With the popularity of investment advice going around the internet in recent years it’s more important than ever important to understand which advice you should and shouldn’t take.
When the crash of 1929 ruined the finances of millions of Americans, several pieces of legislation sought to regulate the market. This included the Investment Advisers Act, which took aim at unlicensed financial advisors. Today, those seeking to give financial advice are generally required to obtain specific licensing and signcoaching contracts with their clients.
A fiduciary is a person who has a legal obligation to act in the best interests of their clients; they must also put their client’s interests ahead of their own. Those caught skirting around these rules may find themselves deep in legal and financial consequences.
That being said, sitting down at the lunch table with your coworkers and saying you have a hot stock tip does not break the law–this is known as ‘impersonal investment advice.’ Fiduciary rules only apply when you are giving personalized investment advice while actively promoting yourself as a personal financial planner or other financial professional. A person may call themselves a financial coach and even charge money for their services without being licensed.
As long as the advice given is more of a bird’s eye view, giving financial tips is perfectly fine. Statements such as, “You should aim to save 20% of your salary” or, “Maintain budgetary discipline when considering large purchases” are well within the lines of acceptable advice.
However, if an unlicensed financial coach were to say, “Save 20% of your money and put it into these five stocks,” they would be crossing a line. This is why financialcoaching contracts are important and must clearly state the nature of the relationship and if the coach is licensed.
Among the hundreds of certifications in the financial world, there are a few that stand out as useful for those wishing to take coaching to the next level.
Known as a ‘certified financial planner,’ a CFP is probably the closest legally-recognized equivalent to a financial coach. This means the advisor can help their clients plan their finances and financial futures. However, this is not a license to trade stocks on behalf of clients.
Series licenses are numbered licenses that allow people to actively manage money for a client. The specific series licenses that financial advisors should look into obtaining are Series 6, 7, 63, and 65.
Licenses 6 and 7 are related to trading stocks, and licenses 63 and 65 are generally required as part of the process to get your CFP.
While you don’t have to be legally certified to advertise yourself as a financial coach, it’s better for both you and your clients if you do so. If you want to learn more, check out our post onhow to write a contract for beginners!
Kevin Gallagher is the CEO of The Contract Shop®, a contract template store for creative entrepreneurs, freelancers, coaches, and more. His background is in helping online businesses grow, having previously worked at Allbirds managing part of their operations. He is proud to report that his digital artist wife Mandy is a happy customer of The Contract Shop®, and his main motivation is to help as many people like her as possible with the tools that they need to confidently manage their businesses.
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