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What does a Financial Advisor do?

The general public has a lot of questions about the “financial services” industry. Understandably. It’s a huge industry that comprises banks, insurance companies, brokerage firms, mutual funds, hedge funds, investment advisors, financial planners, etc…

While many of these providers have existed for hundreds of years (the first bank pre-dates even ancient Greece), the profession of “financial planner” was formally established in 1971.

Fast forward fifty years and you may be shocked to learn there are still no regulations or laws that govern the use of the terms financial adviser/financial advice or financial planner/financial planning. They are catch-all terms that tell you little about what the person does or how he/she is compensated.

Consider what the health industry would look like if pharmaceutical and medical device manufacturers could refer to their salespeople as doctors. Imagine the confusion this would cause. This is the current state of affairs in the financial services industry.

This confusion serves no one but the financial product manufacturers and makes it very difficult for the public to get the help they need.

So what, exactly, do financial planners or financial advisors do?

It’s a common question. Unfortunately, the answer is anything but simple. The vast majority of “financial advisors” don’t give advice. They are mostly salespeople and relationship managers shilling their employer’s investment products and services.

This isn’t a problem unless you actually want some advice about your personal finances and don’t want someone conflicted by their compensation. Most personal finance problems can be solved without buying a product.

Many financial advisors have designations, but they don’t mean the advisor provides advice.

Many financial advisors provide investment advice about an account they can “manage” but can’t provide comprehensive financial planning advice. They don’t have the necessary knowledge or experience - or their employer’s legal department won’t let them.

This puts the general public in an awkward and frustrating position where they can’t get the answers they want.

 

There are advisors who provide comprehensive advice that doesn’t require you to buy a product. Such advisors are called "fee-only" advisors. The largest and oldest association of these types of advisors is the National Association of Personal Financial Advisors (NAPFA). Seeking out a NAPFA member is a shortcut to finding someone to help you since they have few conflicts of interest and high standards for membership.