The first step in understanding how to choose a financial advisor is to know how to distinguish the different figures that offer a financial advisory service.
We can identify four main figures: the banker, the private banker, the financial promoter and the independent financial advisor.
- The banker, also known as the securities officer or retail banker, is an employee of the bank and is therefore paid by the bank. The banker receives you in the branch and specializes in the sale of financial products of the same bank or of financial companies with which his bank collaborates.
The private banker, like the banker, is an employee of the bank, paid by the latter. However, the private banker differs from the banker in that his advice is given to clients with considerable assets.
- The financial advisor, renamed with the institution of the Single Register of Financial Advisors as “consultant authorized to offer products outside the office”, has a VAT number, works on behalf of a bank or financial company with a mandate and is paid with the retrocession of part of the costs of the products he sells. However, he can propose investment products from various companies and not only from the company that employs him. By law he is obliged to disclose to the client who he is paid by. This figure is also known as Personal Financial Advisor, family banker, private banker VAT or wealth advisor.
- The independent financial advisor, unlike the banker, the private banker and the financial promoter, is paid only on a fee by the client. The independent financial advisor is a freelancer who works exclusively in the interest of his client. The latter recommends an investment strategy based on the economic objectives of the client. He does not give any orders, nor does he work directly with your money. The client, upon receiving the advice, gives the order for execution to his bank of choice. With the establishment of the Single Register, the independent advisor has been renamed the “self-employed advisor”.
In order to choose the right advisory service provider, it is necessary to analyze possible conflicts of interest.
If a financial advisor, banker or private banker were to sell a mediocre product, with high costs and low potential returns, he would risk failing to satisfy the client and losing him. But on the other hand, it must also be in the interest of those who pay for it, the bank or the commercial network to which it belongs. If the latter is pushing for the sale of that product, it cannot oppose it too much. In addition, to encourage him to sell certain products (expensive and risky) he is promised high commissions, so it becomes easy for the client’s portfolio to be filled with these products. In other words, the banker and the financial promoter have a conflict of interest, since their own and the bank’s economic objectives and interests are not always in line with those of the client. The greatest risk is that his interests and those of the bank come before yours.
It’s a different story for the independent financial advisor. As he is paid exclusively by the client in the form of a fee, it is virtually impossible for him to offer you choices that conflict with your interests. In fact, if the client is not satisfied with the work done, he will change advisors and he will not receive any remuneration. This allows the client to be sure that the independent financial advisor always acts in his best interest and never in the interest of a third party.
With the establishment of the Single Register of Financial Advisors, divided into three sections (financial advisors authorized to offer their services outside their office, consulting companies and independent advisors) finally an investor will be able to discern the truly independent advisors (those called “independent”) from those linked to banking groups or commercial companies.
There is no doubt that the independent financial advisor is the only figure capable of providing all his financial services in a disinterested manner and in the exclusive interest of his clients.
Some statistical data:
Italy, relative to the total financial literacy index, ranks 25th out of 26. Consult an independent financial advisor to better plan your financial resources.
Italy, along with Taiwan, is the country with the most expensive funds in the world. Turn to an independent financial advisor to choose the most efficient instruments suitable for your goals.
50% of investors do not trust financial intermediaries. Turn to an independent financial advisor, an autonomous professional, completely disconnected from the dynamics of banks and networks.
In 2019, investors saw 36% of the profit generated by funds taken away. This amount was collected by banks and SGRs. See an independent financial advisor to discover more efficient investment alternatives.
91.5% of a portfolio’s success is related to asset allocation decisions. Consult an independent financial advisor to better plan your financial resources and achieve your life goals.
More than 80% of active funds globally do not beat their benchmark. The main reason is the high level of fees. Consult an independent financial advisor to discover more efficient investment alternatives.
More than 60% of investors are concerned about their retirement future. Consult an independent financial advisor to plan for your future.
Source: Consob 2020 and NAFOP
The independent financial advisor is a freelancer who provides all his services in a disinterested manner and in the sole interest of his clients.
First of all he uses a method, he follows a strategy. He selects products according to precise criteria and rules.
In the construction of the portfolio and more specifically in the choice of each individual security, he takes into consideration: macroeconomic variables, fundamentals of the issuers and technical analysis.
Applies active management. The portfolio is subject to a continuous process of alignment to new market scenarios due to the evolution of the political, economic and financial context, thus becoming more aggressive or prudent depending on the situation.
The portfolio is not left standing for months at the mercy of events. Thanks to active management, there is a greater possibility of seizing the opportunities that arise each year on the markets and in case of unfavorable situations to sell promptly.
In order to achieve an appropriate selection of securities (Security picking) and an effective timing of purchase and sale of securities (Market timing) a good independent financial advisor constantly analyzes the market, both current and future and takes into account the risk/return preferences of the investor.
In order to reduce the risk and balance the portfolio well, the independent financial advisor diversifies on various asset classes at the international level: government bonds, investment grade corporate bonds, high yield corporate bonds, European, American, emerging countries bonds, equities, commodities, currencies. Within each asset class it diversifies the investment in various products. This structure allows that even sudden price fluctuations or risks do not have a significant negative effect on the portfolio and do not exceed the predefined tolerance limits of the clients.
In conclusion, a good independent financial advisor succeeds in maximizing returns while incurring minimal risk.
Unlike the banker, the private banker and the bank financial advisor, who are remunerated by commissions from the sales of financial products and sometimes also by a fee (fee-based not fee-only), the independent financial advisor only charges a fee (fixed percentage of invested capital) for the advisory service provided.
“Fee only” means on a fee-only basis. Independent financial advisors are paid only on a fee basis by their clients. As a result, they are free from any form of conflict of interest.
If your advisor is independent, then he is registered in the Register in the section of the self-employed, otherwise the consultants who work for banks or networks are registered in the section of the authorized to offer outside the office. If your “consultant” is not registered, then he is not qualified to provide any investment advice.
The independent financial advisor may recommend any instrument within the investable universe (government bonds, investment grade corporate bonds, high yield corporate bonds, European, American, emerging countries bonds, equities, commodity certificates, currencies), therefore he will only recommend efficient instruments. Conversely, the advisors of banks and networks may only propose instruments of their own bank or with which the bank has commercial agreements.
No. The client is never forced to change their portfolio and always has the final say on any transaction.
The number of transactions may vary depending on the market period. However, typically operations consist of approximately 10 transactions per year.
No, the independent advisor is accountable solely to the client. A fiduciary relationship is created between client and independent financial advisor that is essential to achieving their financial goals.
Only an independent financial advisor is free from any form of conflict of interest. In fact, the only form of remuneration is the client’s own fee. The independent financial advisor is not compensated through commissions, fees or third-party incentives.
No, the independent financial advisor may not, under any circumstances, own and access their client’s capital. The client keeps his or her capital in his or her bank of choice and personally executes or has the bank execute all recommendations provided by the independent financial advisor.
The customer does not have to change banks. He will continue to keep his savings in his bank of choice.
Although the construction of the portfolio is usually built on a multi-year time horizon, the consultancy contract is for one year. The client is free to decide each year whether to renew the contract or not. There is no penalty for non-renewal.