Consumers are not always clear on the differences between financial professionals, or about what type of advisor may be appropriate for their needs. The term “advisor” is not uniformly regulated and may be used by individuals with varying licenses, registrations and qualifications.
Most people who hear the term “financial advisor” assume that the person holds a securities license. However, many insurance agents will call themselves financial advisors or wealth advisors. Those who don’t hold any license at all could still potentially use the term because they’ve read a few books or feel they are good with money.
It is important for individuals to understand the scope of services, licensing, and compensation structures of the financial professional with whom they work.
In this article, I’ll discuss the most common scenarios you’ll encounter, the questions you may want to ask, and the research you should consider doing.
Life Insurance License
Someone who is licensed only as an insurance agent should, in my opinion, simply use that title. It provides a clear understanding of who they are and what services they can provide. Confusion occurs when an insurance-only agent uses titles such as financial professional, financial advisor, or wealth advisor—terms that may lead you to believe they can offer comprehensive solutions for all your financial needs.
Insurance agents can offer life insurance, annuities, and basic guidance related to insurance planning.
Insurance agents may discuss planning concepts incidentally, but cannot hold themselves out as providing fee-based investment advisory services unless properly registered.
A life insurance agent can be the right choice if protection is your primary goal. However, it’s important to understand that they are compensated by the insurance company in the form of a commission.
Compensation structures vary, and individuals should understand how their financial professional is compensated and any associated conflicts of interest.
Broker/Registered Representative License
Generally, a person with a brokerage license can offer securities such as stocks, bonds and mutual funds. They have access to investment products and can assist with retirement accounts. They can also offer variable annuities and mutual funds and typically hold a Series 6 or Series 7 license.
Registered Representatives can provide financial advice, execute trades and implement investment strategies—capabilities that an insurance-only agent does not have. They are generally compensated through commissions for selling products such as mutual funds or for buying and selling stocks. If they also hold a Series 66 or 65 and are affiliated with a Registered Investment Advisor (RIA), they can act as an Investment Advisor Representative as well.
Investment Advisor Representative
Those who hold a Series 65 license have fiduciary responsibilities and typically work for a Registered Investment Advisor (RIA) firm. They are known as Investment Advisor Representatives. (If someone holds a Series 7 and a Series 66 and is registered with both a broker/dealer and an RIA, they are considered dual-registered.)
A fiduciary is legally required to put the client’s interests ahead of their own. Fiduciaries typically operate under a fee-for-service model, where the client pays directly—either as a flat fee or as a percentage of assets under management. For example, this could be an annual $3,500 fee, paid monthly or quarterly, or a percentage of assets held in a brokerage or retirement account.
An Investment Advisor Representative may be appropriate for individuals seeking ongoing financial planning and investment management services, depending on their specific needs, objectives, and financial circumstances.
This may include cash flow and budgeting, risk management and insurance planning, investment and portfolio management, tax planning, retirement planning, and estate planning.
How Can I Tell?
The first step is to ask questions. Here are a few to start with:
“How are you compensated?”
“Are you acting as a fiduciary at all times?”
“What areas do you not advise on?”
“Who coordinates my tax, insurance and investment strategies?”
Each type of financial professional—insurance agent, registered representative, or investment adviser—serves a different role. The appropriate choice depends on an individual’s financial goals, preferences, and the scope of services needed.
Both commission-based and fee-based compensation arrangements have different cost structures, services, and potential conflicts of interest. Individuals should evaluate these factors when selecting a financial professional.
We’ve all heard the phrase “trust, but verify.” Be sure to look up the individual and confirm their licenses. Insurance agents can be verified through your state’s insurance commission—search your state’s website using the person’s name. To verify a financial advisor’s securities licenses, visit brokercheck.finra.com, where you can review licensing details and other relevant disclosures.
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Disclaimer: This material is for informational purposes only and does not constitute investment, legal, or tax advice. The information presented is general in nature and may not apply to your individual circumstances. Individuals should consult with a qualified financial professional before making any financial decisions.
For additional information about services, please call 615-619-6919 or email me at smoran@redbarnfinancial.com; you can learn more at redbarnfinancial.com.
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Photo, top, courtesy of Mikhail Nilov / Pexels
