Types of Financial Advisors

The terms financial advisor and financial consultant have evolved over the years.Today, there are different types of Financial Advisors and they’ve become catch-all labels for professionals who provide financial planning services, manage investment portfolios, or sell insurance and other financial products.

image Advisor

In reality, there are many different types of financial advisors. Financial advisors who serve individuals and families make up the majority of financial advisors, and they fall into three categories: investment advisors, Certified Financial Planner (CFP) professionals, and Registered Representatives (RRs), previously known as stock brokers. Note that many advisors wear all three of these hats, which is why it’s important to understand the differences before you begin your search. 

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 & actions must accurately reflect your financial objectives, timeframes, and risk tolerance.
  • They must strive to keep their own fees (as well as other fees) reasonable.
  • They must avoid exposing their clients’ assets to excessive risk.

What Is A Certified Financial Planner (CFP®)?

Unlike investment advisors and brokers, those who call themselves financial planners are not regulated or licensed. Technically, anyone can call themselves a financial planner. To bring credibility and accountability to the profession, a number of industry organizations have formed to award formal certifications to financial planners. The most well known is the Certified Financial Planner Board of Standards (CFP Board.)

To earn the CFP certification financial advisors must:

Bachelor's degree

Have at least a Bachelor’s degree & 3 years of relevant experience in the financial services industry

Certification Examination

Pass a comprehensive CFP Certification Examination covering a wide range of financial planning & investment topics

Ethics & rules

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.

30 hours of CFP

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

In reality, there are many different types of financial advisors. Financial advisors who serve individuals and families make up the majority of financial advisors, and they fall into three categories: investment advisors, Certified Financial Planner (CFP) professionals, and Registered Representatives (RRs), previously known as stock brokers. Note that many advisors wear all three of these hats, which is why it’s important to understand the differences before you begin your search. 

What Is A Registered Representative?

Back in your parents’ day, if someone wanted to invest in stocks or bonds they used stock brokers. Today, they’re generally just called brokers, because most of them make their living selling mutual funds and life insurance to clients rather than trading securities. Their formal name is Registered Representative (RR). They work for broker dealers, and are licensed and regulated by the Financial Industry Regulatory Authority, or FINRA. Unlike investment advisors, brokers are not paid directly by clients, instead, they earn commissions for trading stocks and bonds, and for selling mutual funds and other products.

What Are Financial Consultants & Wealth Managers?

Like the term financial advisor, financial consultant and wealth manager are both generic job titles that do not require licenses or certifications. In the past, financial consultant was often used by brokers who offered financial-planning services. Likewise, in recent years, wealth manager has emerged as a marketing term to describe financial advisors who focus on high-net-worth clients, usually those with $5 million or more in investable assets. They’re almost always licensed as investment advisors and brokers, and a growing number are CFP® professionals.

What Is The Best Type Of Financial Advisor?

If you’re looking for an investment professional it’s important to fully understand the differences between investment advisors and brokers. Hiring the wrong one for your needs can have serious impacts.

At Zoe Financial, we believe that fiduciary and independent investment advisors – those who bill clients directly without earning commissions – are the best choice for most investors. But having the right designation and fee structure should not be enough: finding an advisor who truly has a client-centric (and financial planning-centric) practice should be the goal in our mind. 

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