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A financial adviser or financial advisor is a professional who provides
financial services Financial services are the economic services provided by the finance Finance is a term for the management, creation, and study of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contra ...
to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory body in order to provide advice. In the United States, a financial adviser carries a Series 7 and Series 66 or
Series 65Uniform Investment Adviser Law Examination, also called the Series 65 exam, is a test taken by individuals in the United States who seek to become licensed investment adviser A financial adviser or financial advisor is a professional who provides ...
qualification examination. According to the U.S.
Financial Industry Regulatory Authority The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization A self-regulatory organization (SRO) is an organization that exercises some degree of regulatory authority over an ...
(FINRA), qualification designations and compliance issues must be reported for public view. FINRA specifies the following groups who may use the term ''financial advisor:''
broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a :wikt:princip ...
s,
investment adviser A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory b ...
s, private bankers,
accountant An accountant is a practitioner of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporati ...

accountant
s,
lawyer A lawyer or attorney is a person who practices law, as an advocate An advocate is a professional in the field of law. Different countries' legal systems use the term with somewhat differing meanings. The broad equivalent in many English ...

lawyer
s,
insurance agent Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. R ...

insurance agent
s and
financial planner A financial planner or personal financial planner is a qualified financial advisor. Practicing in full service personal finance Personal finance is the financial management Financial management may be defined as the area or function in an ...
s.


Role

Financial advisers typically provide financial products and services, depending on the qualification examinations they hold and the training they have. Financial advisers are registered, not licensed. For example, a licensed insurance agent may be qualified to sell both life insurance and variable annuities, because the insurance agent holds an insurance license and holds the Series 7 qualification examination. A broker (Series 7) may also be a financial planner. Any advisor can say they are a financial planner; they do not have to hold the CFP (Certified Financial Planner) designation to do so. A financial adviser may create financial plans for clients or sell financial products, or a combination of both. They may also provide insight on savings.


Compensation

A financial adviser is generally compensated through fees, commissions, or a combination of both. For example, a financial adviser may be compensated in one or more of the following ways: * An hourly fee for advisory services * A flat fee, such as $3,500 per year, for an annual portfolio review or $5,000 for a financial plan. This is often referred to as "flat fee advisors" * A commission on the securities bought or sold, such as $12 per trade * A commission (sometimes called a "load") based on the amount invested in a mutual fund or variable annuity * A "mark-up": when one buys "house" products (such as bonds that the broker holds in inventory), or a "mark-down" when they are sold * A fee for
assets under management In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money available ...
(AUM), such as 1% annually of assets managed


Advisor vs. adviser

Both spellings, ''advisor'' and ''adviser'', are accepted and denote someone who provides advice. According to one textbook, ''adviser'' and ''advisor'' are not interchangeable in the financial services industry, since the term ''adviser'' is generally used "when referring to legislative acts and their requirements and ''advisor'' when referring to a practitioner. Since financial advisor's practiceis never described as an advisery practice, advisor is preferable when not referencing the law." Congress and the
Securities Exchange Commission The U.S. Securities and Exchange Commission (SEC) is a large independent agency of the United States federal government that was created following the stock market crash in the 1930s to protect investors and the national banking system. The pr ...
refer to "investment advisers" when discussing regulation of them in the Investment Advisers Act of 1940.


