What is a 'Financial Adviser'

A financial adviser (or advisor) is a professional who provides financial guidance to clients based on their needs and goals. Typically, they provide clients with financial products, services, planning or advice related to investing, retirement, insurance, mortgages, college savings, estate planning, taxes and more. Some other names for financial adviser include "investment advisor" and "registered representative." Financial advisers can also be insurance agents, accountants or attorneys.

Breaking Down 'Financial Adviser'

A significant issue to consider when evaluating a financial adviser or deciding on what kind of adviser to be is how they are paid. Some financial advisors are paid a flat fee for their advice and are considered fiduciaries, while others earn commissions from the products they sell to their clients. Some advisors, such as in the case of a hybrid adviser or dually registered advisor, charge fees as well as earn commissions depending on the product they are selling or the service they are providing. Fee-only arrangements are widely considered to be better for the client.

Financial advisers are required to meet a fiduciary standard. According to the Securities and Exchange Commission, advisers must:

  • Make reasonable investment recommendations independent of outside influences;
  • Select broker-dealers based on their ability to provide the best execution of trades for accounts where the adviser has authority to select the broker-dealer;
  • Make recommendations based on a reasonable inquiry into a client’s investment objectives, financial situation and other factors;
  • Always place client interests ahead of its own.

How Financial Advisors Are Compensated

The most common way advisers are paid is based on a percentage of total assets under advisory, usually about 1-2% (or lower the larger that sum gets). Some advisors are paid via commissions from insurance or financial products they sell, though this can lead to a conflict of interest because of the incentive to recommend the best product commission-wise and not necessarily the best choice for the client. Such a person is acting as a salesperson and must merely meet a suitability standard rather than a more stringent fiduciary standard. Hybrid advisors, a fast-growing segment of the advisory business because of its flexibility, are paid via commission for selling some products and also fees for services and advice as a fiduciary. This arrangement is often referred to as "fee-based" (as opposed to "fee-only," which refers to a 100% fiduciary). Some advisers are paid via an hourly rate, or a flat fee for specific services or projects, or via a regular (often quarterly) retainer fee.

How to Find a Financial Adviser

Aside from asking friends and family for referrals, professional organizations like the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA) can help an individual find an adviser. When choosing a financial adviser, it's important to ask if they have any FINRA licenses or official credentials. Certified Financial Planner® (CFP®), chartered financial analyst (CFA), chartered financial consultant (ChFC), and registered investment advisor (RIA) are good indicators of an adviser's qualifications.

How to Become a Financial Adviser

Many countries require individuals to complete training or obtain a license to become a financial advisor. In the United States, financial advisors must carry a Series 65 or 66 license as stipulated by the Financial Industry Regulatory Authority (FINRA). According to FINRA, investment advisors, brokers, accountants, insurance agents and financial planners can use the term "financial adviser." The North American Securities Administrators Association provides a good brief overview of financial adviser requirements.

Financial Adviser vs. Advisor

While 'adviser' spelled with an 'e' is the official spelling as per the Investment Advisers Act of 1940, 'advisor' with an 'o' is acceptable to refer to someone who provides advice. However, when used in reference to the legal designation 'adviser' should be used. 

  1. Personal Financial Advisor

    A personal financial advisor is a professional who help individuals ...
  2. Advisor

    An advisor can be any person or company involved with advising ...
  3. SEC Form ADV-E

    SEC Form ADV-E is a certification of client assets, both cash ...
  4. Agency Cross

    An agency cross is a transaction in which an investment adviser ...
  5. National Association of Personal ...

    The National Association of Personal Financial Advisors (NAPFA) ...
  6. Federal Covered Advisor

    An investment advisor in the United States that manages more ...
Related Articles
  1. Tech

    How Much Does A Financial Advisor Earn?

    Several things factor into the salary of a financial advisor. Here's a look.
  2. Financial Advisor

    The Pros & Cons of a Financial Advisor Career

    Discover what a career as a financial adviser entails, and learn what pros and cons an individual faces when embarking on a career in this field.
  3. Financial Advisor

    5 Traits the Best Financial Advisors Share

    Discover what the best financial advisers share in terms of the traits they possess, and learn what clients value most in their advisers.
  4. Investing

    6 Key Questions to Ask Your Financial Adviser in 2018

    While hiring a financial adviser is a good idea for your investments, it can be hard to know who to trust. These 6 questions will help you choose.
  5. Financial Advisor

    The Top 5 Reasons Financial Advisors Leave Their Firm

    Understand what creates dissatisfaction between financial advisers and their firms, and learn the top reasons advisers ultimately make the decision to leave.
  6. Personal Finance

    Career advice: Financial analyst or financial adviser?

    Review the differences between a career as a financial adviser and a career as a financial analyst, including how to decide which is best for you.
  7. Financial Advisor

    Is An Online Financial Advisor Right For You?

    Is an online adviser right for you? As with most questions in financial planning, the answer is 'it depends.' Here are a few thoughts to consider.
  8. Financial Advisor

    What Are Virtual Financial Advisors?

    The internet has provided a convenient way for financial advisors to offer their services to a wide customer base through virtual financial advising.
  9. Personal Finance

    What You Should Know Before You Hire an Advisor

    Hiring a financial advisor can be an important step in your financial journey. Just make sure you understand who they are and what they do first.
  10. Financial Advisor

    How Does Your Financial Advisor Get Paid?

    Some questions to ask your financial advisor about the recommendations they make and how they get paid.
  1. Do financial advisors have a base salary?

    Find out how self-employed and corporate financial advisors make a living. Find out whether they get paid based on commission ... Read Answer >>
  2. What fees do financial advisors charge?

    Learn how much financial advisors charge clients; discover the various payment plans available to customers seeking financial ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center