Independent and restricted financial advisors
The cost of financial advisory’s service
Other types of financial consultants
Financial planners and holistic financial planning
Insurance and mortgage advisers
How do you become a financial adviser?
Some diplomas valid for professional recognition
The multifaceted profession of financial adviser
What is financial advisory? As the Financial Conduct Authority (FCA) points out, the term “advice” means an investment suggestion (“a recommendation of what you should do”). In this case, the activity of financial advice must be regulated by FCA. This also entitled consumers to protection rules1. As also specified by the FCA, advice differs from guidance, as the latter does not necessarily include specific recommendations to sell or buy financial assets. Consumers may pay a fee for the advice (hourly or depending on the work performed), or the costs may be charged as a percentage of the money invested by the consumer2.
Serious advice has an important purpose: to improve the financial well-being of a family, a person or a company, but also to plan the management of financial resources with a positive impact on the future. The advice can help businesses achieve and improve the financial balance of the resources’ administrative costs. In the same way, by reaching out to small savers, it can structure useful accumulation or savings plans for them. Provision for old age also plays a decisive role in financial advice. More and more people have to make early retirement provisions themselves. Reputable financial advisors can recommend a company pension plan, or one that is most suitable for their clients.
A financial advisor is a professional figure authorised to provide advice on the buying and selling of financial products. The task of a financial advisor, however, is not primarily to sell products, but to look after the interests of his or her clients. This happens in the offer of tailor-made products and, more often than not, in the development of an investment and savings strategy.
There are two types of financial advisors in the UK: independent financial advisors and restricted advisors. It is very important to remember that every financial advisor has to be approved by the Financial Conduct Authority (FCA)3. In addition, each financial advisor must hold a) Level 4 or above of the national Qualifications and Credit Framework, b) a Statement of Professional Standing (SPS)4.
Independent financial advisers (also known as 'IFAs') differ from restricted advisers because they are not limited in advising on the buying and selling of financial products. Restricted advisors, on the other hand, are limited to recommending investments from a particular provider or group of providers (e.g. investment companies or banks).
The financial advisory services are remunerated in different forms, typically with a fee or a percentage of the invested or earned capital. The hourly cost ranges from £75 to £350 per hour5. But the fee could come in the form of a weekly, monthly or lump-sum fee on completion of work. Since 2013, both independent and restricted consultants have been required to present their costs as clearly as possible6. This measure was adopted mainly because in some cases it might appear that the consultancy was free of charge because the fees were charged as a percentage of earnings.
For further clarification on the distinction between independent and restricted financial advisors, and more on how to choose the best financial advisor for you, see also: Choosing a financial advisor.
There are various types of financial consultants, which are often not included under the term 'financial adviser'. They can also be divided into the categories of independent and restricted consultants. They can in fact easily be called brokers if, for example, they deal with insurance advice or mortgages. Based on their field of expertise, we find investment advisors, mortgage advisors, financial planners and pension advisors. It is worth writing again that they all have to be licensed by the FCA7.
Financial planners deal with the holistic, i.e. comprehensive, financial planning of a person or family. They promote investment strategies concerning both investments (typically, an investment portfolio) and the underwriting of specific pension, insurance or savings products. In some cases, they also deal with the fiscal optimisation of the family budget. Two of the most common qualifications among these professionals are the Chartered Financial Planner or the Certified Financial Planner qualifications.
These two types of advisers have something in common: they each have respectively a specific professional field, although this field may not be exclusive (they may also be qualified to advise on other products). They are then typically paid by charging a commission for each mortgage or insurance contract taken out for the client.
In the UK, one of the required qualifications to become a financial advisor is to obtain a level 4 in financial advice recognised by the Financial Conduct Authority (FCA)8. Recognition by the FCA only takes place if certain conditions are met. As stated on the FCA website, it is necessary to have “a Statement of Professional Standing (SPS)9 issued by an accredited body” and “an appropriate qualification (as set out in our Training and Competence (TC) Sourcebook, specifically TC Appendix 4)” . To this must also be added compliance with ethical requirements. Once the FCA approves, you can be placed on the authority’s official register.
It is worth mentioning at least three diplomas recognised by the FCA, which allow one to be officially recognised as a financial adviser: a) Diploma for Financial Advisers from the London Institute of Banking and Finance, b) Investment Advice Diploma from the Chartered Institute for Securities and Investment, c) Diploma in Regulated Financial Planning from the Chartered Insurance Institute10. There are also private financial companies that offer officially recognised courses to qualify as financial advisors.
While the key to becoming a financial advisor is official recognition with the FCA, there is no single career path that precedes that step. There are, however, two possible paths. On the one hand, one can undertake university studies specifically aimed at business and financial management. On the other hand, one can start with an apprenticeship in a financial company or a bank (typically, in the role of client adviser). One should not forget that financial specialisations can be very diverse (from mortgages to pensions, from investments to savings plans).
We remind you that on MoneyController you can find a financial advisor among the advisors listed on our platform on the following page:
Find the right financial advisor for you
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