Regulation


United States

Advisors typically fall into two separate categories: who typically earn a commission from sales and registered investment advisers (RIAs) who typically charge a fee based upon assets under management while serving as fiduciaries and are registered at the state or federal level. Additionally, an advisor can be either affiliated with a large firm ("wirehouse") or be independent (e.g., independent broker-dealer or IBD). There are also "hybrid RIAs" who are both broker-dealers and registered. The number of independent broker-dealer firms has declined from 1175 in 2007 to 819 in 2018, while RIA firms have grown from 9,538 to 15,645 over the same time period. As of 2016, the largest IBD firm by revenue was
LPL Financial LPL Financial Holdings, Inc. (commonly referred to as LPL Financial) was founded in 1989 and is considered the largest independent broker-dealer in the United States. As of 2021 the company had more than 17,200 financial advisors, over $903 billio ...
followed by
Ameriprise Financial Ameriprise Financial, Inc. is a diversified financial services Financial services are the economic services provided by the finance Finance is a term for the management, creation, and study of money In a 1786 James Gillray caricat ...
and
Raymond James Financial Raymond James Financial is an American multinational independent investment bank and financial services Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of busin ...
. is another large broker-dealer, and in 2017 stopped selling commission-based funds in response to a best interest
fiduciary A fiduciary is a person who holds a legal Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by ...
rule by the
Department of Labor The Ministry of Labour ('' UK''), or Labor ('' US''), also known as the Department of Labour, or Labor, is a government department responsible for setting national labour standards, labour dispute mechanisms, employment, workforce participation, tra ...
. As of 2019,
Merrill Lynch Merrill (officially Merrill Lynch, Pierce, Fenner & Smith Incorporated), previously branded Merrill Lynch, is an American investment management Investment management is the professional asset management Asset management refers to a system ...
had not adopted an RIA model while Wells Fargo and Goldman Sachs had opened up to the business model. As of 2019, the largest fee-only RIA firm was with over $200 billion in assets under management, under the ownership of private equity firm
Hellman & Friedman Hellman & Friedman LLC (H&F) is an American private equity firm, founded in 1984 by Warren Hellman and Tully Friedman, that makes investments primarily through leveraged buyouts as well as growth capital investments. H&F has focused its efforts on ...
. Other large fee-only RIA firms include
Fisher Investments Fisher Investments is an independent money management firm headquartered in Camas, Washington. History Ken Fisher founded the firm in 1979, incorporated in 1986, then served as CEO until July 2016, when he was succeeded by long-time Fisher Inv ...
, which has over $120 billion in assets under management. As of 2019, 80% of the $4 trillion managed by RIAs were on one of four platforms:
Fidelity Investments Fidelity Investments Inc., commonly referred to as Fidelity, earlier as Fidelity Management & Research or FMR, is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple ...
,
TD Ameritrade TD Ameritrade is a broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is executed. A broker who also acts as a seller or as a ...

TD Ameritrade
, Schwab, and Pershing LLC. Some RIAs operate inside "RIA aggregators" which provide institutional support similar to a wirehouse. In the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
, the
Financial Industry Regulatory Authority The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization A self-regulatory organization (SRO) is an organization that exercises some degree of regulatory authority over an ...
(FINRA) regulates and oversees the activities of
brokerage firm A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be conf ...
s, and their registered representatives. The
Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is a large independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929 The Wall Street Crash of 1929, also known as the Great Cras ...
(SEC) regulates investment advisers and their investment adviser representatives. Insurance companies, insurance agencies and insurance producers are regulated by state authorities. Investment Advisers may be registered with state regulatory agencies, the Securities and Exchange Commission, or pursuant to certain exemptions, remain unregistered.


Fiduciary standard

The anti-fraud provisions of the
Investment Advisers Act of 1940 The Investment Advisers Act of 1940, codified at through , is a United States federal law The law of the United States comprises many levels of codified and uncodified forms of law Law is a system A system is a group of Interaction, ...
and most state laws impose a duty on Investment Advisors to act as fiduciaries in dealings with their clients. This means the adviser must hold the client's interest above its own in all matters. The
Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is a large independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929 The Wall Street Crash of 1929, also known as the Great Cras ...
(SEC) has said that an adviser has a duty to: *Make reasonable investment recommendations independent of outside influences *Select broker-dealers based on their ability to provide the best execution of trades for accounts where the adviser has authority to select the broker-dealer. *Make recommendations based on a reasonable inquiry into a client's investment objectives, financial situation, and other factors *Always place client interests ahead of its own. Since the financial crisis in 2008, there has been great debate regarding the fiduciary standard and to which advisers it should apply. In July 2010, The Dodd–Frank Wall Street Reform and Consumer Protection Act mandated increased consumer protection measures, including enhanced disclosures and authorized the SEC to extend the fiduciary duty to include brokers rather than only advisers regulated by the 1940 Act. As of July 2016, the SEC has yet to extend the fiduciary duty to all brokers and advisers regardless of their designation. However, in April 2016, the Department of Labor finalized a thousand-page rule holding all brokers, including independent brokers, working with retirement accounts (IRAs, 401ks, etc.) to the fiduciary standard. In June 2016, as a way to address adviser conflicts of interest, the Department of Labor (DOL) ruled in a redefinition of what constitutes financial advice, and who is considered a fiduciary. Prior to 2016, fiduciary standards only applied to Registered Investment Advisers (RIAs), and did not impact brokers, who previously operated under a less strict "suitability" standard that provided leeway to provide education without "advice". The new ruling requires all financial advisers who offer advice for compensation to act as fiduciaries and meet the fiduciary standard, but only when dealing with retirement accounts such as IRA or 401(k) accounts. The ruling includes one exemption for brokers, Best Interest Contract Exemption, which can be allowed if the broker enters into a contract with the plan participant and meets certain behavioral requirements. The new ruling does not impact the advice or investment product sales pertaining to non-retirement accounts. Opposition to the fiduciary standard maintains that the higher standard of fiduciary duty, vs the lower standard of suitability, would be too costly to implement and reduce choice for consumers. Other criticisms suggest that consumers with smaller retirement accounts may be less able to access personalized advice due to advisor/broker compensation models, many of which have been restructured to comply with the fiduciary rule. The decision has caused a massive shift in the financial community with 73% of advisors concerned the rule will have an adverse impact on how they do business, 71% anticipating increased client frustration and 66% planning to reevaluate the products they recommend. Enforcement of the rule began on 9 June 2017 but is no longer enforced since the DOL fiduciary rule was officially vacated on 21 June 2018 by the U.S. Fifth Circuit Court of Appeals. On 5 June 2019, the SEC adopted Regulation Best Interest, establishing a new standard of conduct under the Securities Exchange Act of 1934 (“Exchange Act”) for broker-dealers, with compliance due to begin June 30, 2020. In July 2020, the DOL proposed a new fiduciary rule, and made two changes to guidance and regulation.


