Financial Advisor

The term “Financial Advisor” is used in every corner of the financial world. A key point is that pretty much anyone who is involved with investments can use this term (rendering it meaningless). Insurance salespersons, stockbrokers, financial planners, investment advisors, and even the guy with a desk at your local bank use it. Some just sell things, some are complex portfolio managers, and some build financial plans.

Hotly debated but probably the most important thing as it relates to their clients is how do they get paid? In the financial world there are only 2 ways of compensation for the financial professional. These are commission on sale of product or fee for service.

Under a commission compensation, the advisor has a duty of suitability in making a product recommendation. Legally, they are required to review and understand your needs before making a recommendation on the sale of an investment product.

Under a fee-based compensation, the advisor generally has a fiduciary standard, which is a much higher level of fidelity and accountability to the client. Under “fiduciary standard” an advisor must put the client’s interest ahead of their own.

In most cases, the level of relationship and the amount of ongoing support to the client dictates the type of relationship between the financial advisor and the client. Generally, if a client is looking for a single product (like insurance) the level of relationship will be different than one of a full-service financial planner. Likewise, for the client who needs more, a fee-based relationship tends to be better.

For the client, It all comes back to asking. Ask any financial professional how will they get paid, what will you get from that, what and how often will we communicate. It’s also helpful to ask what type of clients they work with and how long have they been in business? Has the firm been around for a while or is it relatively new? Is there a track record of satisfied clients and a history of managing assets over time?

Last (but not least). Each financial professional has a past. The industry has gone a long way towards transparency and visibility for the public. An advisors record can be viewed on brokercheck.finra.org Not only does it show disciplinary history, but also licenses and exams passed.