Understanding The Different Types of Financial Advisors

Who can call themselves a Financial Advisor?

Unlike “doctor” or “attorney,” the term “financial advisor” is not regulated and can be used by people ranging from insurance and annuity salespeople to fee-only fiduciary advisors who have to act in the best interests of clients.

The first group of advisors are regulated by FINRA, which is a broker-dealer industry group, not a government regulator.  Advisors are compensated by commissions derived from selling financial products, which they share with their employer.  To become this type of advisor, one must pass a Series 7 exam administered by FINRA.  In the old days they were called stockbrokers.

Clients may absolutely get good advice from a commissioned advisor, but just remember that their primary objective is to generate a commission and meet their sales quota.

Another variant of this is the life insurance and annuity salesperson, who in some cases only need to pass a simple insurance exam.  Do you think they will recommend inexpensive term life insurance?

Then we have Registered Investment Advisors (RIA), who are regulated by either the SEC or state regulators, not FINRA. They must pass a comprehensive Series 65 exam or even better, go through the Certified Financial Planner process- college coursework in financial planning followed by an all day exam that covers all aspects of financial planning.

But note- some CFPs actually work for broker dealers, not RIAs.

My advice is to seek out a CFP professional who is or works for an RIA, and who is a fiduciary. No surprise here, but in full disclosure, I am all three.  You can find others on www.NAPFA.org, which has an advisor search tool.  

You can also check out FINRA's BrokerCheck or the SEC's IAPD database.