A financial advisor offers advice on investments, loans or insurance as a service. In this context, financial products are usually brokered. They can practice their profession independently and thus be a self-employed or independent financial advisor or work for a financial advisory firm.
However, the general term financial advisor is not protected by law. Insofar as the advice affects legal or tax aspects, the financial advisor must observe the requirements of the Legal Advice Act and the Tax Advice Act, which also depend on product groups. For example, if you want to broker a loan, you need a special business license in Germany or, if a financial advisor wants to advise their customers on investment products, they need approval as a financial services institution for investment advice or as a fee-based financial investment advisor in accordance with the provisions of the UK Banking Act.
Self-employed financial advisors’ special role is to carry out an advisory activity directed to the public on the basis of an order from qualified parties such as financial intermediaries, the KVG, and banks, and they can determine their own working hours (see HGB § 84). Self-employed advisors (who aren’t fully independent) act on behalf of a single investment firm and promote the investment services and products for which they are advising.
They must always state in which function and for which company they work.The professionalism of this type of advisor, working as commercial agents (tied agents) under the responsibility of the respective company, is monitored by the same qualified companies that they have hired. To do this, the company must have appropriate procedures in place to verify that the advisors are meeting specific obligations. In the event of non-compliance, the company itself can be held liable for damage caused to third parties by the advisor. The company is also obliged to report the contractually bound brokers to BaFin, which keeps them in a public register as KWG brokers.
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