For most of history, financial advisers and stockbrokers had access to information the average citizen did not. The Internet didn’t exist, so people couldn’t hop online at any point and see thousands of articles about the latest buzzworthy company. Nor were up-to-date financials at the average person’s fingertips. In those times, people relied almost solely on the “insider” knowledge of their financial adviser or stockbroker to make investment decisions.
Technology has certainly caused a big shift in that relationship, as well as in the value that both stockbrokers and financial advisers provide for clients. Other changes in the industry have also caused an evolution of these roles.
The difference between a financial adviser and a stockbroker is sometimes confused, as stockbrokers can serve as advisers to their clients and vice versa. However, the Investment Advisers Act of 1940 determined that a Registered Investment Adviser (RIA), which many financial advisers are, carries a different responsibility than a stockbroker by way of what’s called “fiduciary duty” – putting the client’s best interest first.
Another industry change that further defined and separated these roles occurred after the Tax Reform Act of 1986 when many types of tax-shelter investments, like rental properties, were eliminated and fixed trading commissions were de-regulated. These changes led to the peak of commission-based stockbrokers (think “The Wolf of Wall Street”) and, ultimately, to the progression of the role of adviser as it is today. Advisers offer advice, looking at clients’ wealth holistically instead of acting as a salesperson (like a stockbroker).
In addition to managing investments, financial advisers offer:
- Retirement planning: Everyone wants to know, “Do I have enough?” Financial advisers devise a plan on how much to save and what investments to use for clients to be able to retire when they want.
- Estate planning: How and to whom do you want to leave your assets when you pass? Financial advisers work with clients, their families and attorneys to ensure financial wishes are carried out in the most efficient way possible, avoiding future hefty legal bills and lengthy probate court timelines.
- Tax planning: Clients want to do everything they can to minimize their tax burden. Financial advisers can strategize various account contributions to help reduce taxable income, as well as work with clients’ CPAs to review tax returns and see if there is anything else that should be done.
- Other financial goal planning: Many clients have more financial goals than just retirement, like planning for a wedding, purchasing a home or saving for a child’s future education.
The client’s role has also shifted. With so much financial information readily available to them, it’s easy for clients to question every decision their adviser makes. (“Why did you sell X? You should buy Y!”) But, it’s more important than ever to work with a trusted professional who can help sort through the vast amounts of news, advertisements and information (sometimes misinformation) out there and choose investments that help them achieve their specific goals.
The bottom line is the industry has evolved towards relationship-based financial planning, which benefits all parties. Life happens to all of us in the most unexpected ways, and the true value of the relationship is in having someone there to help when that curve ball is thrown that could impact your financial health.
Jennifer Pagliara, CFP, is an executive vice president and financial adviser at CapWealth and a proud member of the Millennial Generation. Her column speaks to her peers and anyone else that wants to get ahead financially. For more information about Jennifer, visit capwealthgroup.com. This article was published in The Tennessean on May 20, 2019.