Many folks tend to miss a key difference between a financial advisor, and a financial “adviser,” spelt with an “e.” Others may note the visual difference, but mistakenly believe that they mean the same thing, just with different spelling. In truth, there’s a lot of separation between an advisor and an adviser, and it pays to know how, before you decide to approach either one.
What is a Financial Advisor?
In short, a financial advisor (spelt with an “o”) is an unregulated title commonly adopted by salespeople that have no actual, legal responsibility towards you, the client. In practice, this title can be used by third-party individuals to sell you products or services that are less beneficial towards you in the long run, versus a solid long-term investment plan. It’s an unregulated title that requires only one $300 course to use freely.
Many times, banks pushing for the sale of more in-house products may encourage financial advisors to act as one-size-fits-all salespeople who are brought on to pad the bank’s bottom end. As with many sales gimmicks, this is largely a numbers game that involves going through potential leads and steering the client (that would be you) into a product that might actually harm your long-term plans. This can affect those planning for retirement, which leaves those clients in a very bad position, while banks reap the rewards.
This can take several forms. For example, an advisor may take notice of a client with money in a savings account, and pressure them to purchase mutual funds, as opposed to providing solid long-term financial planning advice that could lower debt, and better prepare that client for their twilight years. This has become a problem for nearly all of the major Canadian banking firms, yet none have taken any steps to rectify the situation; instead falling back on pre-established rhetoric that denies the issue, altogether.
What is a Financial Adviser?
A financial adviser (spelt with an “e”) is a person who gives you actual financial advice designed to help you formulate a long-term financial strategy, and bears a responsibility towards you as a client. This pool of advisers is extremely small, but their obligation to you isn’t just ethically bound, but legally bound as well. For instance, in the United States, a financial adviser is bound to multiple licenses under the Uniform Investment Adviser Law Exam, while in Canada, an adviser must obtain one of several different licenses depending on province.
To put things into perspective, there’s a CFP (Certified Financial Planner) who is a generalist in wealth management, a CLU (Chartered Life Underwriter) who specializes in insurance and risk management, as well as personal and corporate estate planning and trust planning, and finally a CIM/CFA (Chartered Investment Manager or Chartered Financial Analyst) who specializes in investment management. These titles all require years of experience, plus 2-3 years of additional education and specializations to achieve each title.
An adviser’s duty isn’t to sell products on behalf of the bank that hired them, but to work for you, the client. Misleading advice can potentially be met with serious liabilities on the part of the adviser, and legal action could be taken if a client is mislead.
So, why the difference at all? In truth, the simple shift in vowels is a way for banks to skirt responsibility for the sake of selling more products. That’s the short version. There may be instances where a financial advisor might push a product onto a client that ends up being beneficial, but this is more often than not a fortunate outcome, rather than a planned one.
By arming yourself with this knowledge, you can be sure that you’re walking into a bank fully equipped to choose the right person to assist you in your long-term financial planning goals. It’s important to note that the wrong decision could dramatically impact your financial future, so be sure you’re asking the right questions, and choose a financial adviser (with an “e”) to help start you down the right path.
For more information on this topic, or to inquire about how we can help you with your financial investment goals, please visit us today.