A financial advisor is any professional who provides products or services to clients concerning investments, taxes, properties and estate planning. Most financial advisors focus on a specific area of advisory services, though some do offer comprehensive services or are members of a firm that provides comprehensive services collectively.
Examples of Financial Advisors
Some common examples of financial advisors include insurance agents, tax return preparers, stockbrokers, financial planners, investment managers and estate planners.
While there is a large degree of overlap in the world of finance between financial advisors and other financial professionals, financial advisors can be distinguished by the fiduciary duty that they have toward their clients.
While many financial professionals may suggest that they have the best interest of a customer or other member of the public in mind, they are not legally obligated to provide information and make decisions that they believe are in the best interest of their customers.
Financial advisors, on the other hand, are legally obligated to maintain their fiduciary duty to their clients, and they face civil and criminal sanctions for failing to do so.
The fiduciary duty is based on the ethical standard of attempting to act for the client in the way that the client would act for themselves if they had the requisite knowledge and experience.
Therefore, the financial advisor must gather information from the client concerning their desires, goals and values, and then use their knowledge and experience to act in place of the client.
The fiduciary duty is contrasted with many financial professionals whose obligation is either directly to themselves or to the company that they work for. Many financial professionals will push products and services onto their customers that are not in their best interest.
A financial advisor, on the other hand, must not have any conflicting obligations to other organizations or a personal incentive to select one product or service over another.
Licensing and Education
There are a broad range of licenses for financial advisors depending on their area of focus, the jurisdictions that they operate in and the sorts of clients they advise. Some licenses and professional organizations may be voluntary, while others are mandatory requirements for offering financial advisory services to the public in that area.
Financial advisors are generally expected to be well-educated in their practice area. This may include both a formal post-secondary education in a related field and a more practical professional education offered by professional and regulatory bodies.
Financial advisors are often required to attend regular professional education seminars to ensure that their knowledge is up-to-date with the latest industry practices and standards.
Financial Advisors and Trading
As a trader it is important to recognize the value of financial advisory services and to distinguish between a financial advisor with a fiduciary duty and other financial professionals.
There are a variety of areas where a financial advisor can augment the performance of a trader. For example, many traders choose to employ a tax specialist for filing a tax return for their trading business.
Not only does trading lead to some complex tax situations that the average trader will have little experience with, but a tax specialist will ensure that any tax costs are minimized and any special taxation benefits from trading are maximized.
Traders will also be faced with many financial professionals who are looking to sell products and services that may not be in their best interest to use.
In particular as a trader becomes more successful and develops a larger capital base and client history with brokerages and other service providers, they will increasingly become the target for salespeople from the financial sector.
Many of the products and services offered may be beneficial for the trader, but they should remember that not all financial professionals have a fiduciary duty to their clients like a financial advisor does.
Financial advisors are a prominent feature of the investing world, and many offer products and services that are beneficial for traders. However, it is very important for traders to identify those professionals that have a fiduciary duty to act in the best interest of their clients.
The products and services that a financial advisor provides can help investors reach their financial goals.