Breaking Down the Industry for Financial Advice

Breaking Down the Industry for Financial Advice

The industry for financial advice is confusing.  Professionals in the business of helping the public with their personal finances work for different types of companies, are compensated in different ways, and have varying standard by which they’re required to treat their clients.

This is my 13th year in the industry.  Though my experience probably gives me more knowledge than the average consumer, there are quite a few I’m confused by all the layers at play.  (Yeah yeah, there’s a joke to be made there).  Whether it’s my cognitive abilities or whether the industry is in fact confusing, this post will attempt to break down & describe the industry for financial advice.  I’ll split this up into a few statistics, how advisors are compensated, one of the major problems this structure creates, and how you might interview an advisor you’re considering.


The Numbers

There are a lot of financial professionals in the United States.  FINRA (Financial Industry Regulatory Authority), is the national organization that keeps track of advisor licensing and currently lists about 630,000 representatives registered to deliver financial advice.  Now, many of those are not in the direct business of financial advice.  They may be investment bankers, they may be operational staff, and they may be running narrow products and services like managed futures or commodities strategies.  None of these are what I’d consider to be in the business of providing financial advice or planning services.

Cerulli Associates is a research company that does a much better job putting a finger on the actual number of people delivering some type of financial advice across the country.  Their most recent study estimated about 311,000, which includes professionals across all industry channels.  Of those 311,000, only about 50% deliver financial planning services.  Meaning, there are more or less 155,000 financial professionals in the US directly delivering advice and planning services.  This seems surprisingly low to me, given that there are about 125 million households across the country.  That means that if only half of the households in the US worked with a financial planner or advisor, each advisor would need to serve over 400 households!

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