How do you become a financial advisor?

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Financial lexicon Financial lexicon

A financial advisor offers advice on investments, loans or insurance as a service (in this context, financial products are usually brokered). According to the provisions of MIFID 2, the financial advisor' s task is to plan investment strategies, complying with the return, risk limitation and cost objectives established together with the investor, and to provide a general assessment and evaluation of the financial status of their client, but also to demonstrate their ability to manage the capital entrusted to them by interpreting their needs and objectives.

Below are alternative requirements to become a financial advisor:

  • a degree in economics or at least relevant training is required in order to be able to work as a financial advisor. However, there is no uniform vocational training in this sense.
  • passing an admission test of the Chamber of Industry and Commerce (IHK), which tests the skills and knowledge of the financial advisor (the IHK recognises the qualifications of the specialist advisor for financial services and the specialist for financial consulting).
  • the financial advisor is registered with BaFin by the company for which they work as a commercial agent and entered in the intermediary register in accordance with Article 32 of the KWG.
  • a business registration and a permit according to the trade regulations are also necessary. A simple business registration is not enough (more precisely: a business that requires a permit in accordance with Section 34 Paragraph f of the Trade Regulations Rules) because there are many professional facets in the field of financial advice.

From 2021, the financial supervisory authority BaFin will also take over the control of independent financial brokers.

However, it is very important to know that the term financial advisor or the synonym asset advisor means many different professional forms of practice.

Investment advisor

For the provision of investment advice as a financial services business, approval from the Federal Financial Supervisory Authority – BaFin – is required in accordance with Section 32 KWG. Investment advisors are employed by banks, savings banks or other specialised companies that make commercial recommendations to customers on the purchase or sale of securities or other investments. The investment advisor makes proposals that should match the client’s investment objectives in terms of risk and return. An investment advisor must always refer to the content of the sales prospect before buying investment units and handing themt over to the customer. While financial advice also includes credit transactions, financial management, debt advice, financial planning and the elimination of financial risks, investment advice is limited to the deposit business and the securities account business of credit institutions.

Fee-based investment advisor (or fee-based financial advisor)

These are investment advisors who advise exclusively for a fee. You’re therefore not allowed to take any commissions. The fee-based investment advisor may only be paid by the customer. This designation was introduced to create more transparency about how investment advice is remunerated. It should therefore be clear to the customer paying for the advice, so that they can consciously choose between commission-based investment advice and non-commission-based fee-based investment advice. Independent fee-based investment advisors in accordance with Section 93 (1) WpHG are recorded in the BaFin register. Independent fee-based investment advisors, according to the34h GewO law, are entered in the IHK’s agency registry.

Self-employed and independent financial advisor

Independent financial advisors often carry out their work in a contractually bound manner with providers of financial products such as banks or insurance companies or with financial distributors. Self-employed means that they are essentially free to organise their work and determine their working hours (cf. HGB § 84). A self-employed financial advisor can also be independent if they don’t only mediate products from one company, but also product from different providers. In contrast to the fee-based investment advisor, they earn money with commissions.

Financial investment broker

Financial investment brokers broker shares in open-ended or closed-ended investment funds within the scope of the exception in Section 2 (6) Sentence 1 Number 8 of the Banking Act (KWG), with the approval of the competent authority in accordance with Section 34f (1) of the GewO. The financial investment brokers are obliged to be entered in the broker register according to § 11a Paragraph 1 of the GewO. In the future, they will be placed under the supervision of BaFin.

Pension advisor

Pension advisors are essentially legal advisers who advise in the following areas: statutory pension insurance, health insurance, long-term care insurance, accident insurance, social compensation law, handicap laws, pension compensation and company and professional care. These are individuals who have been granted approval in accordance with Section 10, Paragraph 1, Item 2 of the Legal Services Act (RDG). Pension advisors are thus authorised to provide independent legal advice (social law and other areas of law) and act like lawyers in this environment; they are bound by the Lawyers’ Remuneration Act.

Real estate loan intermediary

This position arranges loans from the Sparkasse bank’s main branch, other banks or other lenders to companies or private individuals. The legal basis for the new authorization requirement is Section 34i of the Industrial Code (GewO). For this reason, tradespeople who want to negotiate real estate consumer loan contracts or corresponding financial assistance for a fee or who want to advise third parties on such contracts need a license as an intermediary for real estate loans.

Insurance intermediary

Insurance brokers’ main job is to broker insurance contracts between two parties or, more often, between insurance companies and private individuals. A special business license according to § 34h of the GewO (but also § 7 Paragraph 2 Item 7 of the HGB and § 93 of the HGB) is required for approval as an insurance broker and this is also necessary for the following professional titles: insurance advisor, insurance broker, insurance agent.

Finance broker

Finance brokers are professional intermediaries of medium- and long-term loans. They usually arrange business loans from capital collection agency funds. Finance brokers work on private contracts or as representatives of installment financing institutions and universal and mortgage banks. Smaller finance brokers often join forces with insurance agencies.

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