Understanding the Different Types of Financial Advisors
Published: March 9, 2021
Financial advisors are not all the same; there are different types for different people.
Part of learning about the different types of advisors is understanding fiduciary duty.
Fiduciary duty is the requirement that certain professionals, like lawyers or financial advisors, work in the best financial interest of their clients. Financial advisors who are fiduciaries must act in the best interest of their clients, offering the lowest cost financial solutions to fit their clients’ needs.
Not all financial advisors are fiduciaries. Anyone can legally call themselves a financial advisor and provide financial advice; only fiduciary financial advisors have to place their best interest over theirs, though. Fiduciaries’ recommendations must consider your overall financial situation carefully, and they must offer the most economical solutions with the best performance.
Non-fiduciary advisors must offer investment advice and product recommendations that are suitable for you. Financial advisors who work for brokerages generally are not fiduciaries. They are still, however, held to a lesser legal standard of care called the suitability standard. This means that while the products will generally fit your needs, they may have higher fees or offer the advisor a bigger commission.
Through our partnership with Fellows Financial Group all USSFCU members have access to investment management and financial planning services.
Not only do Fellows advisors offer a depth of experience and industry knowledge, but they appreciate the value of building a relationship and genuinely care about their client's needs and successes. It is their mission to provide sound customized financial advice in the best interest of the client. As fiduciaries, Fellows’ advisors uphold a duty of loyalty, fairness and good faith towards each client and seek to mitigate potential conflicts of interest.
Schedule a time to review your financial plan and discuss your goals with a Fellows advisor.
Advisors offer a wide variety of fee structures, which helps make their services accessible to clients of all levels of financial means.
When you hire a financial advisor, it’s important to ask how they make their money. This helps you gauge for yourself any potential conflicts of interest. Financial Advisors are commonly paid in the following ways:
Fee-Only Financial Advisors
Fee-only financial advisors earn money from the fees you pay for their services. These fees may be charged as a percentage of the assets they manage for you, at an hourly rate or as a flat rate.
They do not earn commissions on investments, nor do they get a fee when you buy or trade securities. Because of this, fee-only financial advisors generally have fewer conflicts of interest than other advisors, and they still must disclose any conflicts they do have.
Almost all fee-only advisors are fiduciaries. Generally speaking, they have chosen to work under a fee-only model to reduce any potential conflicts of interest. Because their income is from clients, it’s in their best interest to make sure you end up with financial plans and financial products that work best for you.
Commission-Only Financial Advisors
Commission-only advisors only make money when they sell investments or a particular financial product. Often, commission-only financial advisors are employed by broker-dealers and are only held to a suitability standard. Please make sure a commission-only financial advisor is a fiduciary or that you fully understand the products and fees being sold to you before doing business with them.
Commission-only advisors are not fiduciaries. They work as salespeople for investment and insurance brokerages and are only held to suitability standards. In contrast, some fee-based financial advisors are fiduciaries. However, it’s important to determine if they’re always acting as fiduciaries or “pause” fiduciary duty when discussing certain types of products, like insurance.
Fee-Based Financial Advisors
Fee-based advisors may have fees like fee-only financial advisors, but they also may earn money from commissions or referral fees, like commission-only advisors.
If you choose a fee-based advisor, you want to make sure they are always acting as a fiduciary. Some fee-based advisors may not act as a fiduciary when they perform certain tasks. It’s important to note that just because an advisor receives a commission for a product doesn’t necessarily mean it’s not in your best interest. Certain products, like life insurance, may only be sold with a commission-based model.
Since financial advisors come in many forms with many different specialties and offerings, you need to thoroughly research potential advisors.
You want to make sure the person guiding your financial decisions is trustworthy and capable. When evaluating advisors, be sure to consider their credentials and research their backgrounds and fee structures.
U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission is a large independent agency of the United States federal government that was created following the stock market crash in the 1920s to protect investors and the national banking system. The primary purpose of the SEC is to enforce the law against market manipulation.
Investment firms are required to file The Uniform Application for Investment Adviser Registration (Form ADV) with the SEC annually. This form, available for review on the SEC website, outlines its services, fees, credentials, and disciplinary history.
Financial Industry Regulatory Authority
FINRA is authorized by Congress to protect America's investors by ensuring the broker-dealer industry operates fairly and honestly.
FINRA oversees more than 624,000 brokers across the country—and analyzes billions of daily market events. Their mission is to ensure every investor receives the basic protections they deserve. You can view disciplinary actions and complaints filed against financial advisors using FINRA’s BrokerCheck.
