The term financial advisor can cover a wide range of professionals with varying levels and areas of financial services expertise. This means that when you begin a search for financial advisors in Florida or elsewhere, you need to do some due diligence as to what the advisor means by that term.
For example, a financial advisor might be a professional with a small, independent Registered Investment Advisory (RIA) firm focusing on comprehensive financial planning. Or the financial advisor might be a broker-dealer who works for a large, national bank or other financial services company focusing on just your investments.
Regardless of their differences, both types of professionals might still call themselves financial advisors. That leaves it on you to dig deeper than the label—financial advisor, wealth advisor, financial planner, etc.—and consider each professional’s qualifications, experience, regulatory obligations, and other related factors to see whether they can serve your needs.
3 Types of Financial Advisors
Although the types of financial advisors can be quite varied, they generally fall into three overarching categories. These include:
RIAs: These financial advisors are firms registered with the U.S. Securities and Exchange Commission (SEC) or a state regulator. They follow the fiduciary standard, which requires that they act in their clients’ best interests. Many RIAs operate on a fee-only basis, meaning they’re paid by clients for the services they provide, rather than creating a conflict of interest through earning a commission.
Broker-dealers: These financial professionals generally register with a self-regulatory agency such as the Financial Industry Regulatory Authority (FINRA). Historically, they have followed the less restrictive suitability standard, which requires recommendations that are “suitable” but not necessarily in the best interest of clients. However, a new SEC rule, Regulation Best Interest, also requires broker-dealers to make investment recommendations in the best interests of clients, and the rule comes into full effect on June 30, 2020. Still, the law is not necessarily as strong as the fiduciary standard and allows financial professionals to still earn commissions.
Hybrid advisors: Somewhat confusingly, an advisor can be both an RIA and a broker-dealer. That means they can act in both capacities, where sometimes they earn commissions as a broker, and other times they may act as a fee-only RIA. You will often find this with financial advisors who provide “fee-based” services.
When looking for financial advisors in Florida, carefully examine whether that financial professional is an RIA, a broker-dealer, or both. Look into their fee structure, and if they’re a hybrid RIA, make sure you understand the breakdown between fee-only services and commission-based ones.
We believe that a fee-only, fiduciary RIA provides the best option for people who want objective advice, as commissions can create a motivation to recommend investments that earn that advisor more money, even if unconsciously.
Differences Within Financial Advisor Categories
While you may be able to get an inkling of what a financial advisor offers based on their fee structure and status as an RIA, broker-dealer, or hybrid advisor, that does not always tell the full story. Different advisors have different certifications, such as the CERTIFIED FINANCIAL PLANNER™ (CFP®) credential, which signifies education and experience in comprehensive financial planning. Other designations can indicate a more specialized expertise, such as the ChSNC® certification for special needs planning.
Some advisors hold multiple certifications, or a financial advisory firm may have different certification holders among their staff, who together can provide comprehensive financial planning in many areas beyond just retirement planning or investment-focused wealth management.
In addition to certifications, financial advisors may base their practice around particular focus areas, such as cash flow or charitable planning, so consider your personal circumstances and needs carefully.
Financial advisors can also have expertise working with specific types of clients. For example, as a financial advisor in the Fort Lauderdale, Florida area, we specialize in working with clients such as Florida Retirement System special risk employees, pre-retirees, and families with children of special needs.
Finding the Optimal Financial Advisor for Your Needs
With all these differences among financial advisors, we recommend you take the time to research and talk with the financial professionals you believe may be able to serve your needs.
Keep in mind key factors such as that advisor’s fee structure, regulatory obligations, certifications, client experience, and practice areas. The financial advisor you choose should be one that can help you reach your financial goals in a way that’s most comfortable for you.
Schedule a complimentary consultation with a fee-only financial planner to discuss your personal situation.