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A financial adviser (alternatively spelled advisor) is a professional who renders financial services to

individuals, businesses and governments. This can involve investment advice, which may

include pension planning, and/or advice on life insurance and other insurances such as income

protection insurance, critical illness insurance etc., and/or advice on mortgages.[1]

 

Ideally, the financial adviser helps the client maintain the desired balance of investment income,capital gains, and acceptable level of risk by using proper asset allocation. Financial advisers

use stock, bonds, mutual funds, real estate investment trusts (REITs), options, futures, notes,

and insurance products to meet the needs of their clients. Many financial advisers receive

a commission payment for the various financial products that they broker, although "fee-based"

planning is becoming increasingly popular in the financial services industry.

A further distinction should be made between "fee-based" and "fee-only" advisers. Fee-based

advisers often charge asset based fees but may also collect commissions. Fee-only advisers do not

collect commissions or referral fees paid by other product or service providers.[citation needed ]

 

Some investment advisers only charge a fee based on the assets managed for the client. Typically

they charge about 1.0 to 1.5% per year to make the investment decisions for the client. They do not

collect commissions.

Contents

[hide] 

1 Role 

o  1.1 Retirement planning 

o  1.2 Investing 

o  1.3 "adviser" vs. "advisor" 

2 Compensation 

o  2.1 Fee-only 

o  2.2 Commission-based 

o  2.3 Online-only 

3 History 

4 Qualifications 

o

  4.1 United States   4.1.1 Regulation 

o  4.2 Canada 

o  4.3 United Kingdom 

o  4.4 Republic of Ireland 

o  4.5 New Zealand 

o  4.6 South Korea 

5 See also 

6 References 

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  7 External links 

[edit]Role

The main purpose of a financial adviser is to assist clients in the planning and arrangement of their

financial affairs, such as savings, retirement provisions, tax treatment and wills. To ensure ethical

practices, financial advisers must understand a client's financial situation as well as their need for

financial stability. Finance can be complicated and any adviser has responsibilities ethically to see

that a client's risk is minimized, and monetarily, that money is maximized within the established risk

boundaries.

[edit]Retirement planning

One of the major services that financial advisers offer is retirement planning. A financial adviser

should have knowledge of budgeting, forecasting, taxation, asset allocation, and financial tools and

products to establish realistic goals and the strategy by which to reach them. In the United States, this

will include the use of several investment tools such as 401(k) / 403(b) Roth account(s), IndividualRetirement Accounts / Roth IRAs, mutual funds, stocks, bonds and CDs. 

The financial adviser determines what percentage of the available income is necessary—taking into

account tax liabilities, expected inflation, and projected return on investment—to meet a minimum

balance by the client's target age of retirement. This is a fairly straightforward calculation, and many

automated tools do this. The financial adviser's greatest contribution is asset allocation: determining

how to maximize the return on investment while satisfying the client's risk tolerance.

[edit]Investing

Financial advisers may help their clients invest for both long and short term goals. It is the financial

adviser's duty to determine the clients' goals and risk tolerance and then to recommend appropriate

investments. Generally, a long time horizon allows for the adviser to recommend more volatile

investments with potentially greater risks and rewards. Such investments include direct investment in

stocks or through collective investment products such as mutual funds and unit investment trusts / unit

trusts. 

If the client has shorter term goals, the adviser should recommend less volatile investments with

shorter time spans. Such investments could include cash deposits, certificates of deposit, and short

term bonds. While these types of investment generally have lower returns there is less volatility and

there is less likelihood of losing principal capital. Although short-term investments can guard against

loss of capital, their value can be eroded by inflation over longer periods of time.

