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Understanding Financial Advisor Lingo Thumbnail

Understanding Financial Advisor Lingo

Insights

Financial Jargon

The financial industry as a whole is loaded with jargon and confusing terminology, and as a consumer it can be confusing to know what really matters. It’s a big decision to find someone to work with on your financial life, and it can be hard to know who is really on your side. My goal with this post is to dig into some terms you’ll see related to financial professionals, and what things you should think about when choosing someone to work with.

Financial Advisor vs. Financial Planner

These terms aren’t regulated, so you can’t really tell exactly what a financial professional’s business model is without researching a little more. Financial advisor is a more general term that might mean they are focused on the investment management aspect of your finances, while a financial planner is usually looking more broadly at all aspects of your financial life. You’ll sometimes see the terms comprehensive or holistic financial planning used by financial planners. You can expect financial planners to focus not only on your investments, but also tax planning, retirement, insurance coverage and many other things that come up in our financial lives. By the name you can probably tell that Ankeny Financial Planning is definitely in favor of taking a comprehensive approach. I believe investing is an important tool, but it’s only one aspect among many that we have to look at and plan for. It is always a good idea to research any financial professional before working with them by reading through their website and interviewing them to make sure their beliefs are in line with your own.

Fee-Only vs. Fee-Based vs. Commission

These terms are all related to how a financial professional is paid. At the simplest level a financial advisor can be paid in two ways: fees paid directly to them by their clients or commissions earned from selling a company’s products. Some professionals make most or all of their money from commissions, for example an insurance agent. Fee-based means an advisor earns money both from product commissions and fees paid by clients, and fee-only means the only compensation an advisor receives is what gets paid to them by their clients. Being fee-only removes a major conflict of interest in the client relationship because there is no incentive to recommend a product in order to earn a commission. Ankeny Financial Planning is a member of several different organizations that require all members to be fee-only. No relationship is ever 100% free from conflicts of interest, but my view is that this is the most transparent and fair way for advisors to make money. You should always know how your advisor is compensated, and my goal is to be as clear as possible, which is why our pricing is posted visibly on the website here: Services & Fees

Fiduciary vs. Suitability

Fiduciary is a fancy word that gained a lot of traction in the news a couple years ago when the Department of Labor (DoL) introduced a rule that was going to require anyone advising retirement accounts to act as a fiduciary. The bottom line is that a fiduciary is someone that is bound to put their client’s best interest first, even before their own. Some financial professionals are held to a “suitability” standard, which means they only need to prove that a recommendation was suitable for a client, but not necessarily that it was the best thing for them. The DoL rule has gone back and forth several times, and is still not implemented, but I believe whether there’s a law or not you need to make sure anyone giving you financial advice is acting as a fiduciary at all times.

Ankeny Financial Planning = Independent, Fee-Only, Fiduciary

These terms are how I broadly represent Ankeny Financial Planning, so I hope this clarifies some of the financial advice industry lingo and reflects the values that are needed for consumers.

  • Independent: I don’t answer to any larger organization, everything is set up for what makes sense to me and my clients.
  • Fee-Only: I am only paid by my clients, and my flat fee model for financial planning means I’m paid the same amount no matter what I recommend.
  • Fiduciary: My clients interests come first, no matter what.

If you want to find out more and see if we’re a fit to work together, schedule a complementary meeting.

Thanks for reading!

-Ryan