Financial planner, adviser, broker? What's in a name?

Jalene Hahn |

I always struggle with my professional title.

Some of the standard monikers include financial consultant, investment adviser, financial adviser, wealth manager, financial planner, investment manager, financial coach and personal CFO. In my opinion, most titles are for marketing purposes and are generally meaningless. Marketing pitches lead you to believe there is no distinction among different types of financial providers.

There are three basic categories of financial service providers.

Each category has its own registration requirements and legal obligations. Specific licensing requirements are needed for insurance agents, stockbrokers and investment advisers.

Securities laws were established following the Great Depression and recognized two distinct types of providers—investment advisers and brokers.

Comprehensive financial planning as a concept developed in the 1960s and began to blur the lines between product sales and investment advice. This trend has accelerated in recent years as brokerage firms offer services that look like investment advisory or financial planning services.

Investment adviser is a legal term for an individual who is in the business of giving advice about securities (defined as stocks, bonds, mutual funds and annuities).

Investment advisers are obligated to provide a fiduciary duty of care, which means they must act in their clients’ best interests at all times. They also must provide upfront disclosure of their qualifications, services provided, compensation and any potential conflicts of interest.

Investment advisers provide ongoing advice and management of a client’s investments.

Brokers are in the business of buying and selling securities on behalf of customers. Brokers who provide advice “incidental to the sale of securities” do not have to register as investment advisers or meet a fiduciary standard.

In most instances, brokers are now held to a “best interest” standard, or Reg-BI. The key distinction is that Reg-BI is applicable only at the time of recommendation, while the fiduciary standard is in place throughout the relationship.

Someone offering a broad arrangement of services and products might end up with three different licenses—insurance, brokerage and investment adviser—each requiring a different standard of care and accountability to consumers.

However, it is not always clear to consumers when a provider’s role changes and therefore the standard they are held to changes.

Financial planning is a different beast. Currently, anyone can claim to be a “financial planner.”

They are not required to have any specialized training or licensing. Many individuals claiming to provide financial planning services are really trying to sell a product or want to manage your investments.

One way for financial professionals to signal their interest and expertise is to acquire professional designations and certifications. While these designations are intended to convey expertise and competence, not all letter combinations require the same degree of knowledge and training.

The more meaningful designations for financial advisers offering comprehensive wealth management include:

CFP (certified financial planner): Requires seven college-level courses plus a two-day comprehensive exam. Pass rate is less than 70% for both first-time takers and people retesting. Includes ethics and ongoing (continuing education) requirements.

CPA/PFS (personal financial specialist): The financial planning specialization from the American Institute of Certified Public Accountants. Must have financial planning experience in addition to the CPA before taking another test. Includes ethics and continuing education requirements.

CFA (chartered financial analyst): A certification heavy in analysis, typically earned by money managers (mutual funds, private accounts, etc.). There are four levels of competency. Includes ethics, continuing education and ongoing testing requirements.

CLU, ChFC (Chartered Life Underwriter & Chartered Financial Consultant): Insurance industry designations. Requires 10 courses each, or a total of 13 for both. Each course has a two-hour test associated with it. Includes ethics and continuing education requirements.

So, what’s in a name?

I am technically an investment adviser and hold the certified financial planner designation. The title on my business card is financial planner.