[edit]"adviser" vs. "advisor"There is no difference between a financial "adviser" and a financial "advisor". The terms are

interchangeable, and are considered synonymous. Neither is considered inherent to either American

Englishor British English. Every major English dictionary considers both "adviser" and "advisor" to be

correct, though "adviser" is more common, while "advisor" is more likely to refer to an official

position.[2]

 

[edit]Compensation

[edit]Fee-only

As defined by the review materials for the Certified Financial Planner exam and the NationalAssociation of Personal Financial Advisors, fee-only financial advisers, such as an investment

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adviser, are compensated solely by the client, typically achieved through a combination of hourly fees

(including retainers), financial planning fees, and asset management fees. Neither advisers nor

affiliates may receive commissions, rebates, awards, finder’s fees, bonuses or other forms of 

compensation from others as a result of a client’s implementation of the individual’s planning

recommendations.[3]

 The fee-only model of compensation reduces the potential for conflicts of

interest between the adviser and the client in that the adviser is not beholden to insurance companies,

particular investments, and other financial companies.

A clear distinction should be made between brokers, who often refer to themselves as "fee-based"

(receiving both fees and commissions) and "fee-only" (someone who never receives compensation or

incentives from a third party.)

A fee-only adviser may reduce conflicts of interest such as:

advising a client to buy products and make investments when holding cash and other liquid

assets may have been a more suitable recommendation at that time.

an incentive to generate commissions through the unnecessary buying and/or selling of securities(also known as churning).

an incentive to convert non-cash assets such as real estate and collectibles to cash and

securities so that the adviser can generate a commission.

an incentive to make recommendations that pay higher sales commissions to the adviser when a

less expensive alternative may have been available.

[edit]Commission-based

Many financial advisers receive a commission payment for the various financial products that they

broker, although "fee-based" planning is becoming increasingly popular in the financial

servicesindustry.

[edit]Online-only

A new class of services that deliver guidance regarding financial planning are emerging, offering low

cost financial advice through the sponsorship of HR department of employers. Companies like

HelloWallet are offering low cost financial advice through the employer. These services are also

delivered to the poor through donation of HelloWallet as well as philanthropic organizations. [4]

 

[edit]History

Much of today's model for what a financial adviser is, stemmed from IDS Financial Services, which

later became known as American Express Financial Corporation (AEFC) after the company was sold

by Alleghany Corporation, and later became Ameriprise. At IDS, a young rep named James

Tausz was a top-ranked broker and served as the basis of inspiration for the company's model of

"Financial Planning for a Fee," which IDS VP Vint Lewis popularized by training thousands of IDS

stock brokers. Today, the concept of a "financial adviser" is widely popular. Before the IDS model,

almost all stock brokers worked on commissions only.[5]

 

[edit]Qualifications

[edit]United States

There are three types of licenses for individual professionals who typically hold themselves out as

financial advisers: Investment Adviser Representative, Registered Representative (also known as a

"Stock Broker"), Insurance Producer. The practice of investment advice, the sale of investmentsecurities and the sale of insurance products are regulated and therefore an individual must pass an

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exam, affiliate with a firm and register with one or more states before conducting business. A financial

adviser may hold any combination of these licenses depending on the nature of their financial

practice. Similar to the term financial adviser , the terms wealth manager , financial 

consultant and financial planner do not refer to a specific license or designation. These terms are

typically selected by individuals to help describe the nature of their financial practice.

The Chartered Financial Analyst (CFA) designation, the Certified Financial Planner (CFP)

designation, the Chartered Life Underwriter (CLU), The Chartered Financial Consultant (ChFC),

Chartered Retirement Planning Counselor (CRPC), Registered Financial Consultant (RFC) and the

Masters of Science in Financial Services (MSFS) are all advanced specializations that require

elaborate course work to obtain. These professional designations are issued by organizations such as

the Chartered Financial Analyst Institute,[6]

 the Certified Financial Planner Board of Standards,[7]

 and

the College for Financial Planning.[8]

 

In the United States, a firm registers as an investment adviser with the Security and Exchange