Registration

A
Registered Investment Adviser A registered investment adviser (RIA) is a firm that is an investment adviser A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial ...
(RIA) refers to an IA that is registered with the SEC or a state's securities agency and typically provides investment advice to a
retail investor There are two basic financial market participant categories, Investor vs. Speculation, Speculator and Institution, Institutional vs. Retail. Action in financial markets by central bank, central banks is usually regarded as intervention rather t ...
or registered
investment company An investment company is a financial institution principally engaged in investing in securities A security is a tradable financial asset A financial asset is a non-physical asset In financial accounting Financial accounting is the fiel ...
such as a
mutual fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ri ...
, or
exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ...
. Registered Investment Advisors are regulated by either the SEC or by the individual states, depending on the amount of assets under management.


Canada

The financial adviser role in Canada is varied. Most financial advisers carry licenses to sell
life insurance Life insurance (or life assurance, especially in the Commonwealth of Nations The Commonwealth of Nations, generally known simply as the Commonwealth, is a political association of 54 member states, almost all of which are former territorie ...
,
securities A security is a tradable financial asset A financial asset is a non-physical asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication o ...
, or
mutual fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ri ...
s, 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 the Autorité des marchés financiers. There are three distinct securities licenses available. Completion of the
Canadian Securities Course The Canadian Securities Institute (CSI; formerly, CSI Global Education) is a Canadian organization that offers licensing courses, advanced certifications, continuing education and custom training for financial services professionals in Canada an ...
(CSC) 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 fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ri ...
s course allows the adviser to sell mutual funds only, excluding certain types of very specialized funds and importantly,
exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ...
s (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 the term, 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 In general usage, a financial plan is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values and withdrawal plans. This often includes a budge ...
designations, the most common is the
Certified Financial Planner The Certified Financial Planner (CFP) designation is a professional certification Professional certification, trade certification, or professional designation, often called simply ''certification'' or ''qualification'', is a designation earned ...
designation although the Registered Financial Planner (R.F.P.) and Personal Financial Planner designations are also popular in Canada. There is no regulation, outside of Quebec, of the term "Financial Planner".


United Kingdom

There are three main bodies awarding qualifications for financial advisers in the UK. The main one is the
Chartered Insurance Institute The Chartered Insurance Institute (also known as the CII) is a professional body for the insurance sector. The CII's purpose, as set out in its 1912 royal charter, is to 'Secure and justify the confidence of the public' in its members and the ins ...
, which offers professional financial services qualifications all the way from beginner to degree levels. The IFS School of Finance offers alternative courses/qualifications in certain specialist areas such as mortgages and equity release. The Institute of Financial Planning offers the
Certified Financial Planner The Certified Financial Planner (CFP) designation is a professional certification Professional certification, trade certification, or professional designation, often called simply ''certification'' or ''qualification'', is a designation earned ...
. In the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shorth ...

United Kingdom
, investment advice is given either by a financial adviser or a
stockbroker A stockbroker is a regulated broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is executed. A broker who also acts as a sell ...

stockbroker
. Financial advisers need to pass a series of exams and receive a Diploma in Financial Planning (or, prior to the Retail Distribution Review, a Financial Planning Certificate) and also authorised by the
Financial Conduct Authority The Financial Conduct Authority (FCA) is a financial regulatory body in the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and T ...
, a
government A government is the system or group of people governing an organized community, generally a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Departmen ...

government
qango that must be satisfied that the adviser is a “fit and proper person” before they may practice. Typically a diploma qualified adviser will have DipFA or DipPFS after their name. Financial advisers are either restricted or independent. An independent financial adviser is free to select a suitable solution for the client from all the products and providers in the market. An adviser that is not free to select from the entire market, for whatever reason, is restricted. An adviser may be restricted because they only advise on a specific area, for example pensions, or because they only advise on products from one company such as a
bank A bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), stat ...

bank
. ''Best advice'' is a concept that 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 suitable product 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.


