Who is Financial Advisor and What Financial Advisor Does?

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A financial advisor provides customers with financial advice or guidance for a fee. Investment management, tax planning, and estate planning are just some of the services that financial advisors (sometimes spelled as advisers) can provide. Financial advisors are now a days increasingly acting as "one-stop shops" by offering everything starting from portfolio management to insurance products.
Who is a Financial Advisor

The Series 65 license is required for registered advisors to conduct business with the general public. Depending on the services provided by a given financial advisor, a variety of additional licenses and certifications may be required.

• A financial advisor is a professional who advises clients on money-related decisions, personal finances, and investments.

• Financial advisors may be independent agents or employed by a larger financial institution.

• To conduct business with clients, registered advisors must pass one or more exams and be appropriately licensed.

• Unlike stockbrokers, who simply execute orders in the market, financial advisors provide guidance as well as make informed decisions on their clients' behalf. • A financial advisor's compensation can be based on a fee, commission, profit-percentage structure, or a combination of these.

Understanding About Financial Advisors

The term "financial advisor" lacks a precise industry definition. Consequently, this title can be used to describe a wide variety of financial professionals. Financial advisors include stockbrokers, insurance agents, tax preparers, investment managers, and financial planners. Additionally, estate planners and bankers may fall under this category.

Nonetheless, a significant distinction can be made: a financial advisor must actually offer guidance and advice. A financial advisor differs from an execution stockbroker who simply executes trades for clients and a tax accountant who prepares tax returns without offering advice on how to maximize tax advantages.

In some instances, a person posing as a financial advisor may actually be a product salesperson, such as a stockbroker or a life insurance agent. A true financial advisor should be a well-educated, credentialed, and experienced financial professional who works for the benefit of their clients, as opposed to serving the interests of a financial institution by maximizing the sale of certain products or profiting from commissions.

A financial advisor is typically an independent practitioner who acts in a fiduciary capacity, putting the client's interests ahead of their own. Nevertheless, only Registered Investment Advisors (RIAs) governed by the Investment Advisers Act of 1940 are held to a true fiduciary standard. This fiduciary standard requires that a registered investment advisor (RIA) place the client's best interests ahead of their own in all circumstances.

Some real estate agents and brokers choose to practice as fiduciaries as a means of attracting clients. However, due to their compensation structure, they are bound by the employment contracts of the companies for which they work.

The Fiduciary Difference

Since the Investment Adviser Act of 1940 was enacted, there have been two types of relationships between financial intermediaries as well as their clients. The reasonableness standard and the more stringent fiduciary standard are examples. In the broker-dealer industry, these relationships define the nature of transactions between registered representatives and clients. Advisors registered with Securities and Exchange Commission (SEC) as Registered Investment Advisors are obligated by a fiduciary relationship to exercise loyalty, care, and full disclosure in their interactions with clients.

While the former is based on the "caveat emptor" principle and self-governed rules of "suitability" and "reasonability" when recommending an investment product or strategy, the latter is founded on federal laws that impose the strictest ethical standards. At its core, the fiduciary relationship is based on the requirement that a financial advisor must act on behalf of a client in the same way that the client would act for themselves if they possessed the necessary knowledge and skills.

Financial Advisors vs. Financial Planners

The financial planner is a type of financial advisor who specializes in assisting businesses and individuals in developing a plan to meet their long-term financial objectives.

A financial planner may specialize in investments, taxes, retirement planning, or estate planning. Additionally, the financial planner may hold multiple licenses or certifications, such as the Certified Financial Planner (CFP) certification. Financial planners may focus on tax planning, asset allocation, risk management, retirement planning, or estate planning.

How Does One Become a Financial Advisor?

Before becoming a financial advisor, one must earn a bachelor's degree. A degree in economics or finance is not required, but it is advantageous. You would then seek employment with a financial institution, typically through an internship. It is advisable to work for an institution because it will sponsor you for the industry licenses you must obtain before you can practice as a financial advisor. You can perform these tasks on your own, but it is simpler to do so through a company. A practicum or entry-level position will also help you understand the industry and the requirements of the profession. You may be required to complete Series 7, Series 63, Series 65, and Series 6 licenses. After obtaining the necessary credentials, you can work as a financial advisor.

What Do Financial Advisors Do?

Financial advisors are responsible for managing all aspects of your financial life, including retirement planning, estate planning, and investment and savings strategies. They are accountable for more than merely recommending investment options and selling financial products. They evaluate your financial situation and objectives, then design a plan to help you achieve those objectives. They can assist in minimizing your tax liability and maximizing the returns on any financial assets you may own.

What is the cost of a financial advisor?

The cost of hiring a financial advisor is contingent on the services you require. Many financial advisors operate on a sliding scale, so the more business you conduct, the lower this fee will be. There are also various fees associated with the various tasks a financial advisor will perform. Most financial advisors charge a flat annual fee between $1,500 and $7,000; between $1,000 and $2,500 for the creation of a customized financial plan; and commissions ranging from 3% to 6% on the account, depending on the agreement.

How Much a Financial Advisor Makes?

The salary of a financial advisor depends on a number of variables, including their level of experience, the region in which they work, the types of clients they serve, the products they sell, and the type of financial advice they provide. According to the Bureau of Labor Statistics, the median annual income of a financial advisor in 2020 was $89,330, or $42.95 per hour.

The Bottom Line

Financial advisors aid their clients in attaining financial autonomy and security. They can work independently or as part of a larger organization, and they typically pursue professional designations demonstrating their expertise. Their pay is determined by a various factors, and their average starting salary is significantly higher than the national average.


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