Fee Only Advisor
Fee-only financial advisors receive all of their compensation in the form of fees that are paid directly by their clients. Fee-only advisors seek to maintain objectivity by avoiding any compensation tied to product recommendations or transactions. Fee-only advisors do not accept commissions from annuity product sales or any other type of product sale.
Fee Based Advisor
While the term fee-based differs slightly from fee-only, there is a substantive difference between the two types of financial advisors. Fee-based advisors also receive compensation directly from their clients. However, in contrast to the fee-only model, fee-based advisors are also able to receive compensation from the recommendation or sale of products.
Similar to financial advisor, financial planner is a broad term that covers many different activities, For the purposes of this buying guide and in the context of retirement income planning, a financial planner is a person who provides a structured framework with which clients can develop, monitor and measure financial goals and objectives.
Registered Investment Advisor (RIA)
A registered investment advisor (RIA) is a person or firm that provides investment advice and acts as a fiduciary on behalf of clients. RIAs provide investment advice through an advisory account, which requires that they act in the best interests of their clients at all times. This requirement and standard is vastly different than the brokerage accounts used by stockbrokers or registered reps.
RIAs must provide clients with a Form ADV which describes how they do business, reveals any potential conflicts of interest, and clearly describes how they are compensated. Advisory account compensation is typically through a fee that is disclosed in advance. Any other forms of compensation such as commissions must be disclosed, acknowledged and agreed to in advance by the client.
Registered Rep
A registered rep is employed by or affiliated with a broker-dealer. A registered rep buys and sells securities (provides brokerage services) on behalf of clients. Registered reps may also provide investment advice, but only if the advice is incidental to the brokerage services.
A registered rep is very different from a registered investment advisor or RIA. First, unlike a RIA the registered rep does not have a fiduciary relationship with their client.
Second, registered reps provide their services through a brokerage account. In contrast to an advisory account, there may be clear conflicts of interest between the registered rep’s objectives and the objectives or best interests of the client. For example, registered reps may have strong financial incentives to sell products that are manufactured or underwritten by their brokerage firm, and those products may not be in the best interests of the client.
Rather than fiduciary obligations, registered reps are held to something called a suitability obligation. This basically means that the registered rep must believe that their recommended security is suitable for any investor and for the particular investor to whom it is sold. This is a very different—and much lower—standard than a fiduciary obligation.
Stockbroker
A stockbroker is essentially the same as a registered rep.
Independent Insurance Agent
An independent insurance agent is free to contract with and represent multiple insurance companies. In contrast to captive insurance agents, independent agents are free to recommend to their clients the insurance products and companies they consider appropriate.
Captive Insurance Agent
Captive insurance agents contract with and represent a single insurance company. In contrast to independent agents, captive agents can only sell a single company’s set of products to their customers.
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