iFund- Broker or advisor? A perspective from US public perception

2019-07-26 02:47
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When client stepped into financial products, investors will reach out to financial professionals. However, investors often cannot distinguish which people are broker representatives and investment advisers? This situation has not only occurred in Hong Kong, but also in the United States where the financial market is mature.

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When client stepped into financial products, investors will reach out to financial professionals. However, investors often cannot distinguish which people are broker representatives and investment advisers? This situation has not only occurred in Hong Kong, but also in the United States where the financial market is mature. Recently, the CFA Journal published an article, some of which are very interesting and worthy of deep thought.

In Hong Kong, there is also no strict distinction between brokers and investment advisers. According to The Chin Family introduction, brokerage firms are market intermediaries providing different financial services. Investment advisers also refer to intermediaries (including individuals or companies) that sell various types of financial products (such as stocks, funds) or provide advice on various types of financial products. US investment advisers need to act in the best interests of their clients. Brokers only need to provide advice that meets the client’s goals and preferences.

Difficulty to distinguish between brokers and advisor

In general, customers usually know each other from the location in their business card. However, a survey in the United States showed that customers were unable to identify the identity and role of the intermediaries from the position. An interesting example is that the symbols on the business card will make you think that the employee will act according to the trustee’s responsibility. The answer most people choose is CFP (Certified Financial Planner). Even more surprising is that the third person selected is actually a representative of the broker. Conversely, an investment adviser who is most likely to act under the trustee’s responsibilities is the second most unpopular choice, second only to the investment sales representative.

Customers do not know which positions will provide investment advice. Half of the people believe that the broker representative will provide investment advice, and one-third of them believe that the investment sales representative will provide investment advice. In Hong Kong, the breakdown of providing advice and selling financial products is unclear.

Academic and income level show no difference

The second part of the survey analyses whether different academic qualifications and income people can distinguish between broker and advisor. Generally speaking, the higher the education, the higher the income should be. The higher the income, the larger financial assets should be, and the more opportunities to access different types of financial services. However, the survey shows that there is no significant correlation between academic qualifications and income level in distinguishing the identity of financial intermediaries. Even professionals can’t distinguish between offering investment advice and selling financial products through prominent logo such as positions.

The golden rule of choosing intermediaries

Since it is not possible to simply judge the intermediary’s services through common positions, investors need to be smart in choosing an intermediary. Among them, the The Chin Family website lists the golden rule of five-point selection of intermediaries.

  1. Check whether your intermediary has obtained the appropriate licence(s) or registration(s) to provide the relevant service
  2. Ask questions about your intermediary
  3. Understand the benefits that the intermediary will receive from selling the product
  4. Check your intermediary’s knowledge
  5. Understand the licence(s) and scope of business of the intermediary’s employer or principal

In addition, if the customer needs to select an investment consultant, you can measure your investment adviser’s due diligence from the following points.

  1. Written client agreement
  2. Know the client
  3. Product due diligence
  4. Suitable recommendation
  5. Disclosure of Information

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