There are many "financial people", each with a role in the world
of finance. Since the financial industry is supervised, or "regulated",
by government their role reflects what they are legally licensed to do.
 STOCK BROKERS
Most people know a "stock broker". A stock broker is someone who
is licensed to buy or sell financial securities.
This includes stocks, bonds and mutual funds. A stock broker must pass the
Canadian Securities Course (CSC) and the Conduct and Practices Exam, both
administered by the Canadian Securities Institute, to be allowed to buy and sell
securities. Stock brokers only "provide advice" and make
recommendations to their clients. They must have a client instruction to act
upon.
A broker is usually a person who buys and sells on behalf of other people.
Most stock brokers are "registered representatives" who actually work
for an "investment dealer" a company that "takes positions"
or buys and sells securities for itself, or "for its own account".
This is an important distinction, because this means that your stock broker's
company could be selling the stock you're buying or buying the stock you're
selling for its own profit. Stock brokers earn their income from commissions on
the securities that they buy and sell. Investment dealers also "underwrite"
or assist companies in issuing securities for a fee. They "distribute"
these securities through their sales force. The stock brokers receive a
commission on the "new issue" securities that they sell to their
clients.
 MUTUAL FUND SALESPERSON
A "mutual fund salesperson" is someone who is licensed to sell
mutual funds only. They cannot sell stocks or bonds.
They work for a mutual fund company or a mutual fund dealer. Mutual fund
sales people receive a salary or a fee for selling funds from mutual fund
companies. They can also receive a "trailer" or a percent fee for
servicing clients from mutual fund companies.
 FINANCIAL PLANNER
A "financial planner" is a less clear role. Most people
understand that the role of a financial planner is to develop financial plans
for their clients. This would include examining the client's financial
situation, goals and time horizon. The financial planner would then recommend a
financial plan, including suggested investment alternatives.
Financial planners are not regulated by governments unless they work for a
regulated financial services company. There is no requirement that "financial
planners", "financial consultants" or "financial advisors"
complete any particular training program. Anyone can adopt this type of title on
there business card. There is a recognized designation "Chartered Financial
Planner" (CFP) which involves completion of a lengthy program and adherence
to a "Code Of Ethics". Anyone who uses this designation has completed
this course and abides by the Institute's Code of Ethics.
The real distinction in this area is the compensation of the financial
planner. Some financial planners work only on an hourly fee basis, providing
their advice independently for direct compensation from their clients. Other
financial planners receive most of their income from commissions for selling
financial products to their clients. The real way to differentiate between
financial planners is to ask them about their compensation. There is nothing
wrong with a financial planner receiving commissions, as long as it is
disclosed, but it does make the advice provided less independent.
 INVESTMENT ANALYST
An "investment analyst" is someone who analyzes financial data
and makes investment recommendations. An equity analyst analyzes stocks and
stock issuers. A credit analyst analyzes bonds and bond issuers.
An investment analyst usually works for an investment dealer or a financial
institution involved in investment management. An investment analyst who works
for an investment dealer writes investment reports for clients of that firm. An
investment analyst who works for an investment management firm makes
recommendations to the the firm's investment managers who actually select the
securities for the portfolios. Some investment analysts work for independent
investment research firms or bond rating agencies, where clients pay a fee for
the analysts' research. There is no mandated training program for financial
analysts, although the industry standard is the "Chartered Financial
Analyst" (CFA) designation. Anyone using the CFA designation has completed
a three year course and adheres to the Standards of Conduct and Code of Ethics
of the Institute of Chartered Financial Analysts, which is based in the United
States.
 INVESTMENT MANAGER
An "investment manager", "money manager" or "portfolio
manager" is someone who manages investment portfolios. This activity is
regulated by governments under Securities Legislation.
An investment manager may work for a large financial institution, such as a
bank, life insurance or trust company, managing its portfolio or providing
management directly to third party clients. Managing money for other people is
called "investment counselling". Firms providing this service must
have an "investment counsel" registration and must license their
portfolio managers as investment counsel. There is an educational requirement,
completion of the first year of the CFA program, and an experience requirement.
Managing portfolios without requiring client approval for actions is called "discretionary"
money management which means that the investment manager will manage the
portfolio independently, according to an established investment policy. The
investment managers that most people are familiar with are mutual fund managers.
These are investment managers who manage a pool of money called a "mutual
fund". The mutual fund company who sponsors the fund either employs the
manager or appoints an external investment manager. |