Financial Advisor/Adviser, Investment Adviser, Retirement Planner, Financial Planner, Wealth Manager, etc.
What do all these titles mean?
The cross section of different titles, licenses and certifications make it very difficult for consumers to understand who they are working with and what their fiduciary obligations are.
Licensing and Compensation
A financial professional’s business card may say “financial adviser,” but that does not mean they are truly a financial adviser. Both brokers and investment advisers can put “financial adviser” or a myriad of other titles on their business cards. The simplest way to determine whether a person is in fact a financial or investment adviser is to go straight to the source, which is FINRA (Financial Industry Regulatory Authority). FINRA has an excellent tool called “BrokerCheck,” which can be used to look up the licensing of financial professionals.
Individuals on BrokerCheck can be categorized as brokers, investment advisers or both. The difference can help you determine what kind of services the individual can provide and how they might be compensated.
FINRA BrokerCheck also provides several other pieces of valuable information. Any written complaints filed against the individual, certain criminal history disclosures, and filed bankruptcies will be on record.
Broker vs. Adviser
Brokers are also known as registered representatives who are licensed to sell investments for a commission. Brokers are required to represent a client’s best interest; however, this is not to be confused with a fiduciary standard which requires the financial adviser to put the client’s interests before that of the advisor.
Investment Advisors are fiduciaries and operate under the fiduciary standard. They are not paid a commission for selling investments, but instead, charge a fee to manage investments and provide advice. This business model offers the least conflict of interest.
Hybrid Advisors are licensed as both a broker and investment adviser. This gives the “adviser” the option to offer clients commissioned-based investment products or fee-based investment and financial advice. In some situations, both types of services can be provided to the same client. This type of relationship can result in some additional conflicts of interest.
Who Do They Work For?
Brokers are affiliated with Broker-Dealers and Investment Advisers are affiliated with companies known as Registered Investment Advisers (RIAs).
If you like your advisor candidate but their employer is constantly being investigated for scandalous acts, you might need to keep looking.
Designations and Degrees
Few financial designations carry as much credibility as the CFP® which stands for Certified Financial Planner™. The CFP® designation along with the ChFC® Chartered Financial Consultant designation require an extensive curriculum in personal finance, retirement and investing. Although these are not the only designations that indicate an educated financial adviser, they are two of the most respected and common. Be sure to ask potential advisers about their qualifications and designations.
What It Boils Down To
Most importantly, you should find your advisor to be transparent, reliable and qualified. By doing your homework, you can increase the odds of hiring an advisor with a high level of integrity. Look for an advisor who you believe has a moral compass similar to your own. Once you find them, ask the tough questions to make sure they are not just a good person, but that they are also qualified.
