When it comes to managing one’s finances and investments, seeking professional advice is a wise decision. However, the terms “financial adviser” and “broker” are often used interchangeably, leading to confusion among many individuals. It is crucial to comprehend the fundamental differences between these two roles to make informed decisions about your financial well-being. In this two-part series, we will shed light on the dissimilarities between a financial adviser and a broker, clarifying their respective roles and responsibilities. In Part 1 we will specifically be looking at the role a financial adviser plays in the financial industry and in next week’s article, we will unpack this further with a focus on how their fees are disclosed and calculated as well as discuss the role of brokers.
Financial Adviser
A financial adviser also referred to as a financial planner, is a professional who provides comprehensive guidance on various aspects of personal finance. Their primary goal is to help clients achieve their financial objectives by creating tailored strategies based on the client’s specific circumstances, goals, and risk tolerance.
Holistic Approach
Financial advisers take a holistic approach to financial planning, and they build long-term and personal relationships with their clients. The relationship starts when they assess the client’s overall financial situation, which includes analysing income, expenses, assets, debts, insurance coverage, retirement plans, tax implications, and estate planning. Once they understand the client’s financial situation, a financial adviser helps set realistic and achievable financial goals. Financial advisers often have access to sophisticated and advanced programmes that aid them in analysing and projecting various scenarios given many inputs and considerations such as changing inflation rates, investment growth rates and changing cash flows over numerous years. They will also meet with the client on an ongoing basis to assess whether any new changes need to be implemented to stay on track to meet their goals.
Investment Management
Although financial advisers help clients tackle their financial well-being holistically, one specific pillar of financial well-being, that financial advisers give advice on, is investments. Financial advisers therefore must have a clear understanding of what is happening in the markets and economy as well as have an understanding of various products that their clients want or could invest in. Some of these products include endowments, hedge funds, unit trusts, direct shares, and real estate to name a few. Each product will have different liquidity and tax considerations that the financial adviser needs to align with the client’s specific circumstances, goals, risk tolerance and needs.
It is important to note here that there are two types of financial advisers. On the one hand, we get financial advisers who work for a specific investment house or bank and will only offer the client these institutions’ products and investments. On the other hand, there are independent financial advisers that understand and can advise on various providers’ products and investments which means the client has a wider range of investment options to choose from to ensure their needs are best met.
Qualifications
Most financial advisers have at least a bachelor’s degree in finance, economics, business administration, accounting, or a related field and must have completed various regulatory exams. For most financial advisers to provide clients with financial advice they may also be required to have, or are busy obtaining, their professional qualification to become a Chartered Financial Advisor (CFP) member. Being a CFP member requires the financial adviser to not only complete a postgraduate degree in financial planning and the board exam but also have extensive experience under a designated supervisor. There is also an ethics requirement which indicates that they have agreed to adhere to high ethical and professional standards, always putting their client’s best interests first. In addition, CFM members also have to complete ongoing training on an annual basis to keep up with any changes in the industry to ensure that they can provide clients with the right advice.
It is clear that financial advisers are required to have a broad understanding of various aspects of the financial industry. They play a key role in helping individuals be financially secure by assisting them in building realistic strategies that will help them reach their goals.
In next week’s article, we will unpack the fee structure of financial advisers in detail as well as look at the role brokers play in the industry. By understanding their various roles, you can know when to approach these different role players on your financial journey.
