Identify Which Financial Advisors Have Your Best Interests At Heart
There are many different terms that all refer to financial advisors, such as brokers, investment advisors, certified financial planners, portfolio managers, and financial coaches. With all the confusion surrounding who actually does what, how do you know who you can trust?
The most common name you will come across in the financial services industry will likely be “financial advisor.” However, this title is not definitively tied to any particular credentials or training, so don’t assume that this person has your best interests in mind. Financial advisors are required to register their services with the appropriate authorities. For example, American financial advisors have to register with the US Securities and Exchange Commission or the state based on the assets under management. Likewise, financial advisors in Europe need to be members of the Financial Planning Association.
Most financial advisors are obligated to continuously operate in their clients’ best interests instead of their own. In other words, they have a fiduciary duty toward their clients. Therefore, be sure to entrust your financial affairs with a registered and licensed fiduciary. The best course of action is to choose a fee-only financial advisor rather than a professional who earns their money through commissions by selling investment products to you. As a vital component of their certification, certified financial planners all have a fiduciary duty to their clients.
The difference between a fee-only and a fee-based financial advisor are as follows:
Fee-only financial planner:
- The client directly pays the financial advisor for their services, and the advisor is unable to receive any other sources of payment, like from fund providers, for example.
- The financial advisor acts as a fiduciary, so they have to put the interests of the clients first.
Fee-based financial planner:
- Clients pay the financial advisors, who also receive additional sources of income, such as commissions from financial products sold.
- Registered representatives, dealers, and brokerage services simply need to sell financial products “suitable” for the client’s needs.
Regardless of what title, credentials, license, or certification a financial advisor claims to have, it is your responsibility to ensure the credibility of such claims and follow up on the legitimacy and reputation of the financial advisory firm.
Is there a difference between an “advisor” and an “adviser”?
The terms “financial advisor” and “financial adviser” are used interchangeably. However, “adviser” is the term that is used to refer to individuals who must be registered with the relevant authorities according to the Investment Advisers Act.
The term “advisor” is more frequently used, but there is essentially no significant difference in the meaning of these terms. Both terms refer to financial professionals.