Advisor? Planner? Broker? Here are what the financial titles really mean(Read article summary)
The list of financial titles goes on for a while. Use this article to keep track of the differences.
Melanie Stetson Freeman/The Christian Science Monitor/File
Working in the financial industry, I’ve noticed that professional titles that should have distinct meanings get tossed around, intermingled and used interchangeably. As a result, they’re often misunderstood. Those of us in the industry might know the differences, but the average consumer might not. So here’s a short guide to what some of these titles actually mean.
This is someone who provides financial advice to clients in return for compensation. Usually, this means the advisor has a so-called Series 65 license, or investment advisor license. However, the term “financial advisor” has become extremely generic and could apply to many different types of financial professionals, including all of the ones described below. So hearing that someone is a financial advisor really doesn’t tell you much about what exactly they do.
I hear this one all the time. A broker is someone who can sell you financial products. You used to have to go through a stockbroker to buy or sell shares of stock — before the days of online trading platforms. Today, we also have investment brokers, insurance brokers, mortgage brokers and others. Brokers sell products and make money from those transactions. They are legally held to a “suitability” standard, which means that all transactions they carry out for an investor must be suitable for that person. Just because an investment is “suitable,” however, does not necessarily mean it is in an investor’s best interest.
Investment advisor representative
This is the official term for an advisor who gives financial advice to clients in return for compensation (see financial advisor, above). Unlike brokers and registered representatives (explained below), investment advisor representatives are held to a “fiduciary” standard under the law. That means the advisor must always place the best interest of the client first. It’s the highest standard for financial professionals and a much tighter standard than suitability.
A registered rep works for a brokerage company and conducts sales of investment products (mutual funds, stocks, bonds, etc.). A registered rep must pass the Series 7 (stockbroker) and Series 63 (securities agent) exams and be registered with the Financial Industry Regulatory Authority.
When used as a general term, “financial analyst” usually refers to someone who works for a company and examines potential investments to see whether they could be profitable for that company. They work in all industries, and their “client” is their employer.
However, some financial advisors are Chartered Financial Analysts, or CFAs. These advisors do serve individual clients directly. The CFA — a trademark of the CFA Institute — is one of the more highly regarded designations in the financial industry and speaks to the ability of the advisor to analyze investments (usually stocks or other securities).
This is someone who helps individuals set financial goals and then devise a plan to reach them with the resources they have available. Financial planners have expertise in multiple areas, including tax planning, risk management, asset allocation, retirement planning and estate planning. Unfortunately, “financial planning” is another general term that gets used imprecisely, so it’s important to understand the credentials of those who identify themselves as financial planners.
The most widely recognized and respected credential for financial planners is the Certified Financial Planner, or CFP, designation. To earn the designation, a professional must complete a difficult curriculum that covers the full range of financial planning. CFPs can coordinate a plan that will tie each component of your financial life together. The designation is a trademark of the Certified Financial Planner Board of Standards. Through the CFP Board, designees are held to a fiduciary standard.
The bottom line
An array of professional titles is just one reason the financial world can seem overwhelming. But with a basic understanding of what these titles mean, you’ll have more clarity about whom you’re working with — or whom you want to be working with in the future.
This article first appeared at Nerd Wallet.