For the past year and a half, I have been hosting free financial planning meetings at local libraries. It has been an amazing experience. I meet new people, hear about the different financial (and sometimes personal) challenges they face and try to help guide them toward solutions.
It’s also valuable because I’ve learned what kinds of questions people typically have about finances. A question has come up again and again in these meetings:
What differences do we see in all these different titles? wealth management industry?
Some people are called financial planners, others are advisors (or consultants), and some are money managers. What’s in all these different titles?
The first thing to note is that titles are often used interchangeably in the financial industry. Still, there may be some subtle but meaningful differences.
Investment advisor is a legal term in the US that refers to a person registered with either seconds Or their state regulator who is paid to provide investment advice. It doesn’t say anything about their scope of work, just that it involves investment advice. They are held to a fiduciary standard, meaning they are legally required to act in the best interests of their clients.
Interestingly, the SEC uses “adviser” in its official rules and regulations (the Investment Advisers Act of 1940 uses the “er” spelling), while “adviser” is more common in everyday industry usage and marketing. Whichever way it is written, it means the same thing.
Note that financial advisors may do a lot of financial planning, or none at all.
Financial planner refers to a broader, more holistic scope of services, often including things beyond investing, including budgeting, insurance, taxes, estate planning, college savings and retirement planning. Financial planners can handle investments, but sometimes they don’t. The CFP (Certified Financial Planner) designation is the main credential here and implies substantial educational and ethical requirements. But the financial planner title itself is unregulated, so anyone can call themselves a financial planner.
Wealth manager is more of a marketing term than a legal or certified term. This indicates that the advisor works with high-net-worth clients and offers a comprehensive set of services. In practice it often means a financial planner or investment advisor who works with wealthy clients, but this is more of a marketing term than anything.
Brokers or registered representatives are licensed to buy and sell securities and are held to a less stringent “suitability standard” than the fiduciary standard. They are mostly commission-based. To make it confusing, brokers may also refer to themselves as money managers, financial planners, or other vague titles.
RIA (Registered Investment Advisor) is a firm designation, not an individual, but you’ll hear it often. Advisors who work at RIAs are called Investment Advisor Representatives (IARs). IARs usually call themselves planners or consultants. Although I’m technically an IAR, I never described myself as such when meeting a potential client.
CFP, CFA, and CPA are credentials, not titles, but people often move forward with them. CFA (Chartered Financial Analyst) is a rigorous designation that is common among portfolio managers. A CPA is usually a tax professional or tax preparer. A CFP is technically a financial planner, but there are CFP professionals who do not offer comprehensive financial planning. For example, the person who sold me my life insurance was a CFP professional but did not provide any investment-related services.
Finally, there is a whole range of slightly obscure, marketing-driven titles. This includes financial advisor, which is fairly interchangeable with financial advisor and has no specific meaning. A retirement planner may indicate expertise in retirement but this is unregulated. Portfolio manager is more specific and usually refers to a person who actively manages an investment portfolio, often at an institution such as Fidelity or Vanguard. And private bankers generally work with high-net-worth clients as bank employees.
Another difference worth understanding is the difference between fee-only and fee-based advisors – two terms that sound almost similar but have very different meanings. Fee-only advisors are typically compensated by their clients, usually through a flat fee, hourly rate or a percentage of assets managed. They do not earn commission for recommending products.
Fee-based advisors, on the other hand, charge client fees but may also earn commissions on selling certain products, such as insurance or annuities. This creates potential conflicts of interest that are not always apparent to the client. Neither model is inherently bad, but it’s important to know what you’re dealing with. A straightforward way to find out is to ask your consultant/planner/manager how they get paid.
The honest answer is that in the real world, these titles are rarely used. More important than the title are whether the person is a fiduciary (legally bound to put your interests first), how they are compensated (fee-only vs. commission-based), and what credentials they have. Two people with the same title may work in very different ways. And two people with different titles can provide the same services.
The lack of standardization is a real consumer protection issue. When in doubt, ask someone directly: Are you a fiduciary? How are you compensated? What services do you offer? Those simple questions will clear up title confusion very quickly.