The financial services industry is chock full of misleading labels and ambiguous definitions. We are often asked: What is the difference between Advisors/Planners, Investment Managers, Brokers/Agents, and a Holistic Financial Planner? I’m grateful when people ask, particularly if the alternative is to presume there is no difference and not ask the question at all. (There are no stupid questions – Always ask!)
The unfortunate truth: there is no regulated, standardized, or definitive distinction between these terms. Nearly anyone can call themselves an advisor and/or holistic financial planner. You may have noticed that no one identifies as a Broker anymore! Where did all the Brokers go? Hint: they call themselves Advisors now.
What is holistic financial planning?
RCS Financial Planning is a fee-only service provider providing holistic financial services. Our holistic advisors offer expert tax advice, mortgage help, build budgets, create debt management strategies, and perform objective assessments of your insurance needs. We also provide retirement planning, investment advice and management. We create a plan to tie every part of your financial life together.
We are paid by you, either a flat fee or a % of the assets we manage on your behalf. By law, we are subject to a fiduciary standard and must place your interest (as client) above our own and manage any conflicts of interest in your favor.
Conversely, Brokers (“agent”, “registered rep”, “advisor”) are more transactional and emphasize product sales. Brokers receive commissions from companies for the products into which they employ your assets and the trades made in your account. Some may also charge a separate “advice fee” on top of the other fees they collect.
Until regulatory intervention stops this labeling madness, here are a few things to watch out for.
Five signs your “guy” is NOT a holistic financial planner
- They only care about your money. If the professional is only interested in your investable assets and doesn’t ask about your current lifestyle spending, your future goals, or understand your tax situation, they are not a holistic financial planner. How can they plan for your retirement income if they don’t know how much you spend today? Questions to Ask: “Can I afford to take six months off work to travel?” “What are the long-term implications of becoming a stay-at-home parent?”
- They don’t incorporate employer assets into your plan. If you are a federal employee and your broker shows zero interest in understanding or incorporating your TSP (Thrift Savings Plan) holdings into your projections and advice, look elsewhere. While TSP plans have investment limitations, they are also low-cost. If your guy immediately suggests that you roll your assets into higher-cost funds under their management without a compelling reason – Run!
- The answer to all your questions is a product (i.e., “they pull a product off their shelf”). If their proposed solution to all your family’s financial questions is to recommend a productrecommend a product (“Let’s look at getting you more insurance”; “Let me tell you about annuities”), be wary! There is no single magical product that solves all your planning issues. Questions to Ask: “Do you make more money recommending some products over others?”; “What fees are you collecting when you initiate this transaction on my behalf?”
- They won’t explain their investment strategy. Your advisor should be able to explain their investment philosophy and provide insight into their fund choices. Sometimes, “advisors” employ 3rd party asset managers to handle the day-to-day management of your portfolio. If so, are you comfortable paying x% fee just for them to act as a middleman? Questions to Ask: “Why are you selecting XYZ Large Cap funds vs. ABC Large Cap funds?”
- They aren’t clear about how much you are paying! There are advice/planning fees as well as fund expenses and trading costs. Your advisor should fully disclose what you pay and where those fees go. If you are paying more than 1% and only receiving investment management I’d suggest you rethink! Questions to ask: “Who makes money from my account –how much?”; “Are there similar funds with lower costs?”
Maybe you don’t need or want a holistic financial planner. If you only need transactional assistance, maybe a Broker is the answer. Just be sure you aren’t overpaying for services that are readily available via discount brokerages and robo offerings.
Seek out the services you need and make sure you get what you pay for. Always ask questions: especially the silly ones! We are here to offer clarity and honestly answer your questions. That’s what a holistic financial planner does.