A financial adviser is a professional figure authorised to provide advice on the underwriting of financial instruments or the buying and selling of financial products. The task of a financial advisor, however, is not primarily to sell products, but to look after the interests of his or her clients. This happens in the offer of tailor-made products and, more often than not, in the development of an investment and savings strategy.
There are two types of financial advisors in the UK: independent financial advisors and restricted advisors. It is very important to remember that every financial advisor has to be approved by the Financial Conduct Authority (FCA) 1 . In addition, each financial advisor must hold a) Level 4 or above of the national Qualifications and Credit Framework, b) a Statement of Professional Standing (SPS)2 .
Independent financial advisers (also known as 'IFAs') differ from restricted advisers because they are not limited in advising on the buying and selling of financial products. Restricted advisors, on the other hand, are limited to recommending investments from a particular provider or group of providers (e.g. investment companies or banks).
A financial advisor's remuneration can come in different forms, typically a fee or a percentage of the invested or earned capital. The hourly cost ranges from £75 to £350 per hour3. But the fee could come in the form of a weekly, monthly or lump-sum fee on completion of work. Since 2013, both independent and restricted consultants are required to present their costs as clearly as possible4 . This measure was adopted mainly because in some cases it might appear that the consultancy was free of charge because the fees were charged as a percentage of earnings.
For further clarification on the distinction between independent and restricted financial advisors, and more on how to choose the best financial advisor for you, see also: Choosing a financial advisor.
There are various types of financial advisors, which are often not included under the term 'financial adviser'. They can also be divided into the categories of independent and restricted consultants. They can in fact easily be called brokers if, for example, they deal with insurance advice or mortgages. Based on their field of expertise, we find investment advisors, mortgage advisors, financial planners and pension advisors. It is worth writing again that they all have to be licensed by the FCA5 .
Financial planners deal with the holistic, i.e. comprehensive, financial planning of a person or family. They promote investment strategies concerning both investments (typically, an investment portfolio) and the underwriting of specific pension, insurance or savings products. In some cases, they also deal with the fiscal optimisation of the family budget. Two of the most common qualifications among these professionals are the Chartered Financial Planner or the Certified Financial Planner qualifications.
These two types of advisers have something in common: they have respectively a specific professional field, although this field may not be exclusive (they may also be qualified to advise on other products). They are then typically paid by charging a commission for each mortgage or insurance contract taken out for the client.
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