He/She is someone that renders investment advice and financial planning services to individuals. He/She does this by implementing various financial tools and securities in order to provide a return on your hard earned assets.
Question: Are there different types of Financial Advisors?
Absolutely!
The term Financial Advisor is the more generic form of someone who sells securities to the public.
A Financial Advisor is nothing more than a contemporary title for a stockbroker, broker, registered representative, or account executive at the major brokerage firms throughout the U.S., mutual fund/brokerage firms such as Fidelity, Schwab, Putnam, Vanguard and others, banks or other savings institutions like Savings & Loans and Credit Unions, and insurance companies.
Typically these individuals must pass a Series 7 examination offered by FINRA and meet continuing education requirements. Usually financial advisors are compensated by commissions or payments for assisting you in making a decision to buy or sell a financial services product or service. This purchase could be a mutual fund, stock, bond, or variable annuity to name a few.
Usually the expertise that they acquire is specifically derived from the product specialists of their employer, sometimes this means that that these financial advisors are selling only the proprietary products of their employer. The implication of getting their experience solely from their employer could mean that you purchase securities that might not meet your needs, but the needs of the firm selling you the product, as well as the needs of the financial advisor.
Over the past decade many Financial Advisors have tried to distance themselves from the generic title Financial Advisor in order to gain some credibility that their process in selling you a financial product is potentially more valuable to you. In some instances this can be the case. However, the proprietary product pushing has not changed.
There are financial advisors that have compelling business models, excellent financial product to sell to you, and care about their clients success, but caveat emptor! In almost all circumstances a financial advisor does not have fiduciary responsibility to their clients.
Question: Is there a way to avoid Financial Advisors that sell proprietary product?
Yes! Look for a Financial Advisor that is a fee-only financial planner.
Hold on! You came to this site to find a Financial Advisor, how did a fee-only financial planner come into the mix? Please remember this one thing, the Financial Services industry is built on one main premise, No one gets paid until someone makes a decision. This is very important to remember because it involves your money, your future, and your family’s future. It is our opinion that Financial Advisors sell, while most fee-only financial planners have a fiduciary responsibility to you.
Fiduciary responsibility is the key.
A Financial Advisor that sells proprietary product does so for a reason. Do not be confused about the motivation involved. A Financial Advisor sells because it is how they earn a living. As long as the product is considered suitable there is no inherent conflict of interest in how much the Financial Advisor receives in income for the sale of the product, regardless of the size of the fee. The concept of suitability rules for the Financial Advisor.
Most fee-based financial planners are required to provide the tenets of fiduciary responsibility to their clients. What does this mean? According to the Certified Financial Planner Board of Standards, Hiring a fee-only financial planner means that this individual owes an obligation to carry out the responsibilities of their position with the utmost degree of good faith, honesty, integrity, loyalty, and to perform their duties for the client to a standard that is always in the best interest of that client.