Financial Advisors – Part 1: What They Do


My next three posts will be about financial advisors.

I know what you’re thinking: Oh, fun…another blogger is going to bash my friendly broker or insurance guy.

Well, I’m not out to malign anyone, but I do want you to be on guard against the very small percentage of advisors who are greedy and unethical and will take advantage of you if you let them (Matt.10:16). I want to help you understand this relatively nascent profession – the good, the bad, and the ugly – so that you can make wise decisions about them.

This topic is important because, while I favor a do-it-yourself approach to managing your finances, many people who are saving and investing for the long term as part of retirement stewardship choose to work with a financial advisor.

In this article, I am going to focus on what advisors do and the types of companies they work for. In the second, I will get into more detail about how they are compensated and what that means to you and your investments. In the third and final article, I will discuss how to decide if you need an advisor and how to choose one if you decide you do.

Although I may sound cautionary (and even a little suspicious) at times, please do not take that to mean that I am against using financial advisors – I am not. But I do think it’s imperative that you know what services you are getting as well as the potential conflicts of interest that can come into play should you retain one.

By way of full disclosure, I have never worked closely for any significant period of time with a financial advisor. But please don’t assume anything from that either. It doesn’t mean that I would never do so in the future. In fact, when it comes to investing, I think everyone should seek out wise counsel and advice (Prov.15:22), which can come in many different forms. A competent, trustworthy personal financial advisor is certainly one of them.

What is a “financial advisor?”

The term “financial advisor” can be broadly used to mean anyone who provides financial advice and services to someone based on their situation. There are two kinds of financial advisors: investment advisors and investment brokers.

Investment advisors

Investment advisors help their clients plan for long-term goals like retirement. They have a fiduciary responsibility as required by the Investment Advisors Act of 1940 to put their clients’ interests above their own. This rule is known as the “fiduciary rule.” Investment advisors typically manage client investment portfolios and handle things like investment selection, asset allocation, and administrative functions. They tend to take a holistic view of a client’s situation, and often work in conjunction with CPAs, attorneys, Estate Planners etc.

Investment advisors are “Registered Investment Advisors,” (RIA), which, according to Investopedia, means they are “…an advisor or firm engaged in the investment advisory business and registered either with the Securities and Exchange Commission (SEC) or state securities authorities.” For smaller firms and individuals, it is usually the latter. The greater the size of assets under management, the more likely they are registered with the SEC.

Investment advisors are required to hold a Series 65 license, which allows them to function as an “Investment Adviser Representative.” It is NOT a license to sell investment products.

Investment brokers

Like investment advisors, investment broker-dealers (a.k.a, “stockbrokers”) help individuals plan and make important investment decisions.  Investment brokers purchase investment products on behalf of their clients, so they tend to be “transaction-oriented.” They typically hold a Series 63 license, in addition to ether a Series 6 or 7, to be able to sell securities.

Instead of the fiduciary rule, they have historically been bound by a “suitability” obligation to make recommendations that are consistent with their clients’ best interests but not necessarily above their own. If a broker calls himself a “Wealth Manager,” “Investment Advisor” or “Financial Advisor” and does not accept the fiduciary duty of a RIA as described in the Securities Act of 1940, he is misrepresenting himself.

The suitability standard is now changing under the Department of Labor Fiduciary Regulations enacted in 2016 and updated in 2017, but will not take full effect until 2019 and will eventually impact all advisors who prepare retirement plans or give retirement advice to their clients. Most affected will be advisors who work on commission, such as brokers and insurance agents, who were previously governed by the “suitability standard.” They will be held to the “fiduciary standard” if they give retirement account investing or planning advice. (While I view this as a generally positive change, some argue that it will limit access to advisory services by less wealthy clients – the “middle market” as they are sometimes called due to higher administrative costs and fees.)

Financial advisors come in different forms and from diverse backgrounds. Many have been in sales. They may be employed by banks, brokerage firms, mutual fund companies, or insurance companies. Advisors may work independently or as “contractors” for one of those companies. The requirements to become a financial advisor are relatively low (a Series 63, 65, or 66 license, no academic or experience prerequisites).