Many professional financial planning associations provide free databases of financial advisors:
- NAPFA (The National Association of Personal Financial Advisors)
- Garrett Planning Network
- XY Planning Network
- ACP (Alliance of Comprehensive Planners)
Below are the most common kinds of financial advisors and what they do.
Some of the most common titles advisors use — including the term "financial advisor" — aren't tied to any specific credentials. Don’t assume that someone who uses an official-sounding title has specific training, credentials, or registration.
Investment advisors: While "investment adviser" is the legal term used by the SEC to denote a financial professional who must be registered, it is also used frequently as a job title — and is more commonly spelled "advisor." An investment advisor is a person or company who is paid for providing investment advice to clients. Investment advisors can also manage client assets directly. You can — and should — verify an advisor’s registration through BrokerCheck by FINRA, the Financial Industry Regulatory Authority.
Broker-dealers and brokers: A broker-dealer is an individual or company that buys and sells securities such as stocks, bonds, and mutual funds. Broker-dealers can buy and sell on behalf of clients (in which case, they’re acting as a broker), for their own account (as a dealer), or both. In addition to registering with the SEC, broker-dealers are also usually members of FINRA.
The financial products a representative for a broker-dealer can sell depends on their licenses. For example, a broker-dealer who has passed the Series 6 exam is limited to selling mutual funds, variable annuities, and related products. A Series 7 license allows the holder to sell additional securities. BrokerCheck can also be used to verify brokers.
Certified financial planner: Financial advisors who are CFPs have met the rigorous training and experience requirements of the CFP Board, have passed the certification exam, and are held to high ethical standards. CFPs have a fiduciary duty to their clients.
Financial planners can offer services that don’t require regulation, such as guidance on paying down debt, planning for retirement, or creating a budget, but some are also investment advisors. Note that financial advisors can use the title "financial planner" without holding the CFP designation. If you’re specifically looking for a CFP, be sure to check their credentials with the CFP Board.
Financial consultant: Financial consultant is a general term that anyone can use. But some financial consultants hold a designation called a chartered financial consultant, or ChFC. Chartered financial consultants have completed similar education requirements to CFPs. ChFCs have a fiduciary duty and must adhere to The American College’s code of ethics. You can verify a ChFC's credentials here.
Financial coach: Financial coaches are often the most beginner-friendly financial professionals. Financial coaches focus on financial literacy basics, such as how to save money or reduce spending. Financial coaches can help their clients build wealth that an investment advisor may help them manage in the future.
Portfolio, investment, and asset managers: Whether the business card says asset manager, investment manager, or portfolio manager, these professionals do exactly what it sounds like: They manage client investment portfolios. A portfolio manager or investment manager may deal strictly with a client’s investment portfolio, but they might also offer other financial planning services.
While it's very likely that investment and portfolio managers give investment advice and would thus be registered as investment advisors, you should always double-check that they’ve done so through BrokerCheck.
Wealth advisors: Wealth managers and wealth advisors typically work with very wealthy clients and offer holistic financial planning services and investment guidance. Wealth managers and advisors can often help their clients with every area of their financial life, including services like estate planning, tax help, charitable giving, and even health insurance. Most wealth advisors have a minimum investment in the millions.
Robo-advisor: A robo-advisor is an inexpensive automated investment management service. Robo-advisors use computer algorithms to create and manage an investment portfolio based on your goals for as little as 0.25% of your account balance per year. If you want help managing your investments, a robo-advisor might be the right option for you. Check out some of the top picks for robo-advisors below.
Whether the need is one quick question or ongoing financial assessment, management, and direction, Fellows advisors are avaliable when you need them.Fellows Financial Group advisors are available to consult with USSFCU members on a wide-range of financial planning topics, including investment advice, retirement planning, estate planning, personal insurance and more.
You need to feel comfortable with your financial advisor.
It would help if you met with prospective advisors to ensure you agree with their investing philosophy and that they understand your goals and risk tolerance. Your relationship with your financial advisor is ongoing, so feel free to ask questions and request more information. Ensure you leave any first meeting knowing how your advisor makes money and if they are a fiduciary.
U.S. Senate Federal Credit Union has partnered with Fellows Financial Group to provide Credit Union members access to financial planning services.
If you are interested in financial planning, we encourage you to contact our partners at Fellows Financial Group at 571.205.1515 or simply schedule a time to discuss.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.