Who is a financial advisor… and who isn’t?

Allen Wastler

By Allen Wastler
Allen Wastler is a former financial journalist with over 30-years of experience, including time at CNBC, CNN, and Knight-Ridder Newspapers.
Posted on Aug 8, 2022

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Describe the different types of financial professionals in the investment world and the different roles they play.

Define exactly who qualifies for the financial advisor title and why.

Identify who might need a financial advisor's services versus who is better served by another type of financial professional.
 
     

“Financial advisor” is a title that gets used quite a bit, especially as today’s financial landscape grows more complicated and varied. After all, with more and more financial matters being put directly into consumers' hands, people look for someone who can “advise” them on what to do.

Unfortunately, that’s led to confusion, both as to what a financial advisor actually does and who qualifies as one. That’s in addition to confusion about when specific types of financial advice are needed and who is the best kind of financial professional to supply them.

The finance industry has a variety of job roles and specialties. Some financial professionals provide services for overall money management. Others specialize in areas like estate planning, insurance, taxes, or investment. And there are a variety of licenses and certifications pertaining to each area. Examples include Chartered Financial Consultant, Certified Financial Analyst, Certified Financial Planner, Retirement Income Certified Professional, or Chartered Life Underwriter.

So, with all these roles and certifications, who should be called a financial advisor?

The title is properly reserved for investment adviser representatives. These are individuals who are:

  • Associated with an established registered investment adviser or firm.
  • Regulated by the SEC, unless they control less than $100 million in assets, in which case they are regulated at the state level.
  • Governed by the fiduciary standard.
  • Generally compensated by an ongoing fee or percentage based on assets under management (AUM).

But beyond this group are a multitude of other financial professionals, like registered representatives (who are not also investment adviser representatives) or typically called brokers, when working for an investment brokerage. These are individuals who are:

  • Primarily licensed through their brokerage firm.
  • Regulated by the Financial Industry Regulatory Authority.
  • Governed by the Best Interest standard.
  • Holding a General Securities Registered Representative license.
  • Compensated by commissions based on the transactions their clients make.

And there are even more categories of financial professionals, like certified public accountants or insurance agents.

So, is one group more qualified than another? Well, it depends on what you need.

If you need recommendations and guidance on the occasional investment or an insurance policy, a financial professional like a broker or insurance agent may be a good fit. And the intermittent cost of their services is likely to be more economical than working with an investment adviser representative, who provides ongoing investment advice.

Indeed, financial professionals like brokers and agents can generally provide what most people need in terms of money management and retirement planning. And beyond basic financial know-how, they can also provide the coaching and encouragement many find helpful to stay on plan. (Related: 3 ways a financial professional adds value)

But what if you have a larger amount of wealth to manage, or your investment needs are more complex? Then you’ll probably need ongoing investment advice, so a financial professional like an investment adviser representative (i.e. financial advisor) might be the right choice for you. (Related: Two types of investment professional: Which is right for you?)

Financial professionals can tell you what they are qualified to do and what another type of financial professional might be better suited for. In fact, many financial firms and brokerages assemble teams of financial professionals with various specialties so that the right expertise can be available for any given client need.

Of course, there are financial professionals and even companies that use an “advisor” title broadly to imply a certain level of expertise and disinterest. And that’s disingenuous when applied to all financial professionals, including those who aren’t investment adviser representatives. Often the most appropriate, timely, and suitable guidance doesn’t need to come from someone with “advisor” in their title, especially if they’re not one.

Indeed, that’s where true professionalism comes in ― providing the right service for the right need with the right expertise.

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The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiarys, its employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.