How Financial Planners / Financial Advisors Are Different

Investing and handling one’s money is a very personal thing, and trust in who has that privilege is critical. So deciding on an advisor is important, as you really want to get to know the person before you commit.

The best way to get to know qualified financial advisors is via others (referrals) and Federal records. The SEC and FINRA have done an incredible job maintaining up to date records on everyone and anyone associated with investments. FINRA maintains a publicly accessible database that provides any known disclosures relating to individual advisors and/or advisory firms.

There are different types of financial planners or advisors, some providing services that others may not. So every advisor is somewhat distinctive.

Advisors gain knowledge and skills by educational processes as well as experience. Some more mature advisors may have different skill sets because of their experiences in say 1987 or even 1973. While less seasoned advisors may be more technology savvy and understand market conditions based on historical research. The basic types of advisors are as follow:

Fee Only Advisor:

Fees are usually based on assets under management (AUM), not based on commissionable trades or transactions. Fee only advisors primarily work with direct investments such as individual stocks, bonds, mutual funds and ETFs.

Fee Based Advisor:

Similar to a Fee Only Advisor, whereas a Fee Based Advisor is able to receive compensation via commissions and fee generated financial products.

Financial Planner:

A broad capacity that involves a more comprehensive approach in retirement and estate planning. Financial Planners may provide asset management services such as managing investment portfolios in addition to identifying insurance needs and also selling insurance products if deemed appropriate.

Registered Investment Advisor (RIA):

A registered investment advisor (RIA) is a person or firm that provides investment advice and acts as a fiduciary on behalf of clients. RIAs provide investment advice through an advisory account, which requires that they act in the best interests of their clients. Some RIAs maintain what is called a “dual registration”, which allows the individual RIA to be registered with the SEC and/or resident state, as well as be registered with a broker dealer. A dual registration allows some RIAs to receive both asset-based fees and commissions from investment product sales. The main difference between a RIA and a traditional broker dealer is the fiduciary role the RIA has versus a non-fiduciary with a traditional broker dealer.

Registered Representative:

A registered representative is usually employed by a broker dealer or affiliated with a broker dealer. While acting as a representative of a broker dealer, the materials used for educational purposes as well investment products being presented may be created and/or supplied by the underlying broker dealer. A registered representative still maintains the ability to provide financial advice but with the direction and supervision of the employing broker dealer firm.