Investing in the Proper Investment Professional

By Scott Evans, Spring 2014 Student Intern

Making financial decisions can be scary, particularly for those unfamiliar with the process.  As a result, many turn to investment professionals that specialize in those types of decisions.  However, investment professionals can wear many different hats, and the differences between each can be subtle.  In order to help investors identify the type of investment professional best suited to their needs, we’ve put together an overview of several types of investment professionals.

Broker-Dealer

broker dealerA broker-dealer must register with FINRA and can provide a variety of services, but they primarily function as buyers and sellers of securities such as stocks and bonds.  When they buy securities on their own behalf, they are known as dealers.  When they buy securities for another, they are known as brokers.  Individuals working on behalf of a broker-dealer are known as registered representatives.  While the services offered by broker-dealers vary considerably, there are some common characteristics.  Essentially, broker-dealers are the main buyers and sellers of securities such as stocks, bonds, and mutual funds, and they are able to deal in these on clients’ behalf.  Broker-dealers may also provide investment advice along the way.

Investment Advisers

401kInvestment advisers manage portfolios for individuals, hedge funds, pension funds, and registered investment companies by providing securities advice.  Investment advisers are not the same as financial advisers.  The term investment adviser has a specific definition – a professional registered as such with the SEC or state securities regulator.  Investment advisers can provide advice regarding entire investment portfolios and even engage in broker-dealer services but only if they are properly registered as a broker-dealer.

Accountants

accountantAccountants provide advice regarding tax, financial planning, auditing, and more.  If they pass an exam, they can become Certified Public Accountants (CPAs).  CPAs can also become Personal Financial Specialists (PFSs) whereby they are certified to provide financial planning services.  Accountants can provide tax consultations, but some of them are certified to provide more investment advice such as developing long-term financial plans.

Lawyers

lawyersLawyers, simply put, give legal advice.  In the financial planning arena, they can guide clients through the legal implications of various financial decisions.  Lawyers come in all different shapes and sizes.  Many investors will consider consulting an estate planning attorney in order to decide what will happen to their investments and other assets upon death.  Lawyers may also be able to provide advice concerning the tax implications of an investment.

Insurance Agents

plannersInsurance agents sell insurance products, such as fire, life, and auto insurance to clients.  Certain products sold by insurance agents, such as variable life insurance, may be classified as securities.  Those that sell such products must register with FINRA.  Some insurance agents work exclusively for one company and can only sell that company’s products.  On the other hand, some are independent and can access a wider range of products.

Financial Planners

adviceFinancial planners don’t have a specific definition as the term is generic in nature.  It can refer to any of the investment professionals listed above. Because they are not necessarily governed by a regulatory authority, investors should research in advance what products they offer, their expertise, and their qualifications.

Conclusion

As you can see, there is considerable overlap in the functions that the different types of investment professionals can provide.  Given this overlap and the vast number of options out there, it is always wise for investors to research their options and any particular professionals before agreeing to work with them.  For advice on how to go about researching particular investment professionals, refer to this blog post by Clinic intern Nataliya Nemtseva.  If you would like more information on the various types of professionals described in this post, please refer to FINRA’s overview here.