The job isn’t easy; in fact, it can be very demanding, mainly due to the pressure to acquire new clients and meet certain sales targets. The turnover rate is very high, especially for those just starting out. Pay can be good but not great until they build up a large clientele. It is a growing field – according to the U.S. Bureau of Labor Statistics, from 2010 to 2020, the number of financial advisors is expected to grow by 32%, which is much greater than many other professions.

Financial planners versus advisors

The terms “financial planner” and “financial advisor” are often used synonymously. A financial planner is a financial advisor who creates comprehensive financial plans in addition to providing investment advice.

Financial planners take a comprehensive view of a client’s finances and plan for all areas, including things like college, retirement, insurance, estate, taxes, etc.

In addition to the requisite licenses, many planners carry the “Certified Financial Planner” (CFP) designation, which is a fairly high professional certification standard that requires extensive study and relevant experience. CFPs may be self-employed or work for a small firm or in a large financial institution such as a bank or brokerage.

Context is important

Although financial advisors provide similar types of services, they do so in a variety of different settings. That has some impact on how they deliver their services and also their compensation. Here is an overview of the main ones:

Bank financial advisors

These advisors are employed by a bank and typically receive a salary plus commission to steer you toward bank products and services. For example, if you have a cash balance in your account of several thousand dollars or more, a teller or personal banker (who may also receive a small commission), might bring it up and ask if you would like to see a financial advisor at the branch.

They will also suggest that if you come in and say you want to set up or rollover an IRA or if you have a lot of money to deposit. In those cases, you will be steered toward an advisor in the bank’s brokerage or wealth management division.

If you go that route, depending on the size of your account, you may see someone with limited training or knowledge on portfolio management strategies who will advise you to purchase some mutual funds offered by the bank or a few mutual fund companies.

In most cases, the bank advisors are employed by the bank’s retail securities businesses – for example, Wells Fargo Advisors, Bank of America/Merrill Lynch, and J. P. Morgan Chase Securities. You would also have access to financial planners through these firms who may try to sell you the same products as their advisors.

Mutual fund representatives

These are advisors who work for a particular mutual fund company (e.g., Fidelity, Vanguard, T. Rowe Price, etc.). In this case, you may be choosing a company to work with, not a specific advisor; they may just assign someone to you based on the size of your portfolio.

Like bank advisors, mutual fund company advisors will also be highly incented to sell their products.

Most of these companies’ products and services are very good, but that is not a guarantee that any particular advisor will be. You will need to do your due-diligence before you decide to work with one of them.

Brokerage advisors

These advisors provide essentially the same products and services as those who work for banks and mutual fund companies. The major difference is that they may not be tied to a particular product set. Most brokerage firms offer both online, self-directed brokerage accounts (for do-it-yourself investors), as well as personal advisement and portfolio management services.

Some examples are companies like Schwab, Fidelity, and Vanguard (the “big three”), which are part brokerage/part mutual fund companies. (Some of these also offer banking and insurance!) They offer retail brokerage services but also have a large number of assets under management in their funds.

Others, like Morgan Stanley, Merrill Lynch, and Edward Jones are “full service” brokers. Finally, discount brokers like TD Ameritrade and E-Trade, offer mainly online trading platforms and tools, but may also have a personal advisor option.

Insurance company advisors

Advisors working for insurance companies provide advice and sell investment products, perhaps in addition to offering life insurance, annuities, etc. Almost all the large insurance companies (Met Life, Northwestern Mutual, Mass Mutual, State Farm, USAA, etc.) offer these services.

No longer does your friendly life insurance salesman only sell term, whole, or universal life policies – they may also offer mutual funds, annuities, and other investment products. In many cases, they are selling the mutual funds managed by the insurance company, much like a mutual fund representative.

For example, in addition to a full array of life insurance and annuity products, Northwestern Mutual provides a variety of financial planning services and sells stocks and bonds, mutual funds, CDs, etc.

Although these companies have been under pressure to expand their offerings, their main focus remains life and casualty insurance, and increasingly, different types of annuity products. These include variable and indexed annuities, which may use the company’s mutual funds as the underlying investments.

