Financial consulting is a term that sounds very similar to financial advisory work. A client would be right to wonder what the distinction is, even if it might seem like a fairly fine one. Here's what distinguishes financial consulting services.
Understanding Asset Classes
A major difference is that a financial consultant is there to help you understand how different asset classes provide investment value. If you're trying to figure out, for example, whether certain stock options might be an appropriate risk hedge, a consultant can help you assess the value of that approach. Someone who has a retail business might elect to buy options that are countercyclical, meaning the options pay off when retail performs badly at the macroeconomic level. This effectively becomes a stand-in for insurance against economic downturns.
Professionals on the advisory side tend to focus more on strategy. While they can still help you understand investment-grade assets, they're usually more goal-oriented. They're available to talk if you're mostly worried about keeping your money safe to pay for a mortgage, retirement, or a child's college fund. A consultant will be more likely to get into the weeds of investment advice.
Financial consulting services can be especially valuable to folks who are trying to get into particular investment products. If you're not sure where something like cryptocurrency fits into a portfolio, a consultant can help you to understand it. They'll help you make sense of volatility, growth, and speculation within a specific class of investments so you can understand what you're jumping into.
Notably, this kind of guidance is often beneficial if you need to consider a slightly unorthodox investment strategy. Someone running a startup business might look at alternative payment methods like crypto as a way to extend gains from money that's sometimes idled, for example.
Using Debt as a Tool
Managing debt is important to financial success in many personal and business domains. Used properly, debt is a tool that can help you develop equity. In your personal life, your house is a way to turn your good credit into good debt. You can take a mortgage and open up a line of credit to pay for a house and renovate it, for example. As time goes on, the value of the housing market often keeps up with or exceeds inflation. That ultimately may allow you to convert debt into a store of wealth.
It's important to manage your debt competently. Planning with the help of a financial consulting firm will reduce the odds that you end up overextended.