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How to Distinguish Advisors From Salespeople

Morgan Stanley calls them “Vice Presidents.” At Edward Jones, they’re "Investment Representatives." A.G. Edwards prefers the title of “Financial Consultants” while Raymond James, Merrill Lynch, and Ameriprise all call them "Financial Advisors." And lending institutions use titles similar to “Private Bankers” or “Wealth Managers.” Just don't call them brokers.

What's in a name? For consumers, a great deal of confusion and potential for conflict. "Current policies make it impossible for investors to distinguish salespeople from advisors," said Barbara Roper, director of investor protection at the Consumer Federation of America. "They allow brokers to offer advice without a fiduciary duty that places clients' interests first, and they allow brokers to offer advice without adequate disclosure of conflicts of interest." (For related reading, see: Does Your Advisor Have an Exit Strategy?)

Who's Who in the Financial Planning Arena

Registered investment advisors (RIAs) are held to a fiduciary standard. By law, a fiduciary will act solely in the best interest of the client. They must fully disclose any conflict, or potential conflict, to the client prior to and throughout a business engagement. Fiduciaries will fully disclose how they are compensated. Stockbrokers and advisors who accept commissions are usually not fiduciaries and may be influenced to act in their own interests.

So how do you know if you are getting financial advice from a real fiduciary?

Ask the advisor if he or she is a fiduciary—do they have a legal obligation to act in your best interest? The term advisor has been twisted and turned so much that consumers are understandably confused. You may believe you are dealing with a fiduciary when you are not. Also look for a clean ADV report

Investment advisors are required to provide written disclosures about their qualifications, services, compensation, conflicts of interest, and record of disciplinary actions against them. Read this ADV form very carefully. Look at how the advisor gets paid, any commission relationships and other indications of conflicts of interest that put you in second place. (For related reading, see: Financial Planning Basics in 5 Steps.)

Beware of the tell-tale disclosure of a commissioned financial professional. Look at the ads and brochures of your current or prospective financial professional. SEC rules require stockbrokers and other advisors who are not considered true fiduciaries to disclose that their interests may not always be the same as yours and that they have a conflict of interest. If you see this sort of language in the fine print of their materials, you know that—by definition—you are not dealing with a fiduciary!

It’s hard to find the perfect financial professional who will meet your needs. You deserve an advisor who is competent, qualified, knowledgeable, and is compensated in a manner that minimizes conflicts of interest. But, most importantly, no one should accept or expect anything less than an advisor held to the fiduciary standard of always putting your interests first. (For related reading, see: Putting Your Money to Work for the Greater Good.)