The Ultimate Guide to Choosing a Financial Adviser in Texarkana (or anywhere else!)

Searching for a financial adviser in Texarkana (or anywhere else) may not be an easy process. According to FINRA’s BrokerCheck, 85 individuals in Texarkana hold a securities license to market and sell investments.

When you add the “insurance only” advisers, you’ll discover more than 100 people who can legally call themselves “financial advisers.” That’s a lot of choices to sift through to help you manage your hard-earned money. These results aren’t specific to Texarkana — you’ll likely find similar results wherever you live.

Here’s an in-depth breakdown of the different types of financial advisers. When you understand your options, you can make a fully informed decision that’s right for your finances.

Financial Advisers, Financial Planners, and Wealth Advisers

Before discussing the different types of financial advisers, you must first understand that the term “financial adviser” is a broad title. It’s often used interchangeably with:

• Financial planner
• Wealth adviser
• Investment adviser
• Broker
• Investment analyst

The list doesn’t end there. Financial advisers can go by several other similar titles.

For the purposes of this article, we’ll use the term “financial adviser” — just know that if someone uses another title, the same information applies.

Requirements to be a Financial Adviser

You might be surprised to discover that no education or competency requirements are required to call yourself a financial adviser. But you do need to take a test. This may be a securities exam, or as simple as an insurance exam. As long as you pass with the minimum score, you can claim the title.

This is a stark contrast to other professions. For example, consider the requirements to call yourself an attorney: You must graduate from law school and pass the bar exam for the state where you want to practice. The same is true for CPAs and medical doctors.

Because of the lack of formal education requirements, there’s an incredibly low barrier to entry into the profession.

But here’s the thing: It doesn’t mean that an individual with a Ph.D. in Finance will be a better financial adviser than someone with less formal education. One of the most brilliant and successful financial advisers I know was a high-school band teacher for 20+ years before he switched careers.

However, understanding the requirements to call yourself a financial adviser should raise your awareness when starting the journey to find Social Security advice or the right adviser for your situation.

The Different Types of Financial Advisers (and How to Tell the Difference)

Within the field of those who call themself financial advisers, you’ll find multiple licenses and registrations. These different licenses and registrations allow access to different products and methods for charging for their services.

The simplest way to learn how a financial adviser may be compensated is to check FINRA’s BrokerCheck service — it’s free to use. FINRA stands for the Financial Industry Regulatory Authority, and it regulates all securities firms that do business with the public.

Brokers and Investment Advisers

Once you put in the name of an adviser, you’ll see the results card displayed. Along with some other information, this card will show if they are currently registered as a:

• Broker
• Investment Adviser

Or, it may also show if the individual was previously registered as a broker or investment adviser.

Here is the definition of each category as defined by FINRA:

• Broker: A brokerage firm, also called a broker-dealer, is in the business of buying and selling securities – stocks, bonds, mutual funds, and certain other investment products – on behalf of its customer (as broker), for its own bank (dealer), or both. Individuals who work for broker-dealers – the sales personnel are commonly referred to as brokers.
• Investment Adviser: An investment adviser is paid for providing advice about securities to clients. In addition, some investment advisers manage investment portfolios and offer financial planning services. It is common for a financial professional to act as both a broker and an investment adviser. Because of this, we include investment advisers on BrokerCheck, and provide links to the SEC’s Investment Adviser Public Disclosure (IAPD) website so you can research further.

Here’s my definition of those terms in a way that’s easier to understand:

• Broker: A broker sells investments for a commission. A broker is generally not held to a fiduciary standard.
• Investment Adviser: An investment adviser does not earn commissions. Instead, they are paid based on advice. This payment may be on an hourly basis or based on a percentage of the investments he/she manages for you. An investment adviser is held to a fiduciary standard.

Dually Registered

In many cases, you’ll see that an individual is registered as both a broker and investment adviser. This means they’re “dually registered,” which is common in larger firms. Being dually registered allows the person to earn commission through the sales of investments and fees for rendering financial advice.

If you engage a “dually registered” adviser, make sure you understand what “hat” they are wearing for your accounts — they could let the draw of a commission outweigh your best interest.

Previously Registered

You may also notice individuals marked as “Previously Registered Broker” or “Previously Registered Investment Adviser” in the registration results. In this case, an individual is no longer registered to provide services in that capacity.

For example, if you look up my Brokercheck record, you’ll see that I’m a “Previously Registered Broker.” I dropped all the registrations that allowed me to conduct securities business on a commissioned basis when I made the switch to fee-only.

