Types of Financial Advisors
The terms financial advisor and financial consultant have evolved over the years. Today, there are different types of financial professionals. They’ve become a catch-all for professionals who provide financial planning services, manage investment portfolios and other financial products.
The majority of professionals serving individuals and families typically fall into three main categories: Investment Advisors, Certified Financial Planner (CFP) professionals, and Registered Representatives (RRs), previously known as stockbrokers. While some professionals may hold multiple roles, it’s important to understand the distinctions between them before beginning your search.
- Investment Advisor
- Certified Financial Planner
- Registered Representatives
- Financial Consultants and Wealth Managers
What Is An Investment Advisor?
Investment advisor is the official title for Registered Investment Advisors (RIAs). An RIA is licensed by their state and/or the Securities and Exchange Commission (SEC) to offer investment advice and manage client portfolios. Investment advisors are held to the fiduciary standard, meaning they are legally required to act in their clients’ best interests.
What Does Acting In Your Best Interest Mean?
- Their recommendations and actions should accurately reflect your financial objectives, timeframes, and risk tolerance.
- They are expected to avoid exposing their clients’ assets to excessive risk.
What Is A Certified Financial Planner (CFP®)?
Unlike investment advisors and brokers, financial planners are not universally regulated or licensed as a distinct category. Technically, anyone can call themselves a financial planner. However, several industry organizations have established formal certifications to bring credibility and accountability to the profession. The Certified Financial Planner Board of Standards (CFP® Board) is the most well-known. To earn the CFP® certification, financial advisors must meet rigorous requirements:
Have at least a Bachelor’s degree & 3 years of relevant experience in the financial services industry.
Pass a comprehensive CFP Certification Examination covering a wide range of financial planning & investment topics.
Agree to abide by the CFP Board’s code of ethics & rules of conduct, which require them to act with integrity & accountability & to always put their clients’ best interests first.
Agree to complete 30 hours of CFP Board-approved continuing education courses over a specified reporting period, to keep up to date with developments in the financial planning field.
What Is A Registered Representative?
In the past, individuals seeking to invest in stocks or bonds typically engaged stock brokers. Today, they are commonly referred to as brokers because many primarily sell mutual funds and life insurance products to clients rather than focusing solely on securities trading. Their formal title is Registered Representative (RR), and they are employed by broker-dealers, licensed, and regulated by the Financial Industry Regulatory Authority (FINRA). Like investment advisors, brokers are typically paid directly by clients in the form of commissions for trading stocks and bonds, as well as for selling mutual funds and other financial products.
What Are Financial Consultants & Wealth Managers?
Similar to the term ‘financial advisor,’ both ‘financial consultant’ and ‘wealth manager’ are generic job titles that do not necessarily require specific licenses or certifications. In the past, brokers who provided financial planning services often referred to themselves as financial consultants. Similarly, ‘wealth manager’ has emerged as a marketing term for financial advisors who specialize in serving high-net-worth clients, typically those with $5 million or more in investable assets. They are often licensed as both investment advisors and brokers, with a growing number also holding the Certified Financial Planner (CFP®) certification.
What Is The Best Type Of Financial Advisor?
When seeking an investment professional, it’s essential to understand your options and determine which one aligns best with your needs. At Zoe, we vet advisors to ensure we only connect investors with fiduciary and independent advisors—those who bill clients directly without earning commissions.
However, having the appropriate designation and fee structure alone is not enough. We recognize the importance of finding a financial advisor you feel comfortable with—someone who understands your priorities, sits on your side of the table, and whom you can trust to manage your wealth.
Disclosure: This page is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.