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Financial Advisor

Financial securities are traded in one of two ways: either on an exchange, such as the New York Stock Exchange or NASDAQ, or “over the counter (OTC)”

Exchanges are centralized and regulated markets where securities are traded in a safe, standardized, ...


Definition of "Financial Advisor"

One who provides financial advice or guidance to customers for compensation. Financial advisors can provide many different services, such as investment management, income tax preparation and estate planning. They must carry the Series 65 license in order to conduct business with the public. A wide variety of licenses are available for the services that a financial advisor can provide.



Investopedia Explains "Financial Advisor"

Financial advisor is a generic term, and many different types of financial professionals fall into this general category. Stockbrokers, insurance agents, tax preparers and financial planners are all members of this group. Estate planners and bankers may fall under this umbrella as well.



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Trading Over the Counter

Financial securities are traded in one of two ways: either on an exchange, such as the New York Stock Exchange or NASDAQ, or “over the counter (OTC)”

Exchanges are centralized and regulated markets where securities are traded in a safe, standardized, fast and publicly transparent manner. Larger established companies usually choose exchanges to list and trade their securities.

But many companies do not meet the listing requirements for an exchange, or do not want to pay the cost. These companies can have their securities traded “over the counter.”

Over the counter trading happens through decentralized dealer networks. Broker-dealers negotiate directly with each other over computer networks and by phone. This allows smaller company stocks and non-standard quantities to be traded.

This also means less public transparency, since prices are not disclosed publicly until after the trade is complete.

Stocks which trade on an exchange are called listed stocks. Stocks not on an exchange that are traded over the counter are called un-listed stocks, however there are some stocks that trade on both an exchange and OTC.

OTC trades tend to be for smaller company stocks and debt securities. Debt securities such as bonds are generally traded by investment banks making markets for specific issues. To save the cost of paying the exchange fees, brokerages often match buys and sells from clients internally, or with another brokerage. This is usually referred as internalizing.

While OTC transactions often seem more risky and less liquid, they help companies and institutions promote equity or financial instruments that wouldn't meet the requirements of regulated, well established exchanges. 

Financial securities are traded in one of two ways: either on an exchange, such as the New York Stock Exchange or NASDAQ, or “over the counter (OTC)” Exchanges are ...
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Frequently Asked Questions About "Financial Advisor"

What's the difference between a financial advisor and a financial planner?

Answer:

A financial advisor can be a financial planner. However, the term is not limited to financial planning in and of itself. While a financial advisor can be certified as a Registered Financial Planner (RFP) or Certified Financial Planner (CFP), he or she may also work as a certified professional accountant (CPA), a tax preparer, or any financial professional who provides advice for estate planning, asset allocation, retirement savings or tax planning purposes.

CFP Basic Certification Requirements

In order to become a CFP, individuals must complete what the CFP Board of Standards refers to as the "four Es," which stand for "education," "examination," "experience" and "ethics."

CFP Membership

The CFP website says that CFP members are required to already have completed academic training that is related to their area of expertise. Certified Financial Planners must also have passed a comprehensive certification examination covering areas such as investment management, estate planning and insurance. Hands-on experience is required as is a record that follows the CFP Board's standards concerning professional conduct. Members are expected to act competently, fairly and objectively at all times.

Requirements for Becoming Certified as an RFP

In order to become an RFP and member of the Registered Financial Planners Institute (RFPI), individuals must show that they already have two years of financial planning experience. It is also necessary to undertake an approved 120-hour study course within a period of two years. Members must already have finished 120 hours of sanctioned educational training and show that they have passed tests associated with their areas of expertise.

Defining Fiduciary Responsibility

Certified Financial Planners display the CFP® designation after their names. One of the main distinctions of a CFP is that he or she holds a fiduciary responsibility in the financial planning field. By exerting this kind of authority, the planner is able to provide financial advice that is in the best interests of his or her client.

Therefore, clients who use an advisor who has a fiduciary responsibility have more choices when selecting financial products for their financial portfolios. They also increase their opportunity of seeing a greater return on their money.

The Suitability Standard

Financial advisors may also act on their clients' behalf using a suitability standard. This kind of standard is followed by financial advisors who work for brokerage houses or for companies that feature financial products. Therefore any products the advisor recommends are considered suitable for the customer. As a result, customers have less latitude in planning for retirement or saving and investing money when a suitability standard is used.

Choosing an Advisor or a Planner

When choosing a financial planner or advisor, investors must consider such criteria as credentials, fees and areas of expertise. CFPs are often used, as they keep up-to-date with the laws that affect investors, and they must take continuing education courses to remain certified.



Articles About "Financial Advisor"

Financial Advisor

One who provides financial advice or guidance to customers for compensation. Financial advisors can provide many different services, such as investment management, income tax preparation and estate planning. They must carry the Series 65 license in order to conduct business with the public. A wide variety of licenses are available for the services that a financial advisor can provide.

Financial advisor is a generic term, and many different types of financial professionals fall into this general category. Stockbrokers, insurance agents, tax preparers and financial planners are all members of this group. Estate planners and bankers may fall under this umbrella as well.

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