Financial Planners, Financial Advisors, Coaches, Insurance Agents, and More – What’s The Difference And Who Should You Work With?
When making the decision to hire a Financial Advisor, there are different choices families can make that affect the type and cost of services they receive – not all ‘Financial Advisors’ are the same. Their licensing, certifications, pay structure, ability to sell certain products or provide certain advice all differs, and it’s important consumers know these differences so they can select the right professional for the job they need.
Licensing - The different types of licensing play a role in how an Advisor can serve you.
Those who only have state Insurance licenses can typically only sell or advise on insurance products – certain types of life insurance and disability insurance as well as planning for Long Term Care. They generally cannot advise or sell investment related products unless they also have various securities licenses below.
There are several different types of Securities or Investment related licenses that Financial Advisors can have that affect their ability to sell or advise on different investment products – which include Series 6, Series 7, Series 63, Series 65, Series 66, and more. Series 6 allows financial advisors to sell mutual funds, variable annuities, unit investment trusts (UTIs), and municipal fund securities such as 529 plans. This license does NOT allow a financial advisor to sell individual stocks or bonds or offer comprehensive financial planning or advice outside of those covered products.
Series 7 allows everything of Series 6 PLUS stocks, bonds, options, and other general securities. Still, these financial advisors typically cannot offer advisory services or financial planning unless they also hold a Series 65.
Series 65 allows financial advisors to offer investment advice to clients for a fee, including financial planning. This is specifically an advisory license and does not permit selling (the financial advisor would also need either a Series 6 or 7 to then sell investments).
Series 66 allows financial advisors to both offer advice as well as sell certain securities within a state, though they still may need a Series 6 or 7 for certain products like mutual funds and variable annuities.
While there are other licenses, the most comprehensive licensing your financial advisor could have would be their state insurance license, a Series 7 AND a Series 66 – this would allow them to both provide advice, planning, and sell virtually all common investment products and advice topics. Those who hold less or other licenses will be more limited.
Moral of the story – be sure to check which licenses your Financial Advisor has and what topics and products they can legally advise on or sell. You may be working with someone with a ‘limited toolbelt’ who is not able to fully provide all options, without realizing it.
Certifications – How much extra studying have they done to become more proficient in various areas.
Aside from licensing, various certifications can also differentiate the type of advice or skill level of the Financial Advisor and the advice they provide. For financial planning, the Certified Financial Planner ™️ certification requires participants to go through rigorous education, training, and ethical standards in the realm of comprehensive financial planning.
Other designations like Certified Divorce Financial Analyst (CDFA®️) or Accredited Estate Planner®️ (AEP) often signify additional education and training in more niche categories like divorce and estate planning. There are many other designations and letters Financial Advisors can obtain, that, depending on your goals and topics you need help with, may or may not make sense to seek out.
Pay Structure – How Your Financial Advisor Gets Paid and Conflicts of Interest
It is important to know when hiring a Financial Advisor how they get paid, and yet this is a question often left out of the conversation. Typically, most financial advisors do not receive a salary, rather, they earn commissions, asset management fees, or financial planning fees depending on their firm and licensing structure.
Financial Advisors who do not engage in financial planning or investment management but instead primarily sell insurance or annuity products typically only get paid when someone buys said product. Insurance and annuities pay commissions – often large up front with potential for small annual renewals. They do not get paid if a client does not buy one of the products they sell, and this can occasionally lead to a conflict of interest. While there is nothing wrong with Financial Advisors earning commissions, you need to be aware that if that is the only way they get paid and yet you’ve hired them for what you believe to be comprehensive financial planning – they may be tempted to recommend their products exclusively so they can earn income from their time spent with you. These products may or may not be the most appropriate for you.
Other times, financial advisors who sell mutual funds or brokerage investment services may earn a asset based fee – a fee that comes out of your investment account and is dependent on the size of the investment. Unlike commissions which are typically large upfront, asset based fees are more level and will go up or down depending on the performance of the underlying account. These fees vary from product to product and from one investment manager to another, and sometimes the fees are hard to ascertain from statements alone. Be sure to understand the total fees you are paying inside of an investment account which may include an advisory fee, service fee, internal fund expenses, trade fees, and more. Similar to insurance and annuity products, advisors who sell investment products often do not get paid a salary, and thus if you do not open an investment account with them, they do not get paid from helping you.
Lastly – when seeking comprehensive financial planning, it’s often most appropriate to find a financial advisor who does fee-based financial planning. This is where a flat fee is charged for them to analyze your financial situation and provide recommendations that are neutral from any specific company or product. They get paid via the fee and thus possibly feel less ‘pressure’ to sell specific products to earn money from helping you, though many financial advisors in this category can still sell you products or investment accounts that do have the same separate commissions and fees.
Be sure to inquire about the pay structure of your Financial Advisor – how do they get paid for helping you, and what products are they allowed to sell?
Toolbelt and Advice – What products or advice is your Financial Advisor able to help you with?
As previously mentioned, not all Financial Advisors have unlimited tools at their disposal. Many are restricted with the products they are allowed to sell or the advice they are able to give. “Captive” agents often work for a firm and are restricted to selling only that firms products. If that same agent is not paid a salary but only works on commission, then the only way they can be paid to help you is if they sell you a product from their own firms’ limited offerings, which may or may not be the most appropriate product for you. Other times, they are limited to the advice they can offer – again, many times restricted to the products they offer or general education about other topics at best. Some agents are less captive and can sell a broader array of products. Some provide fee-based planning or advice, which is generally required to be neutral from any company or products specifically and can thus be implemented anywhere. Some are a combination of both.
Be sure to inquire about what products your agent can sell or advise you on, and if a recommendation to buy something is made, as them what other alternatives were considered. While no one Financial Advisor can be an expert at all 10,000+ financial products that exist in today’s world (that are also ever changing), it’s good to know how many ‘tools’ they have to work with in their ‘toolbelt’.
In Summary
Not all people who call themselves “Financial Advisors” are the same, and often they have different capabilities, products, knowledge, and pay structures that all can influence the advice you get from them.
Our team’s personal opinion is that your best bet at objectivity and comprehensiveness is to work with a Certified Financial Planner Professional who can act as the ‘head coach’ of your financial team. Perhaps you’ve already got an insurance agent, a CPA, an investment advisor, and/or an attorney that’s helped with legal documents – those are all great professionals to have on your team, but how do they work cohesively together for your overall bigger plan? That’s where a CFP Professional can come in – they act as the ‘head coach’ of your team by working with your other professionals (in this example, your offensive/defensive/special teams coaches) to ensure that your overall financial goals and concerns are being met with someone overseeing the big picture.
And who needs financial planning? Why, almost anyone and everyone with finances. We spend 40+ hours per week working to obtain money, arguably the largest part of our week, and thus we feel its important to have someone well trained to help you ensure that money is going where you want, accomplishing the goals you want, and that you’re properly protecting your family from all those ‘what ifs’ in life. That’s why Thrivent Financial Consultant Sarah Davis on our team got her CFP Certification, and why she has such a passion for fee-based comprehensive financial planning. While she’s happy to play other roles given her state insurance license, Series 7 and 66 licenses (which allow her to ‘sell’ most products), she finds the greatest benefit to her clients is when comprehensive and neutral advice can be given free from any need to ‘sell’ them anything.
Reach out to our office if you think this type of help might be right for you. We serve folks in the greater Houston area along with The Woodlands, but we also are licensed in several other states and can work remotely. We’d love to help your family find the right type of help and advice you’ve been looking for.
See thrivent.com/social for important disclosures.