Commission (SEC) or a state, depending on the amount of assets that receive continuous and regular

supervisory or management services (Assets Under Management, or "AUM"). For a firm to registerwith the SEC, it must have over $25 million of AUM at the time of registration or within 120 days of the

effective date of the registration. If a firm has less than $25 million of AUM and doesn’t anticipate

having $25 million or more within 120 days of the effective date of the registration, then it must

register with the individual state(s) as an investment adviser. If a firm has $30 million or more of AUM,

then it must register with the SEC. Firms with more than $25 million and less than $30 million of AUM

can be registered with either the state or SEC. The SEC’s definition of AUM is outlined in the Form

ADV Part 1 and should be thoroughly reviewed and consulted prior to beginning the registration

process.

Certain multi-state advisors may also register with the SEC, as well as certain Internet based

advisers. If an adviser does not qualify for registration with the SEC, the adviser must register with thestates where it maintains an office, as well as each state where its clients are located. There are de

minimus exemptions in most states, typically exempting from registration those advisers with less than

6 clients, but the exemption varies from state to state.[9]

 

Common examples of investment advisers include pension fund managers, mutual

fund managers, trust fund managers and also individuals, partnerships, or corporations that have

registered under the Act, and those who fall within certain exemptions. Stock brokers (known as

"registered representatives" under U.S. federal law and licensed in the various states) are not

necessarily (and normally are not) Registered Investment Advisers. 

In general, under U.S. law, investment advisers owe their clients an ongoing fiduciary duty to provide

full and complete disclosure of all fees, conflicts of interest, and if so authorized, to exercise discretionin selecting investments with only their clients' best interests in mind.

[10] 

In many cases, a Registered Investment Adviser (RIA) is a corporation or partnership while the

person actually providing the advice is an investment adviser representative (IAR) of the adviser

organization. Investment adviser representatives and individuals registered as investment advisers

are sometimes certified as a Certified Financial Planner (CFP) practitioner by the Certified Financial

Planner Board of Standards, Inc. [5] or a Chartered Financial Analyst(CFA) holding a charter from

the CFA Institute [6] after they have passed the appropriate examinations, have agreed to abide by a

code of ethics, and have maintained the required continuing education credits. The CFP and CFA

credentials are not, however, required for registration as a Registered Investment Adviser.

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The registration process to become an investment adviser is becoming increasingly complex, with

examination requirements, books and record retention and increased state regulation of smaller

investment advisers.[9][11]

 

[edit]Regulation

In the United States, the Financial Industry Regulatory Authority (FINRA) regulates and oversees theactivities of more than 5,050 brokerage firms, approximately 172,050 branch offices and more than

663,050 registered securities representatives. A financial adviser or stock broker should be licensed

to provide any consultation on investment in securities. Typical licenses needed to promote the sale

of stocks are the: Series 7 (General Securities exam), Series 63 (State Securities exam), and Series

65 or 66 Uniform Investment Adviser Law Exam. Generally, any adviser who charges a fee for

investment advice would need to also have the Series 65 or 66 license. Thus, anyone can call

themselves a financial planner (although care must be taken not to be confused with a Certified

Financial Planner), but they would still need FINRA licenses to provide advice for a fee or be

registered as an investment adviser with the Securities and Exchange Commission in the USA. 

Anyone in the business of providing financial advice can call themselves a financial adviser. There

currently isn't any regulation on the use of this title. To charge a fee for advice, one must pass the

FINRA Series 65test—The Uniform Investment Adviser Law Examination. To be a "Registered

Investment Adviser" (RIA) or "Investment Adviser Representative" (IAR), one must pass the

FINRA Series 65 exam or both of the FINRA Series 7 and Series 66 exams. Many brokerage firms

still claim an exemption for their employees who sell fee based products and services.[citation needed ]

 

[edit]Canada

The financial adviser role in Canada is varied. Most financial advisers carry licenses to sell life

insurance, securities, or mutual fund - or some combination of all three. The life insurance license is

obtained through successful completion of the life license qualification program, except in Quebec,

where licensing is completed through l'autorite des marchiers financiers. There are three distinctsecurities licenses available. Completion of the Canadian Securities Course allows the sale of most

types of securities, including stocks, bonds, and mutual funds. More advanced licensing is required

for the sale of derivatives and commodities. Completion of a mutual funds course allows the adviser

to sell mutual funds only, excluding certain types of very specialized funds and importantly, ETFs -

although recently non-securities licensed financial advisers have gained access to ETFs through new

mutual fund products. The third possible license is the exempt securities license. 

