Whether planning for a wedding or wanting to create a budget, it doesn’t hurt to get help from an expert. But, of course, there’s no shortage of financial experts offering advice these days from financial advisors, stockbrokers, financial planners, and investment advisors. But where does one turn? This blog will cover some of the standard financial professional designations you’ll run into. In addition, I’ll unwrap the financial advisor definition and explain why you may choose to work with one.
Financial Advisor Definition Introduction
Do you know the financial advisor definition? It’s anyone who helps people manage their money. Think of it as a catch-all title encompassing other, more specific subtitles.
Like the term “doctor” could mean a surgeon, gastroenterologist, or pediatrician, a financial advisor is general.
With specific titles come more specific skill sets and experiences. Stockbrokers, for example, buy and sell things like stocks and other securities for their clients. More often than not, it’s commission-based.
Financial planners take a more holistic approach to your financial situation, looking at estate and retirement planning, insurance needs, and personal finance.
Investment advisors are specialized financial professionals who create an investment portfolio based on your goals, timeline, and risk tolerance, helping you build, manage, and transfer wealth.
When you think about all the service providers you trust most and who have the most significant impact on your life, your financial advisor likely ranks up with your doctor or lawyer. So, let’s look at the definition of a financial advisor.
What Is a Certified Financial Planner (CFP)?
A certified financial planner, or a CFP, is one of the most common designations. A CFP is a credentialled professional held to strict ethical and performance standards.
Besides needing extensive experience in financial planning, they must pass a rigorous board exam. This exam covers everything from financial planning, insurance, taxes, and retirement to estate planning.
What does this have to do with the financial advisor definition? Let’s keep going.
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What Is a Chartered Financial Planner?
Another designation in the financial advisor definition is the chartered financial consultant or CHFC. While the CHFC and the CFPF are similar in practice, they have slightly different candidate requirements. Regardless, both are distinguished certifications in the financial industry.
What Is a Registered Investment Advisor?
Many financial professionals can call themselves financial advisors. Hence, we look into the definition of a financial advisor.
Only certain ones can call themselves registered investment advisors or our IA.
An IA is a specialized financial professional registered with a securities and exchange commission and estate securities regulator.
Registered investment advisors are the ones who recommend which stocks, bonds, mutual funds, and other securities their clients should buy and sell. As a result, many people turn to an RIA for portfolio management and retirement planning.
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Held to Strict Fiduciary Standards
What does the financial advisor definition mean in finance? In the finance world, many financial planners operate under a suitability standard. Their recommendations must be based on the client’s objectives and risk tolerance.
Conversely, registered investment advisors must operate under a stricter fiduciary standard. The standard legally requires advisers to put their client’s interests above their own.
For example, RIAs cannot buy securities for themselves before buying them for a client. In addition, they must disclose any conflicts of interest and do their best to ensure the investment advice is based on accurate and complete information.
As a long-term financial partner, RIAs will guide your investment choices and manage your money, providing comprehensive financial planning throughout life’s stages.
What Is a Fiduciary?
What’s the difference between a fiduciary and a financial advisor definition? A fiduciary is someone who has to have your best interest before others.
And legally, they actually cannot put their interest before your interests.
So, as a financial fiduciary, I legally have to put my client’s best interest before mine, and I have to prove to my compliance department that I’m doing so.
I think you should look for a fiduciary in all parts of life. For example, if you want a roof, try to find someone on your team, not just trying to sell you a roof. Likewise, find a fiduciary if you have a contractor or anybody.
Unfortunately, most industries don’t have to have a fiduciary license. There’s no equivalent like there is with financial advisors. However, advisers take a license to become fiduciaries with financial advisors.
If you have a financial advisor and they don’t do well in your best interest, your worst-case scenario is terrible. So work with somebody who legally has to have your interest first, livelihood.
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Why Should You Use a Financial Advisor?
For many reasons. Perhaps you’re blending a family, getting your parents ready to move into a retirement home, or becoming new parents and want to set up a fund for your children’s education.
Or perhaps you need counseling on life, mortgage, and disability insurance or help to get out of debt. As you can see, the possibilities are endless.
Ultimately, every person’s financial situation is different. Therefore, you must choose the financial advisor that’s best suited for your situation. Whatever that is, your advisor must have the skills to help you reach your financial goals.
A great financial professional will act in your best interest and provide unbiased advice. Unfortunately, many are masquerading as financial professionals with no more than an online learning academy certificate.
Final Thoughts: Financial Advisor Definition
Now, you should know the definition of a financial advisor. Do not hire the first financial advisor you meet. Interview at least a few advisors before picking the best one for you.
To avoid someone who doesn’t have your best interests in mind, I suggest you hire one who’s a fiduciary. Also, don’t choose someone who isn’t a registered trustee or expert who is ethically bound to act in your best interests.
