Ask the Experts: Part 11 of Financial Considerations When You Lose Your Spouse

You both had areas of expertise. He alone could get that shed door unlocked. But you were the only one who could find the key. It’s great to have expert help when you need it. In our series on how to manage finances after the death of a spouse, we’re exploring tips from FINRA, a reliable financial source. Today, Tip 11: Expert Help.

When you’re trying to get help with money matters, it can be hard even to figure out what type of expert you need. The job titles can be confusing, and the certifications meaningless to you. Even within the financial world, you’ll find the term being used interchangeably with investment advisor and financial planner. You might also see the titles broker, asset manager, financial consultant or wealth manager. What do all these titles really mean?

The type of advice they give makes a difference

One way to distinguish among all of these titles is based on what type of advice the person charges for. If people charge money for the investing advice they give, they must hold certain registrations and adhere to the necessary regulations. If they sell investment products for a fee or commission, they are financial advisors who need to register with a separate regulatory body. On the other hand, financial planners, who are paid for the advice they give on budgeting and financial planning, but not on how to actually invest, do not have to register.

Any of these professionals might be referred to as financial advisors. You’ll need to dig deeper into their credentials, registrations and regulators to understand which, if any, of the other titles these professionals hold. It makes sense that there is more regulation for a financial advisor, who is actually directing where your dollars get invested and thus could end up losing you money, than there is for a financial planner, who is giving financial advice but not actually moving your money around.

Here’s a closer look at a few common titles and their legal definitions.

Investment advisor (pretty much interchangeable with financial advisor)

Investment advisors advise clients on investment choices. According to the Securities and Exchange Commission, the Investment Advisers Act of 1940 generally defines an investment advisor as: "Any person or firm that: (1) for compensation; (2) is engaged in the business of; (3) providing advice, making recommendations, issuing reports, or furnishing analyses on securities."

For example, if you’re an elementary school teacher and you tell everyone at your teacher meeting to buy GoPro stock, you’re not an investment advisor. However, if you start to charge people money for the advice to buy GoPro or some other stock or investment, then you are acting as an investment advisor who must be registered and regulated.

Investment advisors may also help with money management, create financial plans, give general financial advice, or sell financial products. These professionals go by many different names, including financial advisor, investment counselor or wealth manager. Regardless of their title, professionals who receive payment for giving advice on investing in securities must be registered with the SEC or with their state securities regulator.

Larger advisory firms with $110 million or more in assets under management register with the SEC. Smaller advisory firms register under state law with state securities authorities. These firms are called Registered Investment Advisors, and the individuals who work for these firms and give advice are investment advisor representatives (investment advisors in shorthand). They have to pass certain industry exams to legally give investment advice. You can look up an advisor or firm you are considering working with on the SEC advisor search website.

Broker or stockbroker

The people who are in the business of buying and selling stocks, bonds, mutual funds and other securities are called brokers or registered representatives (of their firms, known as broker-dealers or brokerage firms). They make trades on behalf of clients in exchange for a fee, commission or both.

Like investment advisors, brokers must pass certain exams and register with the SEC, but they are regulated by the Financial Industry Regulatory Authority or another self-regulatory organization. If they also charge for the investment advice they provide, they will need to be registered as investment advisors. You can look up brokers you are considering working with on the regulatory authority's BrokerCheck site.

One major difference between brokers and investment advisors has to do with the standards under which they must operate. Investment advisors are bound to a fiduciary standard, which holds that they must always put the clients’ best interests first. Brokers, on the other hand, must adhere to a suitability standard. This means the broker must have a “reasonable basis” for believing that his or her recommendation is suitable for you based on your situation, but the requirement does not explicitly state that a client’s interests must be placed first.

Financial planner

Financial planners are different from investment advisors or brokers in that they offer advice on total financial health (cash flow, debt, employee benefits, retirement, insurance, taxes and estate planning) without giving investment advice on what securities to buy. A financial planner can help clients figure out how much of their assets they might want to commit or allocate to an investing strategy, but the planner can’t legally offer specific investing advice about what securities they should invest in, unless registered.

Even when planners have the Certified Financial Planner™ designation, issued by the Certified Financial Planner Board of Standards (the certifying and standard-setting organization), they still cannot act as investment advisors or brokers without taking additional tests and being registered and regulated as described above. Many financial planners are also investment advisors, but don’t assume they can advise you on how to invest unless they are registered.

How to pick the right person to manage your money

There are a lot of factors to consider in choosing the right financial advisor for your needs, but here are four important ones:

Cost: Will it bother you to pay fees and commissions for the services the broker or investment advisor provides? If it will upset you when you are making money, it will really irritate you when your investments decline. Compare fees — whether it’s an hourly rate, monthly retainer or a percentage of the assets you have with the firm — before you make a decision. If the financial professional won’t clearly tell you the costs and fees, don’t choose that firm. Reputable firms are upfront about what they charge and what you will pay.

Size: Do you tend to shop local and small? Or do you love big box stores? If you want more of a small-shop feel, choose an independent, fee-only financial advisor. If you like and trust bigger outfits, go with one of the household-name firms, such as Wells Fargo, Raymond James, UBS, Merrill Lynch or Morgan Stanley.

Personality: Do you like your potential advisor as a person? You’ll want to feel comfortable with whomever you choose. If you don’t really like the person, interview someone else.

Credentials: Are designations, degrees and certifications important to you? If so, look for someone who is a Certified Financial Planner™, a Chartered Financial Analyst (CFA), and/or has an advanced degree, such as a Master of Business Administration. There are other designations out there, but make sure you look into the requirements involved and the accrediting organization.

Choosing a financial professional isn’t easy — especially with so many different terms to sort through. Use FINRA's free BrokerCheck tool or the SEC IAPD site to sleuth out potential investments advisors, and the CFP Board’s directory to find Certified Financial Planners™. We’ll continue to cover FINRA’s tips for widows in the next few articles. Tip 12a is our first part on taxes after widowhood. Thank you for joining me.

Kathryn Hauer, a Certified Financial Planner™, adjunct professor, and financial literacy educator has written numerous articles and several books. She works to help clients and readers understand and act on complex financial information to keep them and their money safe. She functions as a strong advocate and guiding light for her clients as they move through a murky and unfamiliar financial world. Learn more at her website.