They’re all around you, it seems—people happy to help you create, grow, and manage your wealth. The titles alone are confusing. Do you need a financial advisor or financial planner, an investment manager or wealth manager, a broker or money manager? Is there a difference? Which financial services professional can you rely on for sound advice with your best interest in mind?
Unlike the legal and medical professions, there are few federal regulations governing professional titles in the financial services industry. Besides quizzing potential money gurus extensively about their experience—a must no matter whom you hire—there are a few key terms to look for that will clue you into differences among industry professionals.
Financial professionals who manage assets fall into three general categories. These give you a sense of how advisors do business, how they are regulated, and how they are compensated.
Registered representatives of a BD can be affiliated with a large institution (sometimes called a wire house) or with an independent BD where financial advisors decide on their own which products and services they offer.
A certified registered representative must register with the Financial Industry Regulatory Authority (FINRA) and is licensed by a state’s securities regulator. Registered representatives follow the suitability standard. That means they are legally bound to make sure investments are suitable for you, but those investments need not be your best options. Registered representatives typically earn commissions based on which products and how much they sell you.
Registered Investment Advisor (RIA)
An investment advisor representative(IAR) is affiliated with an RIA and held to a fiduciary standard of care. An IAR is trained to offer advice about securities and provide that advice for a fee. An RIA must register with the federal Securities and Exchange Commission (SEC) if managing $110 million or more in client assets and with a state securities regulator if managing less than $110 million.
Some advisors are dually registered as IARs (of an RIA) and registered representatives (of a broker-dealer). They have expanded access to products outside of investments, can still access commission-based products, and can retain new and existing commission revenue streams. These professionals follow the suitability standard and are regulated by both FINRA and the SEC or state regulators.
Differences in compensation determine how much you’ll pay for professional advice and spotlight any potential conflicts of interest. There are three basic models for financial advisor compensation:
Commission-Based – An advisor’s earnings are based exclusively on the sale of financial and insurance products.
Fee-Based – The advisor’s compensation is a combination of commissions based on the sale of products and fees charged for services such as financial planning.
Fee-Only – The advisor is compensated exclusively by fees paid by clients. Fee structures vary and include a percentage of assets under management, an hourly rate, or a flat retainer fee. The National Association of Professional Financial Advisors (NAPFA) holds its members to the industry’s most stringent definition of standards for fee-only compensation. FJY operates under NAPFA’s standards.
Formal certifications offer a way to confirm a professional’s background and training. A certification isn’t a guarantee that you’ve found the best match for your needs, but it shows the person has demonstrated expertise in at least one aspect of financial services. However, not all certifications are created equal.
Personal Financial Specialist (PFS)
PFS is a credential available to certified public accountants (CPAs) from the American Institute of Certified Public Accountants. To become a PFS, CPAs must earn continuing professional development credits, have work/teaching experience in personal financial planning, and pass an exam. A PFS may be a good choice for individuals and businesses with serious or complex tax issues in their overall financial picture.
Chartered Financial Analyst (CFA)
These professionals receive their charter from the CFA Institute. That requires them to meet professional conduct admission criteria, pass three levels of exams, and have at least four years of work experience in the investment decision-making process. CFAs have expertise in both investment analysis and broader client portfolio management.
Charter Financial Consultant (ChFC)
A ChFC is credentialed by the American College of Financial Services. Certification requires nine courses with a final exam at the end of each course. A ChFC must have three years of experience in the financial industry and adhere to a code of ethics.
Certified Financial Planner ™ (CFP ®)
CFP® credentialing by the Certified Financial Planner™ Board of Standards has the most rigorous requirements in the financial services industry and is widely considered the gold standard. CFP® practitioners are bound by the strictest definition of a fiduciary standard. That means they must always put clients’ best interests ahead of their own. The CFP Board requires extensive training and experience, rigorous ethical standards, and career-long continuing education.
CFP® professionals take a holistic approach to clients’ financial life that includes investments, budgeting, education financing, tax management, retirement planning, estate planning, and more. Because CFP® practitioners look broadly at a client’s financial portfolio, they may coordinate with bankers, insurance professionals, accountants, attorneys, and other niche experts to help service clients’ needs.
CFP® professionals charge fees based on the level of assets they manage for each client. People who seek out the services of a CFP® practitioner generally have a steady income flow and can afford to set aside money for savings and investments on a regular basis.
FJY Financial is a fee-only Registered Investment Advisor, staffed by CFP® professionals. As a fiduciary, we help you create a life-long financial strategy that accounts for your long- and short-term goals at every stage of life. Feel free to reach out if you prefer a big-picture approach to financial planning in your best interest.