A financial consultant or financial adviser is a specialist who offers financial advisory services to customers according to their individual financial circumstances. In most countries, financial advisers must hold certain qualifications and obtain registration with a regulatory body to give professional advice. The term ‘financial adviser’ can cover a range of individuals and businesses who provide financial advice to individuals or businesses who require such advice. They may advise individuals about saving for retirement, investing in certain assets, estate planning and investing in businesses.
Financial advisors can work independently or for major organisations. For example, the planner for an oil company may not be employed directly by the oil company, but he or she may be an employee of the company who provides financial advisors for its clients. Most financial advisors receive commissions for selling financial products such as pensions, savings and life policies. Other financial advisors may receive commissions for providing mortgage brokers or loan officers. They may also receive commissions for advising people on the purchase of bonds, shares and other assets.
Financial advisors are required to follow the guidelines set out by the Financial Services Authority (FSA). Financial advisors are expected to advise their clients on a wide variety of investment products, including those that are not regulated by the FSA. However, the FSA has set out a number of criteria for establishing suitability standards, and these criteria are published in the Financial Services Authority Code of Practice. The code requires that financial advisors have the necessary expertise and experience to help their clients understand the implications of their investment decisions, as well as being able to demonstrate that they have established and maintain effective client rapport.
The role of financial advisors has changed considerably over time. Prior to deregulation in the UK in 1998, financial advisors were closely regulated to ensure they provided reliable professional advice and maintained high standards of professional conduct. Over time, this regulation has been weakened, with many professional bodies now setting their own standards of behavior. As a result, many financial advisors choose to engage in self-regulatory activity rather than abide by the regulatory framework that is in place from the FSA. Many professionals believe this practice to be unfair, given the fact that clients often do not realise that they are not receiving adequate advice and that the professional integrity of financial advisors has been compromised.
In the US, there are currently no regulatory bodies in place to regulate financial advisors. This means that it is up to each individual advisor to establish their own practices, and to manage their risk profile accordingly. It is likely that the current situation will continue to result in unevenly distributed outcomes, with some advisors having very high levels of variance and others having very low levels. However, the current lack of regulatory controls does not mean that all types of robo-advisors will fail, with many professionals continuing to work in this unregulated environment.
Whether you are working as a fee-only or fee-based financial advisor, you need to have sufficient knowledge and understanding to understand the risks involved in the investment strategy that you are recommending. Moreover, your understanding and awareness of the rules governing such an advisor also needs to extend to the regulatory framework. In order to ensure that you receive fees for services that you are providing, you need to demonstrate that you have sufficient knowledge and understanding to ensure that your recommendations are robust and have a strong probability of achieving your investment objective.