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What Does it Mean to Be a “Financial Advisor” and Why Does it Matter?

Every person’s financial situation is unique, and depending on your knowledge and background, you’ll most likely require the services of a specialized financial professional. Consider the professionals that you trust the most. Your doctor, dentist, lawyer, etc.. Your financial advisor is likely to rank up there as well. But what exactly is a financial advisor and what specialty financial service providers fall into this blanket term? It’s important to know the difference to protect yourself, and we’ll be exploring that in this article.


What is a Financial Advisor?

By definition, a financial advisor is an educated investment professional who consulates clients to set and meet long-term financial goals in exchange for compensation. A financial advisor is an extremely general term that is an umbrella term for many different, more niche job titles including stock brokers, financial planners and investment advisors, that all operate under very different  rules and parameters. Generally speaking, a financial advisor is someone who is licensed to sell securities.


Registered Representative vs. Investment Advisor Representative 

The word fiduciary in the finance world simply translates to a person who is committed to putting your financial benefit above his or her own. Not all advisors giving you guidance on money are held to that standard. For those that are not held to a fiduciary standard, the requirement is that they must honestly believe that the products/decisions they offer are appropriate for you and your situation. Only “appropriate” – not “the best alternative” nor “in your best interests”.  For this reason, it is important to know whether your financial advisor is held to the fiduciary standard or not. 

Often, you can know whether a financial advisor is truly working in your best interests based on their title alone. An Investment Advisor Representative automatically connotes fiduciary standard whilst Registered Representatives, such as Stock Brokers, are allowed to put their own interest above yours. A Registered Representative’s compensation structure is usually based on commission whereas an Investment Advisor Representative is paid a percentage of assets under management. 


The Common Types of Financial Advisors 


 A Stockbroker is an agent or a firm who charges a fee in exchange for advice on when to buy and sell stocks and other securities. It is a stockbroker’s job to find clients the best prices possible when trading. Stockbrokers can get paid through commission or spreads (the difference between the ask price and the bid price) 

Stockbrokers need to:

  • Be registered with the Securities and Exchange Commission (SEC)
  • Be employed by or associated with a broker-dealer firm
  • Be a member of FINRA
  • Pass qualifying exams (the Series 7 and Series 63)

Fiduciary or Not?: No


Registered Investment advisor 

 A Registered Investment Advisor is an educated individual who will advise you on what types of securities to invest in (stocks or mutual funds), along with the risks associated with these investments. Investment advisors typically are compensated by receiving a percentage (.75% to 1.75%) of the value of the assets they manage for you, flat hourly fees, fixed fees, or a combination/hybrid of these methods.


Registered Investment Advisors need to:

  • Be registered with the SEC or a state securities regulator
  • Pass the FINRA series 65 exam, or the Series 7 exam in conjunction with the Series 66 exam.

Fiduciary or Not?: Yes


Financial planner 

A professional who assists individuals and corporations in accomplishing their short- and long-term financial goals by assessing the client’s existing financial status and designing a program to meet his or her objectives. Financial planners often have a specialty such as: insurance, retirement, risk management, tax planning, asset allocation etc. Financial planners can get paid either by fees or commissions.


Financial Advisors need to:

  •  A financial planner is not required to have any specialized education or licensing. However, many financial planners have credentials that confirm their expertise and training. Financial planners can receive this through extensive exams from the certified Financial Planner Board of Standards. 

Fiduciary or Not?: Maybe


When Do you Need a Financial Advisor?

You might have questions around a specific situation such as buying a house, getting married or paying for your child’s education. Maybe you want help with insurance, tax guidance and debt cancelling, or you may simply need help to build a long-term financial road map. Ultimately, your financial situation is different from everyone else’s, so it’s important that whichever type of financial advisor you choose, this individual has the skills and experience best suited for your circumstances. An advisor should be able to assess your financial needs to help you achieve your goals. A great financial advisor will act in your best interest and be committed to providing you with unbiased advice to help you plan for an uncertain future with confidence.  


Key Takeaways:

  • A Registered Representative, such as a stockbroker, owes you no fiduciary duty and is paid to sell you securities.
  • An Investment Advisor Representative has to place your interests before his or hers and makes the same amount of money regardless if he or she sells you something or not.
  • Whatever the title or category of your financial advisor or whatever the services provided to you, it is essential to understand if he is held to a fiduciary standard or not. 
  • If there is a fiduciary duty, you (the consumer) have more resources from a litigation perspective if you have experienced a loss in your portfolio. 


Have you suffered a loss in your investment portfolio based on advice or services (or lack thereof) received from a finance professional? I can help. I have dedicated my career to helping individuals who have experienced significant losses and been taken advantage of by their financial advisor. Since the laws and regulations that apply to financial advisors are complex, I always recommend consulting with an expert if you are unsure as to whether you are a victim of misconduct or fraud. If you would like to talk to me about losses you have incurred, or any other concerns you may have, please contact me at 1-855-463-9859 or [email protected] for a free consultation. You can also request a free case evaluation by sending us a message through our secure contact form.

Matthew Schwartz

Matthew Schwartz is a Shareholder at Schwartz, P.A. where he serves as the practice group leader for their securities litigation and professional negligence practice group. His practice is focused on plaintiff-side securities arbitration and litigation, representing individual investors and institutions in claims against brokerage firms, investment advisors, commodities firms, hedge funds and others. He also represents plaintiffs who have been damaged by their insurance agents, lawyers, accountants and other professionals. He is an accomplished commercial litigator who has handled a variety of business disputes and other consumer claims.

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