Republic of Ireland

The QFA ("qualified financial advisor") designation is awarded to those who pass the Professional
Diploma A diploma is a certificate or deed issued by an educational institution, such as college or university, that testifies that the recipient has successfully completed a particular course of study. The word diploma also refers to an academic award w ...

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 Retail is the sale of goods In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption ( ...

retail
financial services. The qualification, and attaching CPD programme, meets the "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 * Life assurance protection policies


New Zealand

The National Certificate in Financial Services inancial Advice evel 5is currently being introduced in New Zealand. All Individuates and registered legal entities providing financial services must be registered as a (Registered Financial Service Provider). Their Directors, retail and sales staff are required to gain the national certificate. The
New Zealand Qualifications Authority The New Zealand Qualifications Authority (NZQA; mi, Mana Tohu Mātauranga o Aotearoa) is the New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North ...
(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. 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 students from competency set A NZQA approved training. The certificate is offered by the accredited organizations.


South Korea

In
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is for ...

South Korea
, the
Korea Financial Investment Association The Korea Financial Investment Association (KOFIA, Hangeul: 금융투자협회) is a non-profit, self-regulatory organization A self-regulatory organization (SRO) is an organization that exercises some degree of regulatory authority over an indus ...
oversees the licensing of investment advisers.


Australia

Financial advisors in Australia must have passed a
RG146 Regulatory Guide 146 (RG 146) on Training of financial product advisers, formerly known as policy statement 146 (PS 146) is an Australian financial regulation issued by the Australian Securities and Investments Commission (ASIC) related to the min ...
qualifying and hold a license that is overseen by the
Australian Securities and Investments Commission The Australian Securities and Investments Commission (ASIC) is an independent commission of the Australian Government tasked as the national corporate regulator. ASIC's role is to regulate company and financial services and enforce laws to pro ...
. It ought to be noted that financial advisers in Australia will need to undergo transitional arrangements as new educational requirements will be in place on 1 January 2019. Additionally, financial advisers in Australia are subject to fiduciary obligations.


India

The
Securities and Exchange Board of India The Securities and Exchange Board of India (SEBI) is the regulatory body for securities and commodity market in India India (Hindi: ), officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries a ...
(
SEBI The Securities and Exchange Board of India (SEBI) is the regulatory body for securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument Finance is the study of financial institutio ...
) is the regulator for the
securities A security is a tradable financial asset A financial asset is a non-physical asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication o ...
market in
India India, officially the Republic of India (Hindi Hindi (Devanagari: , हिंदी, ISO 15919, ISO: ), or more precisely Modern Standard Hindi (Devanagari: , ISO 15919, ISO: ), is an Indo-Aryan language spoken chiefly in Hindi Belt, ...

India
. It was established in 1988 and given
statutory A statute is a formal written enactment of a legislative A legislature is an assembly Assembly may refer to: Organisations and meetings * Deliberative assembly A deliberative assembly is a gathering of members (of any kind of collective) ...
powers on 12 April 1992 through the SEBI Act, 1992. In India, SEBI registered investment advisor is referred, when an investor who would like advice on where to invest in share market or an investor. SEBI has put certain guidelines before giving RIA license to any individual, corporate or firms. In India, there are 1160 RIAs as of 31 January 2020, who are registered with SEBI as registered investment advisor (2013) regulations.


See also

*
Collective investment scheme An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These ad ...
s *
Socially responsible investing Sustainable Energy: One of many forms of sustainable investing Socially responsible investing (SRI), social investment, sustainable socially conscious, "green" or ethical investing, is any investment To invest is to allocate money Image ...
*
Robo-advisor Robo-advisors or robo-advisers are a class of financial adviser A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must ...


References


External links


AIFA
Association of Independent Financial Advisers - UK Trade body
FCA website
Financial Conduct Authority (UK)
NAIFA
National Association of Insurance & Financial Advisors
SEC IA Search
SEC Database of US Registered Investment Advisers
EFPA Europe
European Financial Planning Association Financial services occupations Financial advisors