It may surprise you to learn that terms like “financial advisor,” “financial consultant,” and “wealth manager” are generic job titles. They aren’t regulated terms and don’t actually mean very much as far as credentials or education or skill. Anyone can call themselves a “financial advisor.”
But there are a few terms that are heavily regulated in the financial industry, and you should probably know what they mean.
“Investment Advisor,” for example, is an official title regulated by the Securities and Exchange Commission (SEC). Investment Advisors are licensed by their state to offer financial advice as well as manage investment portfolios. They are also held to a fiduciary standard, which means that Investment Advisors are required to act in their clients’ best interests.
This is important to you, a consumer. An Advisor who is held to a fiduciary standard is required to match your financial objectives and risk tolerance with their recommendations and actions. They are also required to keep their own fees reasonable and fair. Finally, they are required to put your best interests ahead of their own, or the company’s. In other words, their legal duty is to make the best decisions for you, not for their own profit.
Compare that to “Registered Representative,” another official title, and you’ll notice some important differences.
The term “Registered Representative” may not be on your radar. We feel it’s a bit outdated, but you’ll still see it out there, so you should know what it means when you do.
A Registered Representative is also called a Broker. This title used to mean someone who sold stocks or bonds. Today, they generally make their living by selling mutual funds and/or life insurance.
Unlike Investment Advisors, who are often independent, Registered Reps usually work for a broker-dealer. Brokers are regulated by the Financial Industry Regulatory Authority (FINRA).
Brokers are held to a “suitability rule” rather than a “fiduciary standard.” This means that their recommendations need only be “suitable” for the needs of the client. Furthermore, a broker’s primary duty is to their employer, not to their clients.
You can see how this can be problematic. Brokers/Registered Reps are also paid differently from Investment Advisors, and that’s important to know. Registered Reps usually earn commissions for selling products and/or trading stocks and bonds. Again, this reinforces the duty to the employer over the client. Investment Advisors, on the other hand, are generally paid directly by their clients.
Shadowridge Asset Management, LLC is neither a broker-dealer nor do we work with Registered Representatives. All of our advisors are registered Investment Advisors who take their fiduciary duties quite seriously.
Just how seriously? All of us have gone above and beyond the requirements for an Investment Advisor and have chosen to obtain additional designations voluntarily. (Maybe we’re just geeks like that.) Here are they are, in order from most well-known to least well-known.
CFP® aka CERTIFIED FINANCIAL PLANNER™ Professional
The CFP® designation has been called the “gold standard” for financial professionals. The professionals who choose to earn this designation are regulated by the Certified Financial Planner Board of Standards, and they have strict guidelines. To become a CFP®, you must:
- Have at least a Bachelor’s degree and 3 years of relevant experience in financial services
- Pass a comprehensive certification examination covering a wide range of financial topics
- Pass a thorough background check and ethics examination, as well as agree to the CFP Board’s Code of Ethics and Rules of Conduct
- Agree to complete 30 hours of Board-approved continuing education courses regularly, to keep up to date with the changing financial services industry.
At Shadowridge, Laura Redfern is our CFP® professional.
CMT® aka Certified Market Technician®
The CMT® designation demonstrates comprehensive knowledge and advanced technical skills to conduct research and recommend trades and investment strategies. More than the ability to read a chart accurately, the CMT® must pass three levels of examination showing understanding of concepts such as technical analysis, Dow Theory, Elliot Wave Theory, point-and-figure charting, volatility measures, statistical applications, and behavioral finance, just to name a few.
Like CFP®’s, CMT®’s are held to a high level of ethics requirements, including adherence to the CFA Institute’s Code of Ethics and Standards of Professional Conduct. They must have at least three years of work experience and obtain three sponsors before earning the designation.
At Shadowridge, Ryan Redfern is our CMT® wizard.
BFA aka Behavioral Financial Advisor
Behavioral finance is an offshoot of conventional financial theory that recognizes that in the real world, human decision-makers are often influenced by emotion, biases and cognitive errors. Let’s face it: we are humans, not computers. BFAs are trained to recognize the human fallibility in themselves and in their clients. As a result, their focus is to help clients recognize and manage their emotions, values, and suboptimal tendencies to lead to better financial decisions and outcomes.
BFAs must commit to a series of coursework and pass a certification exam. They must also complete 20 hours of continuing education courses every two years to stay current with the ever-changing financial planning profession.
At Shadowridge, Phil Lebkuecher is our resident BFA.
CeFT® aka Certified Financial Transitionist
Similar to how Behavioral finance is an offshoot from a conventional, technical approach to personal finance, Transitionist training is an advanced branch of financial planning that involves a focus on life transitions and how to help guide clients through these times of change. Ultimately, CeFT advisors aim to help clients adjust to their new reality and settle into a new normal after a life-changing event.
To earn a CeFT designation, a professional must first already have an existing advanced designation, such as CFP®, CFA, or CPA. Then, there is a yearlong training program before sitting for the daylong certification exam. This live exam tests candidates through written case studies and an oral role-playing as well as traditional multiple choice and structured Q&A.
The program also requires at least five years of face-to-face client service experience, as well as an ongoing commitment to 15 hours of continuing education per year and adherence to the Sudden Money Institute Code of Ethics.
At Shadowridge, Laura Redfern is our CeFT® pro.
And now you know! There’s a lot of “alphabet soup” out there when it comes to Financial Advisors. Knowing a little vocabulary can empower you to understand who you are working with and how they can help you.
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