In many, but not all cases, licensing requires the support of a dealer or insurer. It is also mandatory

for advisers to carry Errors and Omissions Insurance. The term financial adviser can refer to the entire

spectrum of advisers. In general, the industry in Canada is segmented into three channels of

advisers: MGA, MFDA and IIROC. However, there is little regulatory control exercised over use of theterm, and, as such, many insurance brokers, insurance agents, securities brokers, financial planners

and others identify themselves as financial advisers.

Many financial advisers in Canada are also financial planners. While there are numerous financial

planning designations, the most common is the Certified Financial Planner designation although the

Personal Financial Planner designation is also popular in Canada. There is no regulation, outside of

Quebec, of the term "Financial Planner".[12]

 

[edit]United Kingdom

There are three main bodies awarding qualifications for financial advisers in the UK. The main one is

the Chartered Insurance Institute, which offers professional financial services qualifications all the wayfrom beginner to degree levels. The IFS School of Finance offers alternative courses/qualifications in

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certain specialist areas such as mortgages and equity release. The Institute of Financial

Planning offers the Certified Financial Planner. 

In the United Kingdom investment advice is given either by a financial adviser or a stock broker. 

Financial advisers need to pass a series of exams and receive a Certificate in Financial Planning

(previously the Financial Planning Certificate) or the Certificate for Financial Advisers, and alsoauthorised by the Financial Services Authority, a UK government qango that must be satisfied the

adviser is a “fit and proper person” before they may practice. 

This is to be replaced in December 2012 with a new standard of qualification classed as Diploma and

all existing advisers will have to attain the new qualifications to be able to continue to give advice

going forward. Typically a diploma or higher qualified adviser will have Dip FA or Dip PFS after their

name.

Financial advisers are either tied, multi-tied, independent, or fee-only.

As the classifications suggest, tied advisers can only recommend 'financial products' marketed by the

company they represent. Typically that company employs them but in some cases they work for thatorganisation under a type of self-employed contract that usually precludes other paid work.

Multi-tied agents perform a similar role, except they represent a number of different companies. This

is sometimes referred to as the panel system. Tied and multi-tied advisers are nearly always

rewarded via commission, though in some cases (and if the adviser is employed rather than self

employed) commission may be expressed in notional terms to justify a salary.

An Independent Financial Adviser must offer advice on all 'financial products' on the market (which

carry commission) and, in addition, must offer clients the choice of paying a fee for advice about a

product or products, rather than being remunerated commission from the financial institution that is

promoting the product.

A Fee-only financial adviser designs bespoke solutions, and often by investing directly removes

marketing commissions and charges from the costs that clients would otherwise pay. Fee-only

advisery firms tend to accept a professional duty of care.

In the UK there has been much debate in the media about the effectiveness of financial advisers,

especially in situations where there is perceived bias toward 'financial products' that carry

commission.

Best advice is a concept which was never more than a heading in the FSA / PIA / NASDIM

regulations (and is now withdrawn in favour of the 'appropriate' standard) and which refers to the

general obligation under Contract Law (Agency) that a broker has to find the correct 'financial product'

to match a client 'need'. A provider firm must not make a recommendation unless it has a suitableproduct to offer. If it offers no suitable products then none should be recommended. A multi-tied firm

must not make any recommendations unless it has access to a suitable product from the providers on

their panel. In the UK many believe impartial advice can be obtained only by consulting an

independent financial adviser. Others believe it can only be obtained by consulting an adviser that

never accepts commission.

