What does it take to become a financial advisor?

Have you ever wondered what qualifies someone to use the title Financial Advisor? The short answer is nothing - Financial Advisor is not a regulated title. Anyone is free to use it.

Most of the people that do use the financial advisor title are licensed by a provincial regulator to sell certain products. They might be licensed to sell insurance, mutual funds, or stocks and bonds. The licensing process differs depending on the products that the advisor is able to give advice on. Some licenses are easier to obtain than others, and it’s not always easy to tell who is licensed to sell what.

Many so-called financial advisors are only licensed to sell insurance products. For the unwitting investor, this will not always be immediately clear. An insurance agent is usually able to sell life and health insurance, segregated funds, and annuities. Some of these products can be sold as investments, but they come with hefty fees, and will often result in penalties if you want your money back.

An insurance agent gets paid when you buy an insurance product, so they are motivated to sell insurance products. Getting an insurance license requires completing a training course, passing a closed book exam, and obtaining sponsorship from an insurance company.

There is nothing wrong with being licensed to sell insurance. But when you are seeking financial advice, you might want to know that your advisor has more qualifications than a license to sell you insurance.

Another common license that a so-called financial advisor might have is a license to sell mutual funds. Similar to an insurance license, a mutual funds license limits the advisor’s tool box. Mutual funds can be great in some cases, but the vast majority of the mutual funds sold in Canada have high fees and, on average, returns that trail the market.

Getting a mutual funds license involves one exam, and a period of supervised activity. The licensing process for mutual fund salespeople is fine, but it is important to understand that the license is for selling mutual funds, and that’s it. If you are seeking out financial advice, a license to sell mutual funds may not be a sufficient qualification.

The most challenging form of financial licensing to obtain is the securities license. This license permits giving advice on mutual funds, stocks, bonds, and ETFs. Obtaining this license requires passing three exams, undergoing a period of supervised training, and completing a 30 month proficiency course on wealth management. This is a little bit more robust, but it is still just a license to sell securities.

Someone who is licensed to sell securities can take their registration a level higher by becoming a Portfolio Manager. Unlike financial advisor, Portfolio Manager is a regulated title - it can’t be used by just anyone. A Portfolio Manager has to meet a 5-year experience requirement, and have earned either the Chartered Investment Manager or Chartered Financial Analyst designation. Both of these designations require hundreds of hours of study in order to pass multiple exams.

Between the experience and education requirements, the Portfolio Manager is actually in a position to offer financial advice, rather than just sell products. They are also legally required to act in the best interest of their clients, which is not the case for the other licensing categories that I have mentioned.

Separate from a license to sell or recommend any type of product, a Certified Financial Planner is someone who has passed multiple exams and met a professional experience requirement. Many Certified Financial Planners may also be licensed to sell some type of financial products, but it is not a requirement.

So, what does it take to be a financial advisor? Technically, nothing. But if you are a person seeking financial advice, it’s a good idea to look for a Portfolio Manager, or someone who has earned the Chartered Investment Manager, Chartered Financial Analyst, or Certified Financial Planner designation.