When I first meet with prospective clients or introduce myself at the beginning of a class, I often take a minute to explain how my work as a fee-only adviser may differ from the approach of other types of financial professionals. What follows is a quick and informal summary of the most common sorts of roles somewhat involved in the advice industry.
Accountants and tax professionals are primarily engaged in financial management from the perspective of, well, accounting. They work with companies and people on proper reporting and organization of financial statements, and often have a special care around promoting tax efficiency and compliance with tax related laws.
The term “adviser” can be generic and can apply in some measure to all of the other categories on this list. However, there is a specific type of adviser -- the Registered Investment Adviser -- that warrants its own description. My firm, DRW Financial, is organized as a Registered Investment Adviser (RIA for short). RIAs have a few distinguishing characteristics:
Brokers work to bring together buyers and sellers of something: stocks, bonds, options, commodities, etc. A person can broker more than one sort of investment product or focus solely on a specialty. In commodities, in particular, it may be typical for a broker to deal only in wheat, or oil, or pork bellies. Brokers operate in many different ways, but tend to share a few characteristics:
Insurance agents may be primarily concerned with Property and Casualty insurance (P&C for short, and referring to policies covering cars, boats, homes, etc), with life and health insurance, or a combination of all the above.
Various Combinations exist among all of the categories mentioned above. It is relatively common for a person licensed as a broker to also have a segment of their business run as a RIA; similarly, many brokers will also hold an insurance license allowing them to sell insurance products to their clients. Accountants can be brokers or advisers; investment advisers of different sorts occasionally offer tax advice.
When I started DRW Financial, the decision to organize as a fee-only financial adviser came down to my own preferences and views on the industry. While I believe that there is value in each core role and even some combinations of roles, I prefer the alignment of incentives and transparency of motivation in the RIA model.
A word on designations: The financial industry is absolutely covered up in an “alphabet soup” of designations, certifications, charters, and industry groups. CPA is pretty recognizable in the tax world, CFP is becoming well known among advisers, CLU pops up on the business cards of some insurance agents...but there are many more out there as well. The idea behind each (competing) designation is that the holder of those letters has taken coursework, passed an exam(s), and meets “continuing education” requirements to maintain the designation. The designations in themselves do not enable a financial professional to trade a particular product or serve a given population. In some cases, the designation requires adherence to a particular code of ethics.
David R Wattenbarger, president of DRW Financial
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