How to be a financial adviser

I received an email asking if there are any schools or special courses that need be taken when one wants to be a Financial Adviser/Planner. The writer would like to help friends, family and other people in becoming financially independent. He has a mathematics degree, is an active saver and investor. Wikipedia defines a financial advisor as follows:

“A financial advisor is a professional who renders investment advice and financial planning services to individuals and businesses. Ideally, the financial advisor helps the client maintain the desired balance of investment income, capital gains, and acceptable level of risk by using proper asset allocation. Financial advisers use stocks, bonds, mutual funds, REITS, options, futures, notes and insurance products to meet the needs of their clients. Many financial advisers receive a commission payment for the various financial products that they broker, although "fee-based" planning is becoming increasingly popular in the financial services industry.”

In advanced countries, there are courses and/or degrees to earn a title that pertains to being a “Financial Adviser/Planner or Wealth Manager”. In fact, a number of universities and specialized colleges in Europe, North America and Singapore offer specialized degree courses in Wealth Management. In most cases, they have working arrangements with established financial institutions that offer private banking services. In the Philippines, there are no such degrees or formal diplomas offered. To be sure, there are lawyers and accountants who specialize in tax, securities and estate management. These experts do provide specific technical and legal advice to high net worth individuals as well as companies. Technically, these fields of expertise are part of wealth management. But they are not, as the above Wikipedia definition goes on what constitutes financial advisory services. Thus, in our current environment, one who has the necessary background and experience to give advice on financial matters based on his formal degree, financial management expertise and investing experience is generally accepted as a financial adviser. In most cases he is capable of providing good information and assistance on how to grow one’s wealth. In truth though, a Financial Adviser’s role can be more complicated depending on the level of wealth the person asking advice has. Most financial advisers/planners here do not have sufficient background to give advice on all aspects of financial matters. Furthermore, a good number of these advisers/planners represent specific financial institutions with their own financial products. Real financial advisory service has to be value-based, that is, taking into account personal values first before financial strategies get defined. I believe that taking seminars and special courses available in good schools are good in giving one some basic background. However, what counts most is real emersion in various aspects of finance/economics/entrepreneurship and knowing the various investment options (as well as their tax and legal implications) available at any one time to give proper advice. Taking tests to give one a certificate is not bad but getting a certificate does not automatically make one the advisory expert that the certificate may claim. Learning the principles without the actual practice and experience is certainly not enough. Other important matters are to know who and where to ask for reliable up-to-date information and advice on different aspects of finance. One gains this through networking and experience. This is particularly true today as we find ourselves in the midst of an unprecedented global financial crisis. Old and current investing parameters seem to have been overhauled overnight. In the management of one’s personal financial plan, the personal condition, such as age, social standing, lifestyle, financial condition and risk-taking ability of the person can be quite diverse. Generally, all legitimate investment instruments are good and based on sound financial principles. What is really needed though is for the individual to know what is suitable to him given his particular financial situation. Thus, financial advice will only be meaningful if it is unique to a particular person. Each person will need to define and articulate his financial goals in all short, medium and long term investing horizons. He will need to structure his own personal finance and investment strategy based on his defined goals. The role of the financial adviser is to assist his client precisely to draw up his own personal financial goals and strategies. He must also be available to guide his client along regular reviews and again assist him, as changes may need to be made. The responsibility of a financial adviser is not to be taken lightly. To do his clients right, he must be thoroughly prepared and updated at all times. The challenge to the financial adviser is how to do provide independent quality advisory services and be appropriately financially compensated. How should a financial adviser charge his clients? Through professional fees plus commission, or through pure fees only? Here is the last word from Wikipedia:

A further distinction should be made between "fee-based", i.e., they charge fees and collect commissions, and "fee-only" advisers. “Fee-only advisors” receive 100% of their compensation directly from their clients and have no conflicts between their own interests and those of clients created by commissions or referral fees paid by other product or service providers.

At the Colayco Foundation, we are trying to teach income earners to be financially literate and not to depend solely on financial consultants who could be pushing financial products they may represent. We are also always evaluating specialized courses for would-be independent financial advisors. You can always contact us if you have questions regarding this at info@colaycofoundation.com.