial advisors offer services like investment management, customized financial planning, but all services are done online through phone calls or video call meetings. An online financial advisor will provide all services a Robo-advisor will provide you with additional services associated with human, financial advisors.

The fee structure for online financial planning services 

An online financial advisor will charge an AUM fee within the range of 0.30% – 0.89%, a price that might vary based on the service they are offering. But an online financial advisor will charge lesser than a human financial advisor offering the same service. 

Human financial advisors

Human financial advisors are considered as the traditional model of financial advisors. The human financial advisor is more accessible as you get to fix face-to-face meetings with them and can, therefore, get to find out more information about the services you are receiving. A human financial advisor can provide you with any type of service as long as it is with the business world. 

The fee structure for human financial advisors

Human financial advisors, unlike other types of financial advisors, use various fee structures. Some of the typical fee structure includes:

AUM fee: human financial advisor will charge 1% of the asset been managed per year on an average. This price will vary based on the amount been administered. 

Hourly rate: some human financial advisors will charge you on an hourly rate for service they provide you. The financial advisor will cost £200 to £400 per hour on an average 

Fixed Fee: This payment structure paying a specific amount based on the type of service the financial advisor is providing.

Performance fee: this is an additional fee that can be charged by a financial advisor if the investment plan performance exceeds the targeted rate.

In conclusion, the type of service you require from a financial advisor and the type of financial advisor you’ll hire will typically determine the reasonable amount to be paid based on the financial advisor.

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Do Financial Advisors Earn A Lot Of Money In The UK?

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The need to hire a financial advisor isn’t a compulsory one, but the increased necessity for hiring one is alarming. Management of funds, investment opportunities, healthy retirement plans, and many other benefits are what professional financial advisors offer. The topic of the cost of how expensive hiring a financial advisor and the average earning of a financial advisor top the list of the things people wish to find out about financial advisors. The “high cost” tag as always been associated with the profession of financial advisor; this is right and wrong based on perspectives. Hiring a financial advisor will generally cost you thousands of Pounds, but this price can vary based on why you are hiring one.

“The question of how much a financial advisor earns” and “how much hiring a financial advisor costs” will vary based on the same factors. So discussing these factors will handle both questions and provide clarity on both; it is more like killing two birds with one stone. Having the right mindset about hiring a financial advisor and knowing the essential questions to ask one before hiring can improve the thrilling experience and also help you avoid the bad experiences, others have had.

What are the factors that determine the amount a financial advisor make?

The following factors will determine how much a financial advisor makes:

Location

How much a financial advisor will make will vary based on the location. An elite environment will generally understand the need for a financial advisor and will, therefore, be willing to pay for one. The earning of a financial advisor will vary based on location; on the average, a financial advisor earns above £89,000 per year while a financial advisor in a neighbouring city can earn more or less £79,000 per year.

Years of experience

The years of a financial advisor will mostly determine how much he/she will earn. A junior financial advisor with at least 2 years of experience will make within the range average of £35,000 to £50,000 per annum while a pro financial advisor with over 15 years of experience can earn between the ranges of £200,000 to £300,000 per annum. So, the higher the years of experience, the higher customers have to pay; as a result of this, the more they earn. 

Professional certifications

The professional certification of a financial advisor will have a significant say on earning. Clients are generally ready to pay more for financial advisors with professional and extra qualifications.

Supply and demand

The demand for a financial advisor is generally high irrespective of the location. The probability of a professional financial advisor earning more from switching between companies due to high demand is very likely. Also, financial advisors get to enjoy additional loyalty bonuses for sticking to a particular company for a long time. In conclusion, all financial advisors earn a decent profit per annum, but there is no fixed price to how much they can make as they vary most times due to the factors mentioned above.

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How Do I Check On A Financial Advisor?

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Understanding the need for a financial advisor is essential, but hiring the right financial advisor for your project, retirement plan, or debt cannot be overlooked.  There’s a lot of financial advisors out there, choosing one can be a pain in the backside since we don’t want to have to pay such a massive amount for the wrong financial advisor. Financial advisors can assist you in your projects, help you with running a healthy retirement plan, and also helping you plan an easy way to pay the debt off without it affecting your finances. The role of a financial advisor in the modern world cannot be neglected as there is a multitude of investment opportunities out there, resulting in you overworking yourself to manage your finances.

It is crucial to run a background check on the financial advisor of your choice, considering the financial advisor work pattern, payment pattern, relationship with previous clients, and other vital factors. Knowing about the credentials and credibility of the financial advisor you are hiring will further build trust and enable you to focus on other projects. While running the background check, check for important information like complaint records, comments from the previous client, and credentials

What do I need to find out about a financial advisor? 

The best way to find out about a financial advisor is by asking. Still, there are, however, a few online trustworthy sources where you can find information on a financial advisor. This article will cover the things you can discover about your financial advisor on the net, and where to find them, also the important background check you should do by asking questions from the financial advisor:

Run an online background check:

You should do a background check on your financial advisor looking out for details about former clients’ complaints and feedback. You can run an online background check by making use of BrokerCheck; BrokerCheck is a free service provided by the FINRA. The Financial Industry Regulatory Authority (FINRA). You should take note of any violations you find on your financial advisor and find all that you can. The financial advisor will not be notified about you checking upon them. 

Ask what you’re getting for your payment:

You need to understand all the services you’re going to be offered from a financial advisor for your own frugal benefit; you can weigh the services against the money and determine if the payment is worth it. Also, try to find out if any of these services that will be rendered will incur future fees or not.

Find out if a financial advisor has a conflict of interest:

You need to ensure that your financial advisor does not have a conflict of interest either as an asset manager or through mutual funds. A financial advisor with conflicts of interest will recommend the firm’s investment where they stand to gain from you, essentially, an investment that might not be in your best interest. You should work with a financial advisor who is willing to offer you the best service for your money and also has your best interests at heart.

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