Financial service providers can be seen as belonging to one of two different business models: Investment Salespeople and Fiduciary Advisors.
Stock brokers, bankers, and annuity salespeople represent an investment firm, not the client (thus their title “registered representative“). Likewise, most financial planners, financial consultants, and financial advisors are salespeople who are registered representatives of an investment firm. A salesperson is paid by that investment firm, not the client. A salesperson is qualified and paid to sell products, but is not qualified or paid to give advice. A salesperson is not a fiduciary and is not required to put the client’s interests first. After all, if your job is to represent an investment firm and sell as much as you can of their investments, how can you put the interests of your client first? Short answer: you can’t.
A fee-only advisor represents the client, not an investment firm. An advisor is paid by the client, not an investment firm. An advisor is qualified and paid to give advice, not to sell a product. An advisor is a fiduciary and as such is legally required to put their client’s interests first.
How to Tell One From the Other
Some titles do not tell us anything about whether a person is an investment salesperson or a fiduciary advisor. These titles include CFP practitioner, Financial Advisor, Registered Investment Advisor (RIA), Financial Consultant, Financial Planner, and Wealth Manager. A particularly confusing title is Hybrid Advisor. This advisor wears two hats: a sales hat and a fiduciary hat, and can choose when to wear each hat. Some other titles and phrases do give us an indication: