The reality of the financial services industry is there are multiple business models for providing and receiving financial advice. Some of these business models have conflicts of interest that may influence what products or services are recommended by the financial advisor to their clients. How a financial advisor is compensated normally depends on the licenses that they hold.
Do you know what licenses your financial advisor holds? Discover the licenses they hold and how they are compensated and you will likely understand why they recommend the products and services that they do.
Steps to Discover What Licenses Your Financial Advisor Holds
Step 1: Have they earned the CFP® Designation?
If your financial advisor has earned the CERTIFIED FINANCIAL PLANNER™ designation they have committed themselves to uphold strict ethical standards for making financial planning recommendations that are in the best interest of their client. I recommend reading the following article directly from the CFP® website, “Why Choose a CFP® Professional?”
Form of Compensation: A CFP® professional can be compensated Fee-Only or by both Fees and Commissions. If you search for them at, “Find a CFP® Professional“, their compensation method should be listed on their public profile.
Step 2: Are they a licensed Investment Advisor?
To learn if your financial advisor is a licensed Investment Advisor Representative (IAR), you can search for them at the Investment Advisor Database with the SEC. You can do this by clicking here: IAPD Search
If your financial advisor is an IAR, it means that they are required to uphold a Fiduciary standard of care to put your best interest before their own.
Form of Compensation: An Investment Advisor is normally compensated by either fees received from their client or if they work for a Registered Investment Advisory firm, they may receive a salary paid to them by their firm.
Step 3: Are they licensed with FINRA?
If they hold a FINRA license, it means that they are a Broker or Registered Representative (RR). They may have conflicts of interest in that they can sell you a product that will generate a sales concession or commission.
You can search for them at: BrokerCheck by FINRA
This is also a good place to find background information on your financial advisor, as the licenses that they hold and their working history are listed. If this individual has ever had a disclosure or complaint made against them, it would also be listed here.
Form of Compensation: A Registered Representative (RR) will likely be compensated in the form of a sales concession or a commission for selling a product.
Where things get confusing
A Registered Representative may also be an Investment Advisor. In fact, in our experience, most RR’s also hold an IAR license. This means that the financial advisor may act in a dual capacity where sometimes they may be acting as a broker and selling a product or at other times act as an Investment Advisor that must uphold a fiduciary responsibility.
It is because of this confusion that Fortitude Private Wealth operates as a fee-only financial planning and investment management firm. The only compensation that we can receive is in the form of a fee directly from our clients. No product sales. No commissions.
Have a conversation with your financial profession and learn what licenses that they hold and how they are compensated. This may help you to understand why they are recommending the products and services that they are to you.