What Is It That My Investment Professional Do?
Types of Investment Professionals
Consumers are challenged with understanding which products and services each different type of Financial Services Professional can and cannot provide. These professionals may be brokers, investment advisers, certified public accountants, lawyers, insurance agents, or financial planners and they may work in many different settings, from large firms to small private practices. In some cases, your bank may have a separate investment department that employs investment professionals. Sorting it all out may be complicated by the fact that some individuals and the firms where they work may wear multiple hats, depending on the licenses they hold and the training they have. For example, an insurance agent may be qualified to sell you both life insurance and variable annuities. A broker may also be a financial planner.
Basic Introduction to the Major Groups of Investment Professionals:
Brokers: What they are: While many people use the word broker generically to describe someone who handles stock transactions, the legal definition is somewhat different—and worth knowing. A broker-dealer is a person or company that is in the business of buying and selling securities—stocks, bonds, mutual funds, and certain other investment products—on behalf of its customers (as broker), for its own account (as dealer), or both. Individuals who work for broker-dealers—the sales personnel whom most people call brokers—are technically known as registered representatives.
What Brokers Offer: Broker-dealers vary widely in the types of services they offer, falling generally into two categories—full-service and discount brokerage firms. Full-service firms typically charge more for each transaction, but they tend to have large research operations that representatives can tap into when making recommendations, can handle nearly any kind of financial transaction you want to make, and may offer investment planning or other services. Discount broker-dealer firms are usually cheaper, but you may have to research potential investments on your own—though the broker-dealer Web sites may have a lot of information you can use.
Registered representatives are primarily securities salespeople and may also go by such generic titles as financial consultant, financial adviser, or investment consultant. The products they can sell you depend on the licenses they hold. For example, a representative who has passed the Series 6 exam can sell only mutual funds, variable annuities, and similar products, while the holder of a Series 7 license can sell a broader array of securities. When a registered representative suggests that you buy or sell a particular security, he or she must have reason to believe that the recommendation is suitable for you based on a host of factors, including your income, portfolio, and overall financial situation, your tolerance for risk, and your stated investment objectives.
Investment Advisers: What they are: An investment adviser is an individual or company who is paid for providing advice about securities to their clients. Although the terms sound similar, investment advisers are not the same as financial advisers and should not be confused. The term financial adviser is a generic term that usually refers to a broker (or, to use the technical term, a registered representative). By contrast, the term investment adviser is a legal term that refers to an individual or company that is registered as such with either the Securities and Exchange Commission or a state securities regulator. Common names for investment advisers include asset managers, investment counselors, investment managers, portfolio managers, and wealth managers. Investment adviser representatives are individuals who work for and give advice on behalf of registered investment advisers.
What Investment Advisers Offer: In addition to providing individually tailored investment advice, some investment advisers manage investment portfolios. Others may offer financial planning services or, if they are properly licensed, brokerage services (such as buying or selling stock or bonds)—or some combination of all these services.
Accountants: What they are: Accountants are trained to provide professional assistance to individuals and companies in areas including tax and financial planning, tax reporting, auditing, and management consulting.Many states require new accountants to become Certified Public Accountants (CPAs), which involves passing a national examination administered by the American Institute of Certified Public Accountants (AICPA) and meeting education and experience requirements set by the state Board of Accountancy where the accountant does business.
What Accountants Offer: A CPA can help you consider the tax implications of financial decisions you make and assist with other tax-related issues, such as preparing annual tax returns. Some CPAs are also certified by the AICPA as Personal Financial Specialists (PFSs), which means they have met AICPA's education requirements for providing financial planning services, including assessing your overall financial situation, developing a budget, setting goals for saving and investing, and developing a plan for monitoring your progress and reaching your goals.
Lawyers: What they are: A lawyer is licensed to give legal advice to clients. Lawyers are trained to tell you about the legal impact one financial planning or investment decision might have on another—such as the tax implications of setting up a certain type of trust for your estate.
What Lawyers Offer: As with other professionals, the range of services lawyers can provide will vary greatly from individual to individual. For example, if one of your financial goals is leaving your assets to particular people or organizations, you will want to work with a lawyer who specializes in estate planning.
Insurance Agents: What they are: An insurance agent is a salesperson who can help individuals and companies obtain life, health, or property insurance policies and other insurance products. If an insurance agent offers products that are considered securities—such as variable annuity contracts or variable life insurance policies—the agent must also be licensed as a registered representative and comply with FINRA rules.
What Insurance Agents Offer: Insurance agents described as "captive" work exclusively for one insurance company and can sell only the policies and products that company offers. Independent insurance agents can represent multiple companies and typically try to find insurance policies that offer the best coverage for your circumstances.
Financial Planners: What they are: Financial planners can come from a variety of backgrounds and offer a variety of services. They could be brokers or investment advisers, insurance agents or practicing accountants—or they have no financial credentials at all. Some will examine your entire financial picture and help you develop a detailed plan for achieving your financial goals. Others, however, will recommend only the products they sell, which may give you a limited range of choices.
What Financial Planners Offer: The breadth and depth of services a financial planner offers will vary from provider to provider. Some create comprehensive plans that delve into every aspect of your financial life, including savings, investments, insurance, college savings, retirement, taxes and estate planning. Others have a more limited focus, such as insurance or securities. Some only prepare plans, while others also sell investments, insurance, or other products. If they sell products, their recommendations typically will correspond with the products or services they sell. For example, an insurance agent will tell you about insurance products (such as life insurance and annuities) but likely won't discuss other investment choices (such as stocks, bonds or mutual funds). You'll want to make certain you fully understand which areas of your financial life a particular planner can—and cannot—help with before you hire that person.
Source: Selecting Investment Professionals (Financial Industry Regulatory Authority – FINRA )
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Steve Stone posted on Sunday, March 06, 2011
Tags: Consumer Education, Stockbroker, Investment Advisor, Adviser, Financial Planner, Insurance Agent
Posted in: Consumer, Site News
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