What Type of Financial and Investment Professional Is Right for You?

Stockbrokers, investment advisers, financial advisors, financial planners—so many of these titles sound the same, but the differences can be profound. When it comes to choosing a financial and investment professional, it is important to remember that not all titles are interchangeable. In this blog post, we’ll explain the differences between the most commonly encountered investment and financial professionals: brokers, investment advisers, and financial planners.

 

Stockbrokers

A broker-dealer is a person or company in the business of buying and selling securities—stocks, bonds, mutual funds, and certain other investment products—on behalf of their customers (as broker), for their own account (as dealer), or both. Individuals who work for broker-dealers are called stockbrokers, or registered representatives with the Securities and Exchange Commission (SEC), pass qualifying exams, and must be a Financial Industry Regulatory Authority (FINRA) member.

Stockbrokers

  • earn commission on each transaction made on your behalf,
  • are required to make “suitable” investment suggestions based on your income, portfolio, risk tolerance, investment objectives and overall financial situation, but
  • do not have a fiduciary duty to act in your best interest, despite the previous requirement.

 

Investment Adviser

An investment adviser is an individual or company paid to provide advice about securities to their clients. Though the term sounds similar to “financial advisor,” the two should not be confused, the latter being a generic term that usually refers to a broker.

Investment advisers

  • may charge an hourly or fixed fee, or earn commissions (if they are also a broker-dealer) or a percentage of the value of the assets they manage for you, or ask for a combination of these,
  • must pass the FINRA Series 65 exam or the Series 7 exam along with the Series 66 exam, and
  • are fiduciaries with “an affirmative duty of ‘utmost good faith and full and fair disclosure of all material fact,’ as well as an affirmative obligation ‘to employ reasonable care to avoid misleading’ clients” (according to none other than the Supreme Court).

 

Financial Planners

Finally, a financial planner is an individual or company who helps their clients meet short- and long-term financial goals by evaluating their financial status and developing programs to meet their objectives. It is important to note that individuals who call themselves financial planners come from varied backgrounds and may offer a variety of services. They may examine your entire financial picture and help you to develop a detailed plan for achieving your financial goals, or they may only recommend products they sell, giving you a limited range of choices.

The CERTIFIED FINANCIAL PLANNER™ and (CFP® ) designation is issued by the Certified Financial Planner Board of Standards and requires at least three years of experience as well as adherence to fairly rigorous standards.

CERTIFIED FINANCIAL PLANNER™ Professionals

  • may charge for their services by fee or commission (a fee-only CFP® practitioner does not receive commission on products sold),
  • must successfully pass a comprehensive exam and meet minimum continuing education requirements covering topics such as asset protection planning, taxes, insurance, estate planning and retirement, and
  • are held to certain fiduciary responsibilities, including placing the interests of the clients before their own.

 

When hiring a professional, it is important to inquire about his or her credentials and to clarify both what any designation means and how it was earned. The Financial Industry Regulatory Authority (FINRA) provides a glossary of professional designations on its website. If you are still unsure, click here to learn more about choosing a financial and investment professional.

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