Financial advisory firms, also known as EAFs , can be established as a legal or natural person. They are in charge of providing advice on investments . The EAFs can individually recommend their clients on any investment matter or different financial products. It can also advise on matters of capital structure, industrial strategies, mergers, acquisitions of companies or different corporations.
The recommendations provided by the EAF are personalized and individual , based on the needs, concerns and circumstances of each client. For this reason, the financial advisor previously analyzes the provision of the advisory service, investigates the client’s experience, knowledge, financial situation and investment objectives. In this way, she can recommend the most suitable products.
Generally, before providing advisory services, EAFs usually carry out a suitability test. In the event of contracting complex financial products, the advisor in charge additionally performs another correlation test . Also, she can check the knowledge about the financial markets and the client’s previous experience.
No person or entity may carry out financial advisory services of a professional or habitual nature, without first having obtained the required authorization and being registered in the CNMV register .
How to make an EAF?
A financial analyst has to present psychological and financial qualities. On the one hand, the legal or natural person must determine the risk profile of the investor , this step is the most important when starting an advisory plan. In addition, he has to be able to accompany the client in moments of uncertainty.
Regarding psychological qualities, the financial advisor must remain calm in times of pressure and be empathic with his client. On the part of financial knowledge , the investor must have a good foundation in finance , in this way, he will be able to interpret the indices that affect the behavior of the assets where the client is going to invest. Also, it is relevant to strengthen tax knowledge. The advisor must be updated on the current regulations that regulate the fiscal plan (personal income tax, inheritance tax, protected heritage, etc.)
It is essential that the financial advisor is qualified . It is not simple knowledge that is required to practice this profession. In this way, if a person intends to act as a financial advisor, he must be trained.
Technically, for an EAF to provide a good service, first of all, it must profile the client in terms of the risks that he may assume. In addition, you must assess the client’s knowledge of the products and the state of the financial market. For this, it is necessary to carry out a suitability and suitability test.
The suitability test consists of a test to assess the client’s financial knowledge and whether he has the necessary experience to understand the risks. For its part, the suitability test , is a form whose objective is to evaluate different questions about the investor in order to determine his risk profile . Therefore, to execute correct financial advice, it is necessary to have a high level of training, and to evaluate the investor’s objectives, knowledge and previous experience.
How does an EAF work?
There are several aspects in which an EAF can help. The main function is to know the present and future needs of the client , in this way, it can reorient the risk and the financial objectives. To do this, the EAF carry out continuous and detailed monitoring of all global assets, that is, the investment portfolio, real estate assets, previous investments, etc.
On the other hand, the financial advisor must make the necessary recommendations taking into account the market context and the individual situation of the affected client. Therefore, in addition to controlling the risk and profitability of investments, it is important to plan a strategy for the present and future fiscal situation.
In this way, the financial advisor designs a strategic plan according to the needs and characteristics of the client. Look for new investment opportunities to increase the client’s cash flow. It acts at all times as a guide to make investment decisions, uses its psychological and financial knowledge to obtain the best results.
The financial advisor must forecast future economic scenarios , solve fiscal and financial problems, and carry out continuous audits to assess the state of the client’s finances. You cannot forget the state of the market, you must always be aware of its evolution to detect the best investment opportunities.
Advantages of hiring an EAF
The advantages of hiring a financial advisor are multiple and very diverse. Having the services of a financial advisor is a guarantee of having up-to-date knowledge on different investment products, offering a direct and professional connection on the state of the market, the global financial situation and the most interesting news for investing.
The financial advisor not only focuses on obtaining the highest return on investment, but also on the client’s general situation, making a concise analysis of its context. In this way, he acts with prior knowledge of the family situation, children, expectations of future spending, studies, etc.
In addition, financial advisors sign a code of ethics where they undertake to ensure the interests of the client above the companies , with the purpose of advising, always putting the needs of the client at the center of the operation. For this reason, when hiring a financial advisor, it is essential to check their professional and ethical certificate.
Financial advisors do multi-year tax planning . They optimize the client’s financial situation to the maximum in order to make long-term decisions for a year. They do not move at the end of the year, therefore, they do not rush to optimize the income statement. With the previous study and careful planning, financial advisors try to find situations that involve less tax pressure, always maintaining legality.
On the other hand, EAFs are characterized by reducing costs compared to negotiations with banks and other financial entities. Financial advisers have greater negotiation strength, managing to reduce both the costs of contracting products and intermediation. In the end, with this fact it is possible to reduce the total cost of the client’s financial position, reflecting greater real profitability.
Finally, financial advisors objectively present client information . The only interest of an EAF is to find the best investment product for its clients , seeking the greatest benefit. Being free of conditions such as financial entities, you can exclusively search for products adapted to personal circumstances.
How much does an EAF charge?
There is no established penalty mechanism that allows differentiating between a good financial advisor and one that is not. For this, it is essential when contracting the services of an advisor, to analyze the results of the advised portfolios and contrast information between different offers.
For its part, the cost of financial advisory services is one of the factors that most worries us when hiring the service or not. To avoid mistakes, the first thing is to take into account what type of advisor you are looking for. The services of an independent consultant or a non-independent consultant can be hire. Depending on this factor, the expenses will be one or the other.
Although the cost of an EAF depends on the case of each client, the following factors must take into account:
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- Commissions for activity. The advisor establishes a percentage for the benefits obtained after the investment, the higher the benefit, the more the advisor will charge. Commissions for activity are usually around 15%.
- Advisory fees. The advisor will charge depending on the amount of assets managed or the services provided. Advisory fees typically range from 0.5% to 2.5%.
- Fixed fee . A recurring payment is set regardless of the actions carried out, the profits obtained and the assets managed.
- It can also be the case of charging by the hour , or time invested in consulting.
Regulation and Legislation
EAFIs are companies that are regulated by the following legislation:
- Circular 10/2008 , of December 30, ruled by the National Securities Market Commission, on Financial Advisory Companies.
- Royal Decree Law 14/2018 , of September 28, which modifies the Consolidated Text of the Securities Market Law and transposes the precepts of Directive 2014/65/EU into Spanish regulations.
- Technical Guide 4/2017 on the Evaluation of the knowledge and skills of the personnel who inform and advise.
To create an EAF, the regulations require that these entities have:
- Department of risk control and audit.
- Registration of customer information and conflict of interest policies.
- Customer service department (own or external).
- Structure, technical and human means to scale in the activity.
EAF vs EAFI What is the difference?
Currently, after the last update of the regulations of the Royal Decree Law. All companies dedicate to financial advice, whether independent or not. Have to be call EAF (Financial Advisory Company).
However, before said update, the acronyms EAF and EAFI could be differentiated. This differentiation falls on the dependency or not of the entity. Independence was establish by the single collection of a management fee. Instead, if chargebacks occurred , it was consider dependent advice .
Retrocessions fund management fee paid to financial advisory firms. These commissions allow the investor to determine the hiring of said fund. Financial advisors have economic incentives to place certain funds against others, for this reason. They are consider dependent advisors.
How many EAFs are there in Spain? EAF list
After the arrival of the new regulations. Most entities were reconverte into EAFs. Thanks to this update the sector grew gradually . The figure of the individual advisor is more surplus and has given way to financial advisory. Companies with a larger size and number of clients.
There are numerous financial advisory companies in Spain. If you are looking for a financial advisor for your profile in Aspin 11 we can help you, you just have to contact us and tell us your characteristics.
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