Who is a financial adviser?
As the name suggests, a financial adviser is someone who offers advice on financial matters. Some cover the whole spectrum from investments, estate planning and insurance to mortgages, taxes and pensions and some even hold client assets. Others are more narrowly focused.
In many countries, financial advisers are obliged to undergo special training and get a licence to share financial advice. The Financial Industry Regulatory Authority (FINRA) in the United States defines several groups of people, who can get the licence and use the term financial adviser. They include: investment advisers, brokers, accountants, lawyers, private bankers, financial planners and insurance agents.
Where have you heard about financial advisers?
Advertisements promoting the benefits of one or other adviser keep them in the public eye, as do news reports that quote the views of high-profile advisers on financial and economic matters. The occasional “rogue” adviser will make headlines should there be regulatory action or a court case.
What you need to know about financial advisers
The range of financial advice available is very wide, as is the status of different advisers. At one end are, effectively, sales agents for banks and insurance companies, advising on a limited range of products from their company.
Independent advisers are able to offer a wider range of investment products from different providers. A full-service financial adviser ought to be able to offer comprehensive advice on everything from which shares to buy to how to fund a child’s college fees.
At the far end of the range are traditional stockbrokers, private banks and wealth managers, who may be allowed discretionary management of client funds.
A financial adviser usually gets paid through commissions, fees or a combination of both. It can be a fee for assets under management (AUM), such as a percentage from the assets managed annually, or a commission on traded securities (a certain amount per trade).
Some can take a per hour fee for their advisory services, others – called flat fee advisers – can take a flat fee for a certain amount of money for an annual portfolio review or a financial plan.
Financial advisers can work as individual agents, or can be hired by a bigger financial company. Unlike stockbrokers, whose job is to execute orders in the market, financial advisers take informed decisions on clients’ behalf and provide them with financial guidance.
Generally, an independent practitioner operating as a financial adviser works as a fiduciary, which means a client’s interests come before their own. A true fiduciary standard is held only by Registered Investment Advisers (RIA), governed by regulatory authorities.