Financial advice

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Financial Advice is advice given in relation to financial matters such as investing, insurance, borrowing, saving and retirement planning. Professionally, the advice is given only after the financial situation of the client is unveiled through a thorough fact-finding and analysis exercise. Many financial advisers also double-up as financial planners because their function is crossed in many areas. This principle of understanding the client's situation before advice are given is known as the 'know your client' rule. Once the client's actual financial situation is known, a set of prescriptions are provided by the financial adviser to solve those client's problems that are uncovered.

Financial advisers may or may not hold distribution contracts with financial institutions as part of their business. Those who do not are often referred to as Independent Financial Advisers (IFA) as they are not influenced by the commissions they get for recommending financial products, and hence, are considered less bias when advising their clients.

In some countries like Singapore and Malaysia, financial advisers are not individuals but companies who are licensed by the respective Authorities, such as the Monetary Authority of Singapore (MAS) or Bank Negara Malaysia (BNM). Those individuals who represent these financial advisers (companies) are called financial adviser representatives. Those who give financial advice related to securities in Malaysia need a separate licence from the Securities Commission (SC). Other institutions including insurance companies, investment companies, banks and lawyers may offer financial advice in addition to other services.

Many financial advisers see their profession as complementary to other professions who give legal advice, tax advice or medical advice. Financial advice in this context is a professional service with its own criteria and professional boundaries. The giving of financial advice is a regulated activity in many jurisdictions.

Generic financial advice

The government encouraging you to 'save more' and 'borrow less' is an example of generic advice.

Individual financial advice

To obtain all but the most arbitrary financial advice, a financial adviser must consider your financial position, your needs and your individual preferences.

This often means having a face-to-face interview with an adviser, although you can get advice in other ways, including by telephone, e-mail, or correspondence. In all cases, the adviser should gather information about you to find out your needs and circumstances. The adviser can then use this information to recommend a course of action that may or may not relate to a particular product or products.

It is possible to invest money or take out a mortgage or insurance without financial advice. For example you might buy from an adviser without advice, buy direct from a company over the telephone or internet, or for some products by responding directly to a mailshot or other advertisement. Buying investments without advice is sometimes called ‘execution-only’.

Financial advice that isn't advice

Many firms that sell financial products may give the impression they are offering advice. They may suggest that they have the best product or the best track record and 'recommend' you purchase it. This is not strictly advice, but more of a sales pitch.

A sure fire way to tell if you are being pitched or if your advisor is valid is to pay a separate fee for advice. The federal government holds fee for advice advisors to a much higher accountability level (called fiduciary responsibility) than advisors who do not charge and offer advice as "incidental" to the work they do. For example, if a securities broker does free financial planning, you can be assured that the planning is aimed at selling product. On the other hand if you hire a planner and he or she recommends insurance, securities, etc. you have advice.

See also

External links

  • NAIFA National Association of Insurance & Financial Advisors
  • AIFA Association of Independent Financial Advisers - UK Trade body
  • AAFM American Academy of Financial Management
  • IFA Promotion Directory of IFA's in the UK Authorised to trade by the FSA
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