What Does a Financial Advisor Do? (and How To Become One)

By Indeed Editorial Team

August 17, 2021

Financial advisors guide people on how to make the best investments and financial decisions based on their situation. They manage a wide variety of financial processes, including budgeting, insurance, and tax. Understanding what a financial advisor does can help you decide if it's a career path you're interested in. In this article, we discuss what a financial advisor is, explore what they do, examine how to become a financial advisor, and highlight their salary expectations.

What is a financial advisor?

A financial advisor is a certified finance professional that guides individuals towards their financial goals. They help their clients improve their finances by designing, implementing, and managing financial plans. For example, the financial goal might be to prepare for a financial emergency, become wealthy, or prepare for a good retirement. Similarly, a financial advisor might also prepare a long-term or short-term financial plan. Financial advisors are responsible for aligning the entirety of an individual's finances with their financial goals. Beyond their client's investments, financial advisors also monitor tax, savings, and insurance strategies.

The term financial advisor refers to several specialties. Some popular specializations include financial planners, investment advisors, and financial coaches. While these specializations have similar and sometimes overlapping functions, they have key differences. A financial planner helps you determine your financial goals and designs a comprehensive plan to reach those goals. They are financial professionals that also manage insurance and investment needs. A financial coach doesn't specialize in investments or insurance but advises you to make more money and manage it better. An investment advisor recommends quality investments to their clients.

What does a financial advisor do?

A financial advisor is responsible for making your financial goals a reality. Here are some of the duties of a financial advisor:

Analyzes financial positions

Financial advisors help their clients understand the current state of their finances. Financial advisors typically do this through a consultation session or by having clients fill a questionnaire. They aim to get an accurate picture of the client's liabilities, assets, financial obligations, and projected income. The financial advisor can also ask questions about insurance and tax strategies. They also confirm the client's investment goals and their ability to tolerate risk. Clients can also inform the financial advisor of other professionals handling aspects of their finances, like a lawyer or estate manager.

Understanding the client's financial position is an important step for financial advisors. It helps them create a personalized portfolio that's suited to the needs of individual clients. It also informs their strategy for managing the client's portfolio. This consultation session can be a way to establish trust between financial advisors and their clients by allowing the financial advisor to show competence without charging first.

Creates financial plans

Once a financial advisor has studied a client's financial position, they compile it into a comprehensive plan to guide their finances. The financial plan details the client's income, assets, liabilities, and capital. It also details the client's financial goals and a plan to attain those goals. Since finance is not completely predictable, financial plans typically contain projected results and worst-case scenarios. They have steps to deal with such scenarios and consider health, family situations, and withdrawal rates.

A financial plan considers the client's appetite for risk. This depends on the client's personality and financial goals. For example, a 60-year-old man saving towards retirement who wants to avoid risk can have an asset allocation of 35% in stocks and 65% in fixed-income assets. Whereas a 30-year-old who's looking to take risks and grow their wealth can have an asset allocation of 60% in stocks, 20% in fixed-income assets, and an additional 20% in alternative investments.

Related: Understanding How To Complete a Risk Analysis

Implements financial plans

After designing the financial plan, the financial advisor is also responsible for implementing it. Financial advisors recommend investment options in line with the client's asset allocation metrics. Once the client approves these options, they invest assets in them. The law requires financial advisers to be transparent with their clients and act in their best interest when deciding their investment options. This means while financial advisors can recommend investment options that offer them a commission, their priority is their client's financial health.

Manages investment accounts

Once the financial advisor implements the financial plan, their duties include monitoring the progress of the plan. The financial advisor sends periodic updates and reports on the client's portfolio. They also set up meetings to revise the client's financial plan details if need be. Some financial advisors schedule in-person sessions, while others send periodic reports via mail. This usually depends on the gravity of the topic of discussion.

Related: How Much Do Investment Bankers Make?

How to become a financial advisor

Becoming a financial advisor involves many processes as the government regulates this field heavily to protect customers. Follow these steps if you want to become a financial advisor:

1. Obtain a degree

To become a financial advisor, you need a minimum of a bachelor's degree in finance, business, accounting, economics, or other related fields. None of these fields are superior to the other, but you can select the degree that aligns most with your specific career goals as a financial advisor. An excellent academic background is crucial for starting a career as a financial advisor. In addition, you need to have knowledge of Canadian securities, financial tools, portfolio management, and market analysis.

Related: Guide: How To Become a Stockbroker

2. Write the necessary examinations

Financial advisors who want to become investment advisors need to take Canadian Securities Course (CSC) and pass the exam. This exam is important in that fulfils many licensure requirements. After getting a job, your employer can request you take either the Professional Financial Planning (PFP), the Conduct and Practices Handbook Course (CPH), or the Wealth Management Essentials Course (WME). Similarly, candidates that want to sell mutual funds need to pass an exam to receive a licence from the Mutual Funds Dealers Association of Canada (MFDA).

For financial advisors who want to sell life insurance products within Canada, they need to finish the Life Licence Qualification Program (LlQP) in most provinces. The LLQP prepares candidates for the Certified Financial Planner (CFP) and the Chartered Life Underwriter (CLU) exams. Other exam requirements depend on your career goals or your role in your company. The Canadian Securities Institute typically offers examinations in various centres across the country. Other prestigious certification exams to fulfil licensing requirements include:

  • Canadian Investment Funds Exams (CIF)

  • Investment Funds in Canada Course Exam (IFIC)

  • Chief Compliance Officer Qualifying Exam (CCO)

  • Branch Manager Proficiency Exam (BMP)

  • Sales Representative Proficiency Exam (SRP)

  • CFA Charter

  • Exempt Market Products Exam (EMP)

Related: How To Become a CFA: A Step-by-Step Guide

3. Gain experience

Before you can register as a financial advisor, you need a minimum of 12 months of experience within the 36 months before applying for registration. There are many options you can explore to obtain this experience. For example, you can work directly with a registered stockbroker or investment manager. You can also work in another professional capacity within a securities firm, such as being a lawyer or accountant at a securities firm. Similarly, you can work in related fields or leverage work experience you have from a foreign country that the CSI recognizes.

4. Register as a stockbroker

The law requires investment advisers to register with the National Registration Database (NRD). Doing this registers you with the jurisdiction you intend to work. Depending on your jurisdiction and the financial products to sell, it's possible you need to register with the Investment Industry Regulatory Organization of Canada (IIROC). This organization is self-regulatory and oversees investment and trading activities, and ensures they're standardized. Financial advisors need to register with IIROC in British Columbia, Newfoundland and Labrador, Alberta, and Saskatchewan. In Ontario, Quebec, New Brunswick, Nova Scotia, and Prince Edward Island, registration is through the NRD.

To register, you need to supply personal information, the jurisdictions you intend to work in, and the dates of any securities exams or courses you've completed. You also need to include proof of your mandatory 12-month industry experience and a list of current and previous employment.

How are financial advisors paid?

Financial advisors have different remuneration systems, depending on their industry and agreement with their clients. Payment models for financial advisors include:

  • Commission-based model: Certain financial advisors earn from commissions from each investment product they sell. Such financial advisors can introduce their clients to more expensive investment options as long as they continue to protect their interests.

  • Fee-based model: Financial advisors can charge clients directly either through an hourly fee or a percentage. Typically, advisors charge 1% of the client's assets under management, while hourly fees vary.

  • Combined model: Some financial advisors charge their clients in addition to the commission they receive on products they sell. It would be best if you were careful to prioritize your client's interests, irrespective of your expected commission.

Please note that none of the companies mentioned in this article are affiliated with Indeed.

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