[edit]Republic of Ireland

The QFA ("qualified financial adviser") designation is awarded to those who pass the Professional

Diploma in Financial Advice and agree to comply with the ongoing "continuous professional

development" (CPD) requirements. It is the recognised benchmark designation for financial advisers

working in retail financial services. The qualification, and attaching CPD programme, meets the

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"minimum competency requirements" (MCR) specified by the Financial Regulator, for advising on and

selling five categories of retail financial products:

Savings, investments and pensions,

Housing loans and associated insurances,

Consumer credit and associated insurances,

Shares, bonds and other investment instruments, and,

Life assurance protection policies.

[edit]New Zealand

This article's use of external links may not follow Wikipedia's policies or guidelines.

Please improve this article by removing excessive orinappropriate external links, and

converting useful links where appropriate into footnote references. (September 2010) 

The National Certificate in Financial Services [Financial Advice] [Level 5] is currently being introduced

in New Zealand. All Individuates and registered legal entities providing financial services must be

registered as a RFSP( Registered Financial Service Provider ) Their Directors, retail and sales staff

are required to gain the national certificate.[13]

 

The New Zealand Qualifications Authority (NZQA) in conjunction with industry groups via the ETITO

administers a qualifications frame work for the qualification. Registrations and examinations are

conducted by the ETITO.[14]

 All Financial Advisers are required to register with the ETITO by March

31, 2011

The Qualifications Framework consists of a core set of competencies sets, A B C followed by 2

electives covering specialist areas such as Insurance and Residential Property Lending. Certain

NZQA approved qualifications such as an Accountancy degree may exempt student from competency

set A NZQA approved training in the certificate is offered by the New Zealand Open Polytechnic [15]

 aswell as several other accredited organizations 

[16] 

[edit]South Korea

In South Korea, the Korea Financial Investment Association oversees the licensing of investment

advisers. There are a number of different professional certifications in this area, including Certified

Securities Investment Advisor and Certified Derivatives Investment Advisor.[17]

 

[edit]See also

  Collective investment schemes 

  Socially responsible investing 

[edit]References

1. ^ Morgan Stanley Smith Barney Website Career Description of a Career as a Financial Advisor

2. ^ [1] 

3. ^ NAPFA - The National Association of Personal Financial Advisors - FAQs 

4. ^ http://www.businessweek.com/investor/content/sep2009/pi20090929_616550.htm 

5. ^ [2] The Ameriprise Financial History

6. ^ http://www.cfainstitute.org/  

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7. ^ http://www.cfp.net/  

8. ^ http://www.cffp.edu/index.aspx 

9. ^ a  b  [3] 

10. ^ Axinite Financial Advisors Fiduciary Duties of Financial Advisors

11. ^ [4] 

12. ^ http://www.advisor.ca/news/industry-news/planning-advocates-push-professionalism-446 

13. ^ http://www.business.govt.nz/fsp/  

14. ^ http://afacompetence.org.nz/1-who-is-etito/  

15. ^ http://www.openpolytechnic.ac.nz/  

16. ^ http://afacompetence.org.nz/1-training-providers/  

17. ^ Korea Securities Market 2010 , Research and International Affairs Department, Korea Financial

Investment Association, 2010, p. 332, retrieved 2011-09-11[edit]External links

  10 Questions to Ask When Choosing a Financial Planner 

  [7] Becoming an investment Adviser

  AAFM American Academy of Financial Management

  IAIA International Association of Investment Advisers

  AIFA Association of Independent Financial Advisers - UK Trade body

  FSA website Financial Services Authority (UK)

  IAA Investment Adviser Association

  NAIFA National Association of Insurance & Financial Advisors

  SEC IA Search SEC Database of US Registered Investment Advisers

  SECLaw.com Financial Advisor Legal Information Center

   €FPA  €uropean Financial Planning Association