3 Types of Investment Professionals

Gerri Walsh
May 8, 2013
3 Types of Investment Professionals

Find out which services your investment professional will provide and what they will charge. ©iStockphoto.com/Alexander Raths

Sorting out the products and services each type of professional can, and cannot, provide can be daunting. Here's an introduction to three types of investment professionals.


• What they are: "Broker-dealer" is what you call a company that buys and sells securities such as stocks, bonds and mutual funds. If it buys or sells for a customer, the firm acts as a broker. If it buys or sells for its own account, then it acts as a dealer. In many cases, the firm might do both.

People who work for broker-dealers are technically known as registered representatives. But most investors call them brokers. Brokers may also go by other names such as financial consultant, financial advisor or investment consultant. The products a broker can sell you depend on the licenses he or she has. For example, someone with a Series 6 license can sell only mutual funds, variable annuities, and similar products while someone with a Series 7 license can sell a wider range of securities.

• What they do: Broker-dealers vary widely in the types of services they offer. Full-service firms can handle nearly any kind of financial transaction you want to make, may offer investment planning or other services and usually have large research operations that support the recommendations they make to customers. But these firms tend to charge more for each trade than discount firms. With a discount firm, you usually have to do more of your own research when choosing investments.

• Who watches over them: With few exceptions, broker-dealers must register with the Securities and Exchange Commission (SEC) and be members of the Financial Industry Regulatory Authority (FINRA). Individual brokers must register with FINRA, pass a qualifying examination and be licensed by your state securities regulator before they can do business with you. To get background information on a brokerage firm or individual broker, visit FINRA BrokerCheck or call (800) 289-9999.

Investment Advisers

• What they are: An investment adviser is an individual or company who is paid to provide advice about securities to their clients. Investment advisers are not the same as financial advisors. The terms sound the same, but "financial adviser" is a generic title some brokers use while "investment adviser" is a legal term. To be an investment adviser, the individual or company must register with either the SEC or a state securities regulator.

• What they do: In addition to providing individually tailored investment advice, some investment advisers manage investment portfolios. Others may offer financial planning services. Some may even be able to buy or sell stocks or bonds if properly licensed.

• Who watches over them: The SEC regulates investment advisers who manage $110 million or more in client assets. Advisers who manage less are regulated by the securities regulator for the state where the adviser has its principal place of business. Some broker-dealers and registered representatives may also register as investment advisers. So you need to find out exactly which services a professional will provide and what the cost will be. Use FINRA BrokerCheck to get background information on both SEC and state-registered investment advisers or call us toll-free (800) 289-9999.You can also visit the SEC's Investment Adviser Public Disclosure database.

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—or they could 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 will recommend only the products they sell, which may give you a limited range of choices.

• What they do: Services vary from provider to provider. 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. She likely won't discuss other investment choices such as stocks, bonds or mutual funds. Be sure to know which areas of your financial life a particular planner can—and cannot—help with before you hire that person.

• Who watches over them: Financial planners don’t have their own regulator. Instead, individuals who call themselves financial planners may be regulated in relation to other services they provide. For example, a financial planner who is also an investment adviser would be regulated by the Securities and Exchange Commission or by the state where the adviser does business.

Gerri Walsh is Senior Vice President of Investor Education at the Financial Industry Regulatory Authority (FINRA).

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