Types of Financial Advisors

If you’ve been confused about the distinction between Financial Advisors, Hybrid Financial Advisors, Financial Planners, Brokers, and Registered Investment Advisors (RIA), you’re not alone. It can be confusing. Below we discuss the main differences to help bring some clarity.

RIA

A Registered Investment Advisor (RIA Firm) is a fiduciary firm who acts in the best interest of a beneficiary or particular person. In financial services, that means fiduciary advisors must only recommend the purchase and sale investments that are the best fit for clients. Fiduciaries have a bond of trust with clients and must avoid all conflicts of interest. Another way to think of a Fiduciary Wealth Advisor is as a dietician. They are required to gather many facts about your situation and based on that information, advise you what you need to do, which isn’t always what you want to hear.

Be careful — not all advisors are fiduciaries.

A fiduciary must put your best interest above their own. A financial advisor who’s a fiduciary has an ethical duty to recommend the best investments for you.

Fiduciary relationships do exist outside of the financial services industry, typically in places where a high level of trust is required

• Board members may have a fiduciary duty to their companies
• Trustees owe fiduciary duties to their beneficiaries
• Attorneys have a fiduciary relationship to their clients

Broker Dealers

Broker-dealers, which is a broader term used to describe a person or firm that buys and sells securities on behalf of a client as well as for themselves or their organization, aren’t uniformly governed by a fiduciary duty. Instead, broker-dealers must follow a suitability standard set by the Financial Industry Regulatory Authority, or FINRA, which means they must have a reasonable belief that an investment, transaction or the frequency of transactions is “suitable” for the customer.

The “reasonable belief” and “suitable” leaves room for broker-dealers to recommend products that will increase their bottom line through commissions but may not necessarily be the best investment for clients. Many times you would consider these individuals sales oriented vs advice oriented, like a RIA Firm.

Hybrid

This is even more confusing. They can act as EITHER a Broker or Investment Advisor. This means that they can wear one hat during one conversation and a different hat during another conversation. Since they are not always held to the same fiduciary standard as an RIA firm, they are able to recommend investments or products that pay them a larger commission over ones that may be the best fit for you. Typically, the larger the commission, the higher the cost to you internally and/or you may be required to keep your asset with the company for a period of time. This timeframe can range from 5-8 years typically.

To assist in understanding what type of advisor you are talking to since many professionals in the financial services field use the same titles, inquire how they are paid.

At Cleveland Wealth, we take pride in only acting in our clients’ best interests – because we know it’s the right thing to do, not just because it’s our Fiduciary Duty. We strive to provide education around your situation, so you are confident the advice provided is the highest quality that assists you in reaching your financial goals.

Cleveland Wealth, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.