How Do Financial Advisors Track and Monitor Your Financial Goals - WiserAdvisor - Blog (2024)

A financial advisor can help you achieve your financial goals, such as saving for retirement, planning a child’s future education costs, purchasing a home, achieving financial freedom, and more. Financial advisors can be a guide in your financial journey, slowly enabling you to meet all your goals. With years of experience and relevant education, these professionals can be your eyes and ears to ensure that you stay steadfast all along. This is why hiring a financial advisor should always be seen as an investment and not an expense.

The job of a financial advisor is a rather intricate one. Every individual has diverse financial goals that they like to achieve at different stages of their life. They also have different risk appetites and investment preferences. Some investors like to follow the traditional route of investing in a 401(k) retirement account and rely on Social Security benefits for all their needs, while others may like to keep a mix of exchange traded funds (EFTs), real estate investment trusts (REITs), and an individual retirement account (IRA). This makes the job of a financial advisor all the more challenging. But, to stay on the right path, financial advisors often use ways to track and monitor the goals of their clients. Read on to know more.

How do financial advisors track and monitor your financial goals

Here are some things that a financial advisor follows:

1. Look at your progress towards achieving your financial goals:

Your financial progress or lack thereof is a sign of how close you are to your future goals. Financial advisors keep a constant check on your progress to ascertain how you are doing and how long it will take to accomplish or fulfill a certain goal. For instance, if your goal is to buy a house in 5 years, you would have micro goals like saving up for the down payment in 5 years, building up a good credit score by the time you apply for a home loan, etc. The financial advisor’s responsibility in such a scenario is to advise you on the right investments that can generate enough returns in 5 years to cover the down payment and get rid of your existing debt to lift your credit score. This can be done in numerous ways, such as establishing a budget, altering your lifestyle and sticking to it, investing and saving more rigorously to create a large corpus, reducing debt to minimize money outflows and improve your credit score, etc. The financial advisor will keep a check on how you progress through the years and monitor if your pace is suitable to achieve your target. If not, they may recommend changing your investment strategy or timeline to accommodate your financial goal of buying a house.

2. Suggest new ideas for your financial growth and to safeguard your money:

Since the market is ever changing, your investment portfolio is bound to show favorable and unfavorable returns from time to time. However, it is never right to get bogged down by this as you can always turn things around with timely decisions and new investment strategies. A major part of a financial advisor’s job is to turn things around for you when they do not go as planned. Unexplained and unexpected political changes, global crisis, environmental damages, etc. can lead to a drop in the market. This can further impact your investments and affect the timeline of your goals. To quote an example, a recession like in the year 2008 or a pandemic like in the year 2020 led to a significant increase in the rate of unemployment. Many people lost their jobs while many others had to let go of bonuses, salary hikes, etc. Such factors can come in the way of your financial goals. A financial advisor’s job is to make sure that they recommend new ideas and methods that can help you when your investments start to drop and you need funds to stay afloat. They keep track of your financial growth and take actions that can help safeguard your money. This can include asking you to keep an emergency fund at all times and rebalancing your portfolio from time to time.

3. Be up to date with your changing life situations and adjust your financial goals:

Your goals and dreams change at every life stage. People with no family responsibilities may aspire to travel or own a house or a car, but a parent would likely focus more on saving for a child’s higher education expenses. Likewise, as you grow old, your attention shifts to your health needs, long term care requirements, etc. Just as your life keeps changing, your financial goals and needs also change. As a single unmarried person, your financial responsibility may be to yourself only. However, as a parent or spouse, you may be responsible for your partner and children’s financial security. These factors mandate a change in your investment approach too. For instance, your contributions to a retirement account that is expected to support you and your spouse in the future would be higher than if you were only saving for yourself. If you have children who are likely to go to college, you would have to save in a 529 education savings account or an education IRA to pay for their expenses. To make way for these contributions you would have to reduce your other expenditure or earn more. You may also be compelled to forgo certain financial goals to make place for others. Personal choices, family responsibilities, age, attitude, likes and dislikes, have a direct impact on your finances. And a financial advisor keeps these things in mind while drafting a suitable financial strategy for you. Being up to date with your changing life situations is a way for these professionals to determine your progress and track your goals too.

4. Do damage control to correct past financial mistakes:

There are many things that can hamper your growth. An impulse purchase, a poor business decision, an investment made out of peer pressure, etc. can sometimes put you behind your financial goals. Another major deterrent is debt. High amounts of debt can overpower the profits from your investment returns. If you depend on a credit card or loan for all your major and minor purchases, you could end up with an extremely low credit score and high repayment bills. This can eat into your savings, restrict your lifestyle, and force you to live frugally. However, a financial advisor can contain some of this damage. While monitoring your financial goals and progress, financial advisors also keep an eye out for any bad decisions that you might have taken along the way. If these decisions interfere with your future objectives, a financial advisor would suggest methods to correct them. For instance, if you have high debt liabilities, a financial advisor can advise a realistic repayment schedule. They would also recommend not taking on more debt till you have settled all your previous dues. The next step would be to increase your investments so you can generate enough returns to take care of your expenses.

5. Ensure proper diversification to minimize risk and maximize returns on your investment portfolio:

Diversification can enhance investment returns and distribute risk to various industries, asset classes, and instruments. If your investment portfolio is only centered on a single investment or industry with little to no diversification, a financial advisor will recommend some diversification tactics to ensure that you reach your goals with minimal holdups. For example, an investment portfolio with only stocks can bring in volatility and high risk. Such an undiversified portfolio will increase risk in your portfolio and can set you back. However, proper diversification can ward off risk with bonds, real investment, mutual funds, etc. A financial advisor keeps these things in mind while monitoring your goals regularly. A financial advisor also reallocates and revisits the diversification of your assets from time to time to benefit from the changing market situations. One way to monitor your goals is to ensure that your portfolio is not under diversified or over diversified. Financial advisors track your investments regularly to safeguard you from extreme volatility in the market.

6. Communicate openly to make sure you are progressing towards achieving your financial target:

Honest communication between a financial advisor and a client is extremely important to ensure that both parties get what they need. Communication is also essential to make sure that you are moving ahead towards the targets you set for yourself in the first place. Regular meetings, email exchanges, phone calls, etc. ensure that both parties are well acquainted with each other’s ideas, thoughts, actions, and preferences. Financial advisors arrange periodic meetings with their clients to review the performance of their portfolios, brainstorm ideas for improving investment returns, come up with ways to increase income sources, create a budget as per the existing inflation in the country and the income of the client, and more. These meetings help the financial advisor to understand the client’s life situation and needs, and help the client incorporate the ideas and approaches in their lives as advised by the financial advisor.

To sum it up

A financial advisor is instrumental in your financial growth but it is important to be completely honest with your advisor about your finances. Some people tend to hide crucial information out of insecurities or fear of judgment and ultimately lose out on opportunities. Regardless of how responsible or reckless you are with your money, make sure to present a true picture of your financial habits in front of your advisor. This will help them gauge your temperament and requirements, according to which they can recommend you suitable investment tools.

If you want help to track and monitor your financial progress you can consult with a professional financial advisor to help monitor your plan so you can achieve your financial goals and live a financially secure life.