0:00 In this video, I'm going to give you an introduction to the different types of financial advisors you've come across.

0:06 Now would it surprise you to know that there are more than half a million financial advisors in the US, but you should know financial advisor is a pretty loose term.

0:16 Somebody selling life insurance can label himself a financial advisor just as easily as the wealth adviser managing billions of dollars of people's retirement money.

0:27 And that's because financial advice is an industry.

0:30 It's not a profession.

0:32 It's not like medicine or law.

0:34 Doctors, lawyers, they have to take strict exams.

0:37 They've got to meet strict education, experience, and ethical standards, but in the financial advice industry there are no universal requirements, not even a legal duty to put your best financial interests first.

0:51 In fact, most advisors making recommendations for your money are not even fiduciaries.

1:00 So you might be utterly confused about financial advisors, what they do, what they don't do, how much they charge for their services.

1:08 If that's the case, you're not alone.

1:11 But let me make it easier.

1:12 There are just 3 main types of advisors, and understanding the difference between them is going to really help you figure out what's going to be best for you.

1:23 Let's start with the first type of financial advisor.

1:26 These are the ones that you're going to bump into most often.

1:28 They're the brokerage and insurance agents.

1:31 Now this is by far the biggest, most visible category of advisors.

1:36 These are the advisors that work at big brokerage firms.

1:39 They sell mutual funds, annuities, and other products, and they earn commissions whenever you buy or sell.

1:45 And yes, those commissions do come out of your pocket.

1:49 How do I know this?

1:50 I used to work as a broker.

1:52 Brokerage advisors may or may not have any financial advisor credentials.

1:58 For example, most are not certified financial planning professionals.

2:03 You should know that brokerage advisors are not legally fiduciaries, meaning that their recommendations merely need to be suitable.

2:12 At the time they make the sale, but not necessarily in your best financial interest.

2:17 They're typically recommendations made with very little context.

2:20 That's very different from holistic advice where an adviser does a deep dive to understand your whole financial life before advising you on what to do with your money.

2:31 So here's an easy way to remember this: advisors of brokerage firms don't work for you.

2:37 And they may hate me for saying this, but they get paid to sell, not advise.

2:44 Now the second category is fee-based advisors.

2:47 Now this one's tricky.

2:49 Fee-based means the advisor works independently outside a brokerage firm, but in terms of compensation, it's kind of a confusing middle ground because fee-based advice means that they can charge you directly for the advice for a fee, but at the same time still make recommendations that will generate commissions for them.

3:07 So.

3:07 Don't confuse fee-based with fee-only.

3:10 The important point to remember is that fee-based advisers charge their fees and earn commissions, and this creates a conflict of interest because how are you ever really going to know if you're getting advice that's truly about you or their bottom line.

3:27 The third category are fee-only advisors.

3:31 They're called fee-only because they're only paid by their clients.

3:34 So these are the only advisors that are legally required to act in your financial best interest 100% of the time.

3:42 They're registered investment advisors, and that's important.

3:46 They work independently.

3:47 You're not going to find them at brokerage firms.

3:49 They don't sell products, they don't earn commissions, and they don't take kickbacks.

3:53 Instead, they provide holistic advice that covers everything from taxes to your benefits at work, stock options, special needs, estate planning, and most importantly, helping you make sure you never run out of money during your retirement.

4:12 So at the end of the day, it's going to be your choice as to what kind of advisor, which type you want to hire, and if you do, it's important to follow the money and understand how they're compensated so that you make sure that it's someone who works only and directly for you, not a brokerage firm, not an insurance company, just you.