What If My Financial Adviser Isn’t Found In BrokerCheck?

If the individual you are checking on does not show up in the search results, it could be that they only hold an insurance license. Insurance licenses are regulated by the individual state where the agent is doing business and wouldn’t show up in BrokerCheck.

To verify that the individual is actually licensed, you’ll have to visit the Department of Insurance website for the state the agent is doing business in. Find your State Department of Insurance using the National Association of Insurance Commissioners (NAIC) directory.

If someone has an insurance license only, they can only sell you insurance products. They can call themselves a financial adviser or use another fancy title, but at its heart is the creation of an insurance company.

In my experience, I’ve found a few times when insurance products are useful. But beware that, in many cases, the two types of people that benefit the most from insurance product sales are the company that created them and the agent who sells them.

What About BrokerCheck Disclosures?

When conducting due diligence on your financial adviser through BrokerCheck, you’ll see the section on disclosures. Disclosures are one of the most important sections of the BrokerCheck service. Unfortunately, it is also the most confusing.

In FINRA’s words, a disclosure can be “customer complaints or arbitrations, regulatory actions, employment terminations, bankruptcy filings, and certain civil or criminal proceedings that they were part of.”

This broad net means that disclosures may be serious or completely frivolous.

For example, suppose an investor alleges that their adviser didn’t explain an investment, and alleges they lost money due to that lack of explanation. In that case, the adviser will likely get a permanent mark on their record — even if the investor’s complaint is summarily denied.

If the BrokerCheck section on Disclosures is marked “No,” you do not have to look any further. If the disclosure section is marked “Yes,” take time to read the disclosure and determine for yourself if it concerns you.

What About CFP® and Other Designations?

Financial advisers have a long list of initials that could come after their name. If you want to see for yourself, look at FINRA’s list of 215 professional designations.

The most widely known is the Certified Financial Planner™ (CFP®) designation. It’s quickly gaining ground as the gold standard designation among financial advisers. To get the coveted CFP®, an adviser must complete specific education and experience requirements. Then, they must take the examination to become certified and follow it up with continuing education credits.

Even though it’s the “gold standard” of professional financial advice, it has its share of challenges. Still, being a CFP® requires the adviser to be a fiduciary, which means they must act in the best interest of their client and put your needs first.

That’s why I require all of my advisory staff to either have the designation or be actively working towards certification when hired.

The individual you choose to work with may not have the CFP® if they have been in business for a long time. For example, the popularity and public recognition of the CFP® has grown considerably over the past 15 years. If the adviser you are considering has been in business for longer than that, it could be that they simply missed the window for gaining additional certifications due to the slowdown of their business it would require.

Why a Fee-Only Fiduciary Adviser Is the Best Choice

In my conversations with my wife about the next steps she should take if I should die, I’ve been very clear: She should use a fee-only fiduciary adviser.

I base this on my experience having been on both sides of the fence. During the first part of my career, I was registered as a broker only. Later, I became dually registered as both a broker and investment adviser. I’ve since dropped all of the broker registrations, and now I’m registered as an investment adviser only.

In my opinion, any other arrangement presents the opportunity for conflicts of interest.

The Knowledge Gap

From my experience with time spent with a large brokerage firm and the past few years as a fee-only adviser, there is a knowledge gap between being a broker and an investment advisor.

For example, in the fee-only conferences, online groups, and meetings I attend, the conversations are generally on best investing techniques, how to lower cost in portfolios, how to navigate complex financial planning topics, the latest information on tax laws, estate planning, asset protection, educational and retirement planning, and how best to use this information on behalf of the clients that hire us.

In contrast, the topics of discussion at the brokerage conventions were generally centered around sales. The common topics were often “how to sell more XYZ products”, or “how to overcome common sales objections”. These are excellent examples of good training for a salesperson, but they aren’t necessarily tactics I want to be deployed on my wife when making decisions with our money.

Instead, I want the advice to be objective and based on the needs of my wife — not centered around the “adviser” meeting his sales quota or qualifying for the next incentive trip to Turks & Caicos.

Choosing a Financial Advisor: The Bottom Line

Here’s what I want you to take away from this article: For you to find a financial adviser you like, you’ll need to put in some work. But now you have the information you need to help your search.

If you are preparing for the transition into retirement, have saved more than $500,000, and want to find out more about how my team’s expertise can help you create a plan to optimize your retirement income, please don’t hesitate to get in touch. We’re fee-only fiduciary advisors and work with you to make the best decisions for your life.