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Chapter 1: Kinds of Advisors

Table of Contents

There are 3 kinds of financial advisors/planners:

  1. Insurance-licensed advisors
  2. Securities-licensed advisors
  3. Insurance- AND securities-licensed advisors

Insurance-Licensed Advisors

Insurance-licensed advisors sell life and long-term care insurance policies, as well as annuities.

They are regulated by the State Department of Insurance.

There are two kinds of insurance licenses available for agents:

  1. Captive insurance license (can only sell products offered by their employer).
  2. Independent insurance license (sometimes called brokers, can sell products from any company).

Securities-Licensed Advisors

There are two kinds of securities-licensed advisors:

  1. Commission-based advisors
  2. Fee-based advisors

Commission-Based Securities-Licensed Advisors

A commission-based, securities-licensed advisor earns income by charging a commission for investments. Commission rates may be reduced for large purchases.

They sell commission-based mutual funds and investments and are allowed to sell commission-based variable annuities IF they hold an insurance license as well.

Commission-based advisors are regulated by the State Department of Insurance.

NOTE: Commission-based securities-licensed advisors may not charge a fee for any services rendered. They may only be compensated by commission.

Fee-Based Securities-Licensed Advisors

A fee-based, securities-licensed advisor earns income by following the fee-for-service model. Fees may include services rendered for financial planning and/or investment management.

They can sell fee-based investments such as stocks, bonds, mutual funds, exchange-traded funds, and more. They can also sell fee-based variable annuities IF they hold an insurance license as well. How are fees determined? The fee charged, which is generally non-negotiable, is a percentage of the total assets you have invested with that firm. The fee rate is set by the firm, not the advisor.

Chapter 2: Regulations