Independent advisors

These are advisors who have chosen to “go it alone,” but that is not actually the case. They are always affiliated with a mutual fund/brokerage company (like Fidelity or Schwab) or a securities broker/dealer (like LPL Financial) to handle their custodial accounts and transactions, regulatory reporting, client statements, etc.

These advisors are typically RIAs and adhere to the Fiduciary Standard.


A robo-advisor is, well, a “robot advisor.”  Not the Star Wars R2D2 kind, but an online automated portfolio management service. These companies use computer-based algorithms, which are a set of rules that are used to choose the optimal mix of investments for you based on your age, risk tolerance, time horizon, and other factors.

They are typically a fraction of the cost of their human counterparts for precisely that reason – there are no humans involved (other than the ones who program the algorithms and the applications that run them).

The lower cost of these services can translate into better returns for investors. They are worth considering if you want a hands-off, automated service and you don’t have a complicated situation that requires a direct relationship with a human financial advisor.

Robo-advisors are becoming very popular with younger investors who grew up online. Older investors may find them a good alternative too depending on their particular situation, especially if you are drawn to passive index investing using low-cost instruments.

There are quite a few robo-advisors out there, and even some of the more traditional financial companies (like Schwab, Fidelity, and Vanguard) are adding them to their offerings. Some of the major ones are Wealthfront, Betterment, and WiseBanyan, which happens to be “free”.

Financial coaches versus advisors

You may not hear the term “financial coach” very often. To complicate things, other terms like financial life coach, money coach, and certified financial or money coach are used synonymously. Regardless, the main goals of a financial coach are to educate, partner, guide, support, and provide accountability for their clients as they pursue their financial goals.

Financial coaches are not advisors. Whereas a financial advisor helps with managing the money you’ve already saved by using certain financial products and strategies, a financial coach focuses more on the basics and helps you gain the knowledge and skills and develop the behaviors to save it in the first place. Coaches can help you decide how and where to invest, especially those who want to do-it-themselves through education and support, but they don’t give specific investment advice.

A financial coach is focused on education, attitudes, and behaviors – giving you the tools you need to steward your resources well.

Financial coaches come from many different backgrounds. They may or may not have a background in financial services. Some have extensive experience in other areas. Some financial coaches are professional life coaches who specialize in financial coaching. The most widely recognized credentials for professional coaches are those from the International Coach Federation (ICF). There are a few ICF-accredited training programs that offer financial coach training as a “niche” field.

There are other programs out there, such as Certified Financial Fitness Coach and the  Accredited Financial Counselor (AFC) designation, available through Association for Financial Counseling and Planning Education (AFCPE). Finally, there is Dave Ramsey’s Financial Coach Master Series for people that want to help others apply the principles that he teaches in Financial Peace University.

Full disclosure: I am NOT a Financial Advisor. I am a Financial Coach, having received both ICF accredited training through CoachU and Financial Coach Master Training from Ramsey Solutions. However, I would say that most of what I’ve learned about personal finances and retirement stewardship has been through my individual study and life experience, which includes working with many different people over the years.

Financial coaches are less common and are typically self-employed. Some financial firms are starting to employ financial coaches because they recognize a need and the value they can provide.

They’re everywhere; they’re everywhere

As you can see, financial advisors are embedded in all kinds of financial services companies. But they are not all the same. In the next article, I’ll discuss how financial advisors are compensated and what that means to you and your investments.


👋 Hi, I’m Chris Cagle, the founder of Retirement Stewardship, a blog that focuses on the various aspects of retirement from a Christian stewardship perspective (1 Peter 4:10).

I write as a retiree who is dealing with the things I write about. I base most of the articles on my research and experience applying it to my situation and how it might apply to yours.

If you’re new here, check out the site introduction for an overview. You can also learn more about me.


My Books

Redeeming Retirement: A Practical Guide to Catch Up (2021)
The Minister’s Retirement (2020)
Reimagine Retirement: Planning and Living for the Glory of God (2019)