Description
Financial advisors: The good, the bad and the unregulated
The U.S. Securities and Exchange Commission rules state that any financial professional or firm that engages in the business of providing advice to others or issuing securities reports or analysis for compensation is technically an "investment adviser" and must register with either the SEC or their state, depending on the advisor’s assets under management.
But other titles and forms of advice are largely unregulated, and that puts the responsibility on the investor to know what to look for. Here are some guidelines:
Titles may mean nothing. Some of the most common titles advisors use — including the term "financial advisor" itself — aren't tied to any specific credentials. Don’t assume that someone who uses an official-sounding title has specific training, credentials or registration.
Know what kind of advice you need. Identifying what you want from an advisor can go a long way in finding the right fit for you. For example, if you need help with taxes, you should look for an advisor who specializes in tax work and has a certification to match. If you only want investment management, a low-cost service like a robo-advisor might be the best fit. (Learn more about how to choose a financial advisor.)
Find a fee-only fiduciary. Some financial advisors have a fiduciary duty to their clients, meaning they are obligated to act in their client’s best interest rather than their own. We recommend that you always work with a licensed, registered fiduciary — preferably one who is fee-only, which means the advisor is paid directly by you and not through commissions for selling certain investment or insurance products.
Vet your advisor. No matter what title, designation, certification or license an advisor claims to have, it’s on you to vet the advisor’s credentials and experience. Always research an advisor’s background before you agree to work with them. We've included resources for doing that below.
