Types of Advisors

Knowing the type of advisor you are interviewing is more complicated than you might think. That's because there are no regulations that restrict the use of titles based on licensing and registrations.

For example, anyone can claim to be a financial advisor whether it is true or not. In fact, this is a common financial industry practice because salesmen use titles that are designed to reduce your sales resistance.

There are some critical differences between the three types of financal service providers. It is up to you to know enough to select the right type of advisor for your situation.​

Three Types

We have divided the professionals who sell financial advice, recommendations, services and products into three categories:

  • Personal Financial Advisors
  • Online Financial Advisors
  • Salesmen

We are going to point out some key characteristics of each type so you can recognize them.

Personal Financial Advisors (PFAs)

Think of a PFA as the traditional financial advisor who has a brick & mortar office in your community. This is the type of advisor you are used to meeting with face-to-face to update your financial plan, review your past results, and discuss the future performance of your assets.

Some PFAs may also call themselves financial planners, investment advisors, and wealth managers.

Following are some of the key characteristics associated with real PFAs:

  • Registered Investment Advisors or Investment Advisor Representatives
  • Financial fiduciaries
  • Compensated with fees
  • Core services are planning and investment 

Online Financial Advisors (OFAs)

OFAs are relatively new. They provide the same types of planning and investment services as the PFAs, but they do not provide face-to-face communication. Instead, they communicate by telephone, email, Skype, and various forms of video chat.

Since they do not offer face-to-face meetings, they are not limited to working with clients they can reach by car or clients who are willing to drive to reach them. Their clients may be located anywhere in the U.S. or the world. 

OFAs may have particular appeal to younger, more tech-savvy investors, investors in remote locations, and investors who do not want to spend excessive amounts of time driving to and from meetings.

There is also a version of OFA that is called a Robo Financial Advisor. Robos use algorithms to invest their clients' assets. They may or may not provide any type of planning service. And, they may limit human interaction to keep their costs down.

Salesmen

A high percentage of salesmen claim to be financial advisors or financial planners to reduce your sales resistance. They know you may not want a salesmen investing your retirement assets. Their solution is to change their title to obscure their real role - sell investment and insurance products for commission.

Following are a few characteristics that will help you recognize their real role:

  • They may be stockbrokers, registered representatives, or insurance agents
  • Their only method of compensation is a commission
  • They are compensated by third parties (mutual fund families, annuity companies)
  • They do not provide any ongoing advice or services

Salesmen are particularly dangerous when they misrepresent their role to gain control of your assets.

Book-tips

Need help finding the right financial advisor?

Read our tips.

Download your free copy!