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3 Types of Financial Advisors: How to Choose Your Best Fit


“Choices are the hinges of destiny.” – Edwin Markam

Imagine that you are navigating a seemingly infinite number of career options. Maybe there are several companies that want you to lead the next stage of their growth. You know that not all options are in the best interest of your career, and you want to make decisions that will help you achieve your long-term goals and solve your immediate challenges.

To help you evaluate your options and decide on the best course of action, you decide to hire a career consultant. You quickly discover there are three types of consultants you can work with:

  • Consultant #1 takes the time to get to know you, your current challenges, your skills and, perhaps most importantly, your long-term goals. This agent has no incentive to steer you toward a specific company.
  • Consultant #2 has more of a checklist mentality. This agent’s interaction with you is simply a series of individual transactions and does not include an ongoing strategic approach to your career. This agent is also paid a commission when you sign with a particular company.
  • Consultant #3 wears two hats. Sometimes, this agent functions like Agent #1, taking a long-term, strategic approach to your career planning. Other times, this agent functions like Agent #2 by executing transactions and being paid commissions. Your biggest challenge is in distinguishing when this agent is wearing hat #1 or hat #2 because the difference is huge, and it really matters.

Which agent would you choose? For most of us, the choice is obvious. But what if you used the same criteria when evaluating financial advisors? At Creative Planning, we believe the differences between your real-world options for financial advisors are very similar to the differences between the examples described above.

Financial advisors typically fall into three categories: independent investment advisors, broker-dealers and dually registered advisors. In the following table, we illustrate the differences between the three types of advisors and how these differences can impact your long-term financial goals.

Spoiler Alert: Creative Planning fits into the independent investment advisor category (the financial planning equivalent of Consultant #1 above), which is the type of advisor we believe is appropriate for most people.

Option #1: Independent Investment Advisor

Key Attributes

  • Fiduciary advisor with an ongoing legal responsibility to put your best interests first
  • Strives to build long-term relationships
  • Typically paid a quarterly or annual fee
  • Avoids and/or disclose conflicts of interest

Potential Impact

  • Advice is in your best interest
  • Lower costs
  • Good probability of achieving long-term goals

Option #2: Broker-Dealer

Key Attributes

  • Typically operates on a transactional basis
  • Typically paid a sales-based commission
  • Legal obligation to you is limited to the time of the transaction

Potential Impact

  • Built-in incentive to sell you products
  • May sell proprietary products
  • No ongoing strategic approach to your financial goals
  • Your portfolio may include investments that do not align to your current situation and future goals.

Option #3: Dually Registered Advisor

Key Attributes

  • Serves as both a broker-dealer and an independent investment advisor
  • Legal obligations to you change as the dually registered advisor alternates between the two roles

Potential Impact

Requires you to constantly confirm whether they are acting as a broker-dealer or an independent investment advisor. The difference between the two is very important.

Why Creative Planning?

Creative Planning is a fiduciary. Our employees are fiduciaries. We do not sell our own investment products. We are not incentivized to recommend one particular investment product over another. We make customized recommendations to help you achieve your goals because we take the time to understand what those goals are and where you stand on the path toward achieving them. We deliver a depth and breadth of services and capabilities that many independent investment advisors are simply unable to provide. These services and capabilities include not only financial planning, but also tax, trust and estate, insurance, retirement planning, investment management and more. And we offer all of these services while providing a personalized experience for each client.

Simply put, Creative Planning exists because we believe you deserve access to comprehensive service that is always in your best interest and specifically designed to help you achieve your long-term goals. As fiduciaries, we are legally and ethically bound to act in your best interest, and we take our role as your trusted advisor very seriously.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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