In light of the financial meltdown of 2008 and 2009, the financial community has seen a lot of damage to its reputation. It doesn't take much Googling to find articles written by some well-respected media outlets calling into question the financial advising community. Although it's understandable that the public would have a healthy dose of skepticism given the bailouts, Madoffs and debit card fees, the financial advising community wants to move beyond the vilification. If you asked a financial advisor what they wish you knew about them, this is what they might tell you.

SEE: Find The Right Financial Advisor
We Aren't All the Same
The "term financial advisor" is similar to the designation "doctor," in that different types of advisors and doctors specialize in different areas; you wouldn't go to a cardiologist if you were having kidney troubles. Some financial advisors are experts at planning your retirement, while others may excel at investing your portfolio for maximum gain.

If you want to know your magic retirement number, seek out a financial planner. If you want to position your estate for maximum tax advantages, find a tax attorney or estate planner, and if you want somebody to tell you the best way to invest your recent inheritance, an investment advisor is your best choice. Many advisors have overlapping skill sets, but if you have a complicated situation, a specialist is in your best interest.

We're Paid Differently
Some financial planners are paid a flat or hourly fee for their services, while those who invest your money may be paid a yearly percentage of the amount of assets they manage for you. Others are paid from the commissions made from recommending certain financial products. Each type of compensation model has good and bad points, but the advisor who is paid by commission has a different motivation than somebody who gets paid more as they make you more money. You should have an idea of which model you're comfortable with before hiring an adviser.

Our Education Isn't the Same
Becoming a financial advisor doesn't require a degree and it's sometimes as easy as studying for a test. In contrast, some advisors go through grueling programs, like the Certified Financial Planner (CFP) or the Chartered Financial Analyst (CFA) program. These programs require years of experience and a difficult curriculum that takes thousands of hours to complete. Some financial advisors have college degrees in finance, while others do not. Asking for an advisor's education and experience should be one of the first steps in picking an advisor.

We Have Different Legal Responsibilities
Investment advisors have a fiduciary responsibility to their clients. This means that they are placed in a position of trust and, therefore, must put their client's needs ahead of their own. They should be making decisions and taking actions that assure their client is getting the best possible pricing and performance. For example, a financial advisor who has a fiduciary responsibility would have to make trades that benefited their clients before they could benefit themselves.

Broker-dealers operate under the suitability standard. The key difference is that a broker-dealer operating under the suitability standard is loyal to their company before their client. They still have to make recommendations that are suitable for the client, but they aren't under any obligation to put them first. That doesn't make advisors operating under this standard less trustworthy, but it's important to know the difference.

We Aren't All Filthy Rich
Financial advising is unique in the fact that advisors can only service so many clients. If they aren't commission-based and charge 1% of the assets under management, that's $1,000 on a $100,000 portfolio, but the average advisor doesn't have a practice full of $100,000 portfolios. The average salary range for most advisors is roughly $36,000 to $78,000. Like any career-oriented person, the advisors who offer outstanding service will be rewarded for that.

The Bottom Line
Although financial advisors are vilified in light of recent financial events, the acts of a few have caused an air of distrust for the many ethical advisors who want to do their best for you. Take time to interview prospective advisors and pick the one that best fits your investing goals.

SEE: Shopping For A Financial Advisor

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Investing

    How To Calculate Minority Interest

    Minority interest calculations require the use of minority shareholders’ percentage ownership of a subsidiary, after controlling interest is acquired.
  3. Professionals

    Social Security 'Start, Stop, Start' Explained

    The start, stop, start Social Security strategy is complicated. Here's what retirees considering it need to consider.
  4. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  5. Professionals

    Is it Time to (Finally) Push Kids Out of the Nest?

    Parents should make sure their kids realize their home is a launching pad not a landing spot, and advisors can help clients talk to their children.
  6. Professionals

    The Rich Get Richer: Global Wealth is Rising

    Global wealth is rising and expected to continue. Advisors should know that the wealthy value fee transparency, performance.
  7. Professionals

    Top Questions to Ask When Choosing a Robo-Advisor

    Think a robo-advisor might be the right choice for you? Be sure to ask these questions first.
  8. Professionals

    Are Hedge Fund ETFs Suitable for Your Portfolio?

    Are hedge fund ETFs right for you? Here's what investors need to consider.
  9. Professionals

    Index or Target Dates in 401(k)s: Which is Better?

    A common question is whether or not plan participants should choose index or target date funds in a 401(k). The answer depends on different scenarios.
  10. Professionals

    How to Bring Up a Prenup with Clients

    Prenups aren't just for the rich. Here's how to help clients agree to one if you think they'll benefit.
RELATED TERMS
  1. Middle Market

    Definition of middle market
  2. Organizational Behavior - OB

    Organizational Behavior (OB) is the study of the way people interact ...
  3. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the ...
  4. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
  5. Financial Singularity

    A financial singularity is the point at which investment decisions ...
  6. Ceding Commission

    A fee paid by a reinsurance company to the ceding company to ...
RELATED FAQS
  1. Does my employer's matching contribution count towards the maximum I can contribute ...

    Contributions to 401(k) plans come from employee salary deferral and employer match dollars. According to the IRS, employees ... Read Full Answer >>
  2. What are the differences between a Chartered Financial Analyst (CFA) and a Certified ...

    The differences between a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP) are many, but comes down ... Read Full Answer >>
  3. What are the benefits of hiring a Chartered Financial Analyst (CFA) to be my financial ...

    A Chartered Financial Analyst (CFA) has successfully passed rigorous coursework in the fields of economics, financial analysis, ... Read Full Answer >>
  4. How do I become a Chartered Financial Analyst (CFA)?

    According to the CFA Institute, a person who holds a CFA charter is not a chartered financial analyst. The CFA Institute ... Read Full Answer >>
  5. How is marginal propensity to save calculated?

    Marginal propensity to save is used in Keynesian macroeconomics to quantify the relationship between changes in income and ... Read Full Answer >>
  6. Under what circumstances would I benefit from a high net worth insurance policy?

    A high-net-worth insurance policy is specifically tailored to suit the needs of high-net-worth individuals. It is specifically ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!