Investment Advisor FAQs

What is an Investment Advisor?
What is the difference between an Investment Advisor and a Financial Planner?
What questions should I ask when choosing an Investment Advisor or Financial Planner?
How do Investment Advisors get paid?
Do Investment Advisors have to register with the U.S. Securities and Exchange Commission?
What should I do if the financial professional claims that he or she is a certified Financial Planner?
Are Investment Advisors required to have credentials?

1. What is an Investment Advisor?

Investment Advisors are in the business of giving advice about securities to clients. For instance, individuals who receive compensation for giving advice to a specific person on investing in stocks, bonds, or mutual funds, are Investment Advisors. Some Investment Advisors manage portfolios of securities.

2. What is the difference between an Investment Advisor and a Financial Planner?

Most Financial Planners are Investment Advisors, but not all Investment Advisors are Financial Planners. Some Financial Planners assess every aspect of your financial life--including saving, investments, insurance, taxes, retirement, and estate planning--and help you develop a detailed strategy or financial plan for meeting all your financial goals.

Others call themselves Financial Planners, but they may only be able to recommend that you invest in a narrow range of products, and sometimes products that aren't securities. Before you hire any financial professional, you should know exactly what services you need, what services the professional can deliver, any limitations on what they can recommend, what services you're paying for, how much those services cost, and how the adviser or planner gets paid.

3. What questions should I ask when choosing an Investment Advisor or Financial Planner?

Here are some of the questions you should always ask when hiring any financial professional:

What experience do you have, especially with people in my circumstances?
Where did you go to school? What is your recent employment history?
What licenses do you hold? Are you registered with the SEC, a state, or the FINRA?
What products and services do you offer?
Can you only recommend a limited number of products or services to me? If so, why?
How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?

For registered Investment Advisors, will you send me a copy of both parts of your Form ADV?

Be sure to meet potential advisers "face to face" to make sure you get along. And remember: there are many types of individuals who can help you develop a personal financial plan and manage your hard–earned money. The most important thing is that you know your financial goals, have a plan in place, and check out the professional you chose with your securities regulator.

4. How do Investment Advisors get paid?

Before you hire any financial professional--whether it's a stockbroker, a Financial Planner, or an Investment Advisor--you should always find out and make sure you understand how that person gets paid. Investment Advisors generally are paid in any of the following ways:

A percentage of the value of the assets they manage for you
An hourly fee for the time they spend working for you
A fixed fee
Some combination of the above

Each compensation method has potential benefits and possible drawbacks, depending on your individual needs. Ask the Investment Advisors you interview to explain the differences to you before you do business with them, and get several opinions before making your decision.

5. Do Investment Advisors have to register with the U.S. Securities and Exchange Commission?

Depending on their size, Investment Advisors have to register with either the SEC or the state securities agency where they have their principal place of business. For the most part, Investment Advisors who manage $100 million or more in client assets must register with the SEC. If they manage less than $100 million, they must register with the state securities agency in the state where they have their principal place of business.

6. What should I do if the financial professional claims that he or she is a certified Financial Planner?

If the professional you're considering claims to be a "Certified Financial Planner" (CFP^®), you should also visit the website of the Certified Financial Planner Board of Standards to see if the professional is licensed as a CFP^® and whether the professional's license has been suspended or revoked by the Board. You can also call the Board at (888) 237-6275 to obtain other disciplinary information about the professional.

7. Are Investment Advisors required to have credentials?

While some Investment Advisors and Financial Planners have credentials like CFP^® (Certified Financial Planner) or CFA (Chartered Financial Analyst), they are not required to by federal or state laws. States retain jurisdiction over examination and qualification requirements for advisory representatives of state and federally registered investment advisors. Generally, most states are uniform on exam and qualification requirements. Most states require an advisory representative to have a Series 7 and 66 or Series 65, or have an accepted professional designation such as CFP^®, CFA, PFS, ChFC^®, or CIC.

Investment Advisors and Financial Planners may come from many different educational and professional backgrounds. Before you hire a financial professional, be sure to ask about their background. If they have a credential, ask them what it means and what they had to do to earn it.

Find out what organization issued the credential, and then contact the organization to verify whether the professional you're considering did in fact earn the credential. You may also verify whether the professional remains in good standing with the organization. You can find out the different types of testing and other requirements on the website of the North American Securities Administrators Association.