Stockbroker Vs. Financial Planner
Both stockbrokers and financial planners sell investment advice and financial products to investors, but there are many differences in their status, compensation and the way they do business, although these differences are becoming increasingly blurred.
Other People Are Reading
-
Stockbrokers
-
Stockbrokers, also called registered representatives, work for broker-dealers or brokerage houses such as Merrill Lynch or Charles Schwab. Traditionally, their role was to facilitate, or broker, customer transactions in financial products such as stocks, bonds and mutual funds. They were compensated by charging a commission on products and services sold. To become a stockbroker, one has to successfully pass a Series 7 exam administered by Financial Industry Regulatory Authority, FINRA.
Financial Planners
-
The concept of financial planning is to coordinate various aspects of clients' financial affairs such as investments, insurance and retirement planning to help them achieve their financial goals by maximizing returns and minimizing risks. The financial planning industry is much less regulated: virtually anyone can call themselves a financial planner and charge a fee for the service, although a Certified Financial Planner, CFP, designation is becoming a more widely acceptable industry standard. CFP is a professional designation that has to be earned by going through a rigorous examination process, which raises the bar for financial planning practitioners.
-
Principal Differences
-
A stockbroker must be employed by a broker-dealer -- a securities firm that facilitates trading in various financial instruments. A financial planner can be self-employed or work for an independent financial planning firm that may or may not be affiliated with a securities firm.
An investor must have a brokerage account to buy or sell securities. Even if he is using the services of a financial planner, he still has to have an account at a brokerage firm.
Stockbroker commission-structured compensation has long been viewed as a conflict of interest because it encourages frequent trading in customer accounts to generate commissions, which may not always be in clients' best interests. Financial planners avoid the conflict by charging a fee for their services that is either fixed or based on assets under management.
Similarities
-
Many stockbrokers earn a CFP designation to boost their credibility, and charge clients fees based on assets under management to avoid conflict of interest. Financial planners must have a Series 7 license to transact securities business; some also earn commissions on products they sell. Both engage in a name game, giving themselves new titles that have the most customer appeal of the moment. Stockbrokers can come as account executives, investment representatives or even financial advisers; financial planners can be wealth managers or strive to become registered investment advisers.
-
