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Afinancial adviserorfinancial advisor(consideredcognateswith interchangeable spelling), is a professional who suggests and renders financial services to clients based on their financial situation. In many countries financial advisors have to complete specific training and hold a license to provide advice. In the United States for example a financial adviser carries a Series 65 or 66 license and according to the U.S.Financial Industry Regulatory Authority(FINRA), license designations and compliance issues must be reported for public view.1FINRA describes the main groups of investment professionals who may use the termfinancial advisorto be:brokersinvestment advisersprivate bankersaccountantslawyersinsurance agentsandfinancial planners.2

Financial advisers typically provide clients/customers with financial products and services, depending on the licenses they hold and the training they have had. For example, an insurance agent may be qualified to sell both life insurance and variable annuities. A broker may also be a financial planner. A financial adviser may create financial plans for clients or sell financial products, or a combination of both. They also provide some insight on savings.2

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:3

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, such as 1% annually of assets managed

Both spellings,advisorandadviser, are accepted and denote someone who provides advice. According to one textbook,adviserandadvisorare not interchangeable in the financial services industry, since the termadviseris generally used when referring to legislative acts and their requirements andadvisorwhen referring to a practitioner. Since [a financial advisors practice] is never described as an advisery practice, advisor is preferable when not referencing the law.4Congress and theSecurities Exchange Commissionrefer to investment advisers when discussing regulation of them in the Investment Advisers Act of 1940.5

In theUnited States, theFinancial Industry Regulatory Authority(FINRA) regulates and oversees the activities ofbrokerage firms, and their registered representatives. TheSecurities and Exchange Commission(SEC) regulates investment advisers and their investment adviser representatives. Insurance companies, insurance agencies and insurance producers are regulated by state authorities.1Investment Advisers may be registered with state regulatory agencies, the Securities and Exchange Commission, or pursuant to certain exemptions, remain unregistered.6

The anti-fraud provisions of theInvestment Advisers Act of 1940and 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 clients interest above its own in all matters. TheSecurities and Exchange Commission(SEC) has said that an adviser has a duty to:6

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 clients 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 DoddFrank 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.)7to the fiduciary standard.8

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.9Prior 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 IRAs or 401(k)s. The ruling includes one exemption for brokers, Best Interest Contract Exemption (BICE), which can be allowed if the broker enters into a contract with the plan participant and meets certain behavioral requirements.10The 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.11

Enforcement of the rule began on June 9, 2017.12

ARegistered Investment Adviser(RIA) refers to an IA that is registered with the SEC or a states securities agency and typically provides investment advice to aretail investoror registeredinvestment companysuch as amutual fund, orexchange-traded fund. Registered Investment Advisors are regulated by either the SEC or by the individual states, depending on the amount of assets under management.13

The financial adviser role in Canada is varied. Most financial advisers carry licenses to selllife insurancesecurities, ormutual funds, or some combination of all three. The life insurance license is obtained through successful completion of thelife license qualification program, except in Quebec, where licensing is completed through the Autorit des marchs financiers.14There are three distinct securities licenses available. Completion of theCanadian Securities Course(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 amutual fundscourse allows the adviser to sell mutual funds only, excluding certain types of very specialized funds and importantly,exchange-traded funds(ETFs)although recently non-securities licensed financial advisers have gained access to ETFs through new mutual fund products. The third possible license is theexempt securities license.

In many, but not all, cases, licensing requires the support of a dealer or insurer. It is also mandatory for advisers to carryErrors 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 numerousfinancial planningdesignations, the most common is theCertified Financial Plannerdesignation although theRegistered 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.15

Further information:Financial management advisor

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There are three main bodies awarding qualifications for financial advisers in the UK. The main one is theChartered Insurance Institute, 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 theCertified Financial Planner.

In theUnited Kingdom, investment advice is given either by a financial adviser or astockbroker.

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 theFinancial Conduct Authority, athat 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.

The titleChartered Financial Planneris the most widely accepted gold standard qualification available for professional financial planners/ financial advisers in the United Kingdom.

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 abank.

Best adviceis 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.

The QFA (qualified financial advisor) 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 minimum competency requirements (MCR) specified by the Financial Regulator, for advising on and selling five categories of retail financial products:

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 (Registered Financial Service Provider). Their Directors, retail and sales staff are required to gain the national certificate.

TheNew 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.16All 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.

InSouth Korea, theKorea Financial Investment Associationoversees the licensing of investment advisers.

Financial advisors in Australia must have passed aRG146qualifying and hold a license that is overseen by theAustralian Securities and Investments Commission.17It ought to be noted that financial advisers in Australia will need to undergo transitional arrangements as new educational requirements will be in place in January 1st 2019. Additionally, financial advisers in Australia are subject to fiduciary obligations.18

One-off share portfolio advice was launched by CommSec in 2012. Richard Hadfield is commonly regarded to be the sole inventor and implementer of the concept, and had laid claim to all subsequent glory associated with its success.citation needed

Understanding Professional Designations. FINRA

Investor Bulletin: Top Tips for Selecting a Financial Professional

. SEC: Office of Investor Education and Advocacy

. Bryn Mawr, PA: The American College Press. p.9.3.ISBN

Any account designated as a qualified retirement plan underERISA

Federal Register:: Definition of the Term Fiduciary; Conflict of Interest Rule-Retirement Investment Advice.

Fact Sheet: DOL Finalizes Rule to Address Conflicts of Interest in Retirement Advice, Saving Middle Class Families Billions of Dollars Every Year.

Menickella, Brian.How The DOLs Fiduciary Rule Will Impact Your Retirement Accounts

Financial Advisors Weigh in on What the Department of Labor Fiduciary Rule Could Mean For Them. Fidelity.

Hopkins, Jamie?.New Fiduciary Rule For Financial Advisors Moves The Needle, But In Which Direction.

From Stock Broker To Fee Only Planner. Registered-Investment-Advisor


Who is The Skills Organisation?. The Skills Organisation

Financial advice MoneySmart by ASIC. 2013-07-01

AIFAAssociation of Independent Financial Advisers – UK Trade body

NAIFANational Association of Insurance & Financial Advisors

SEC IA SearchSEC Database of US Registered Investment Advisers

Articles needing additional references from August 2016

Articles with unsourced statements from August 2016

This page was last edited on 12 May 2019, at 15:57

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