You may have a preconceived notion of what a financial advisor or financial planner is or should be. Throughout my adult career, I’ve found that companies, and even industries, like to come up with job descriptions or terms that sound better (than another term). I’ve always believed that upon choosing a financial advisor, planning or investment professional, it always pays to clarify and verify!
What does it mean to be a financial advisor, financial planner, wealth advisor?
The term financial advisor is a generic term that can mean many things. You may think of registered financial professionals, including registered representatives i.e. stockbrokers, investment advisers, insurance agents and financial planners.
I attended an event recently where a mortgage broker, I met, had the title of “Financial Advisor” on his card. If you are given a card that says Financial Advisor on it, you should ask that person, “What type of advisor, are you?”
On the Financial Industry Regulatory Authority website they list the following titles:
- Registered Financial Professional
- Investment Adviser
- Financial Planner
- Insurance Agent
- Accountant
- Attorney
Attorneys do not say that they know anything about investing. I have a couple as clients. Typically, you would ask a lawyer, “What kind of law do you practice?” They may say criminal defense, real estate, family law, estate planning, etc. However, rarely do I hear my clients and prospects say anything other than Financial Advisor (or Adviser) when referring to financial professionals!
A Registered Representative aka Stockbroker (or Broker), buys and sell securities for their customers. Securities come in many varieties. There are many varieties of registration that allow a financial professional to sell stocks, bonds, mutual funds, options, etc. They are also held to a suitability standard which is less strict than the fiduciary standard.
As with many professions, there might be bad apples or at least apples with blemishes. You can go to BrokerCheck to find out.
Who are Investment Advisers?
By contrast, the term investment adviser is a legal term that refers to an individual or company that is registered as such with either the Securities and Exchange Commission or a state securities regulator. Notice that I typed adviser with an er not an or. That is because the body of law that governs this type of investment professional spells the title this way. That body of law says that investment adviser representatives must put your interests ahead of their own aka fiduciary standard.
These advisers work for companies called registered investment adviser often referred to as an RIA. adviser representatives are individuals who work for and give advice on behalf of registered investment advisers.
To find out if you are working with an investment advisor representative you can go to the Securities Exchange Commission’s Investment Adviser Public Disclosure database. Investment adviser representatives may hold advanced designations such as the Certified Financial Planner (CFP®), Accredited Investment Fiduciary, Certified Investment Management Analyst, and Chartered Financial Analyst.
Insurance agents and producers
Insurance agents aka producers sell life, health and property insurance policies, and other insurance products, including annuities. Some products such as variable universal life insurance and variable annuities require the agent to also be registered as registered representative.
Insurance agents are regulated by state insurance commissions. Insurance agents are licensed, whereas investment professionals are registered. Many financial services companies call their agents term financial advisor. It is much simpler than explaining all of this. Some agents have advanced designations such as the Chartered Life Underwriter, Chartered Financial Consultant (ChFC) and CFP®.
Blurring the Line
Some financial professionals are dually licensed as both a registered representative and an investment advisor as well as being licensed as an insurance professional. The upside is that you can have many of your needs handled by one person. The problem is disclosure of when they are changing hats and the compensation structure when they do so. Some may say they are doing this under the umbrella of financial planning.
About Financial Planners
Financial planners can come from a variety of backgrounds and offer a variety of services. They can hold the Certified Financial Planner (CFP)® designation, be a registered representative, investment adviser representative, insurance agent—or they have no financial credentials at all!
Regulation and licensing depend on the designations and services offered. For example, an investment advisor representative providing financial planning does so as a fiduciary. Fiduciaries are overseen by their state or the Securities Exchange Commission. Unfortunately, some might use designations that require little experience, study, or continuing education—or which lack processes for verifying the person holds the credential or for filing complaints.
Fortunately, FINRA has a page to help you learn more about Professional Designations. They even have a page for so-called Accredited Designations. You’ll find the CFP® designation is one of them. It is issued by the Certified Financial Planner Board of Standards. This designation requires at least three years of financial planning experience and imposes rigorous standards to earn and maintain.
If your financial planner claims to be a CFP®, you can verify, along with any blemishes on their record. The Certified Financial Planner Board of Standards mandates that a CFP® must act as a fiduciary in all their dealings. That can help you navigate the potential conflicts that come from the “blurring the lines issue” I highlighted earlier.
The takeaway - What’s in a Name?
When it comes to the term Financial Advisor, there are many interpretations as well as many regulators to go along with those interpretations. It’s best to clarify what registrations, licenses, and designations your financial planner has. As Ronald Reagan once said, “Trust but verify.” I’ve provided a few ideas that will help you weed out potentially predatory or unscrupulous financial planning professionals to get you started. The key takeaway, s that you may be wise to check credentials every so often as records can change.
