Glossary

A financial planning model in which the planner provides advice and recommendations but does not sell financial products, manage client assets, or take custody of funds. The client retains full control of implementation. Compensation is typically a flat or hourly fee paid directly by the client.

A compensation model in which a financial planner receives payment exclusively from clients — never from product commissions or third-party referral fees. Fee-only planners may still manage client assets and charge AUM fees. The term is defined and enforced by NAPFA for its members, but it has no universal regulatory definition.

A compensation model in which an advisor receives both client-paid fees and commissions from selling financial products. Despite the similar name, fee-based is not the same as fee-only. The term is often used in marketing in ways that blur this distinction.

The total market value of client assets that an advisor or firm manages on an ongoing basis, typically in discretionary investment accounts. AUM is also the basis for the most common advisory fee model, in which the advisor charges a percentage (often around 1%) of the client's managed assets annually.

Client assets that an advisor monitors or advises on without having trading authority or custody. AUA is sometimes reported alongside or in place of AUM, which can make a firm appear larger or more involved than its actual management role. There is no standardized regulatory definition.

A legal obligation to act in a client's best interest. Investment advisers registered with the SEC or state regulators owe a fiduciary duty under the Investment Advisers Act of 1940. Broker-dealers do not owe a fiduciary duty — they are held to the lower suitability standard or, since 2020, Regulation Best Interest.

A standard requiring that a recommendation be appropriate for a client based on their financial situation, but not necessarily the best or lowest-cost option available. Suitability was the primary standard for broker-dealers before Regulation Best Interest took effect in 2020. It remains a lower bar than fiduciary duty.

An SEC rule effective June 2020 that requires broker-dealers to act in a retail customer's best interest when making recommendations, without placing their own interests ahead of the customer's. Critics argue that Reg BI does not impose a true fiduciary duty and still permits many of the conflicts inherent in commission-based compensation.

A firm registered with the SEC or a state securities regulator to provide investment advice for compensation. The RIA is the firm itself, not an individual person. RIAs owe a fiduciary duty to their clients under the Investment Advisers Act of 1940.

An individual who provides investment advice on behalf of a registered investment adviser (RIA). IARs are typically required to register in the states where they have clients. The IAR works under the RIA's compliance umbrella — the firm holds the registration and bears regulatory responsibility.

A firm registered with FINRA and the SEC to buy and sell securities on behalf of clients (broker) or for its own account (dealer). Broker-dealers are not held to a fiduciary standard; their representatives are subject to suitability or Reg BI requirements. Many large financial services firms operate as both a broker-dealer and an RIA.

An advisor or firm that holds both a broker-dealer registration and an RIA registration, allowing them to earn both commissions and advisory fees. Dually registered advisors may act as a fiduciary in some client relationships and under a suitability or Reg BI standard in others, which can create confusion about which standard applies at any given time.

An ongoing process that evaluates a client's full financial picture — including cash flow, taxes, insurance, investments, estate planning, and retirement projections — to develop coordinated recommendations. The term has no regulatory definition, so it is also used loosely by firms offering narrower services.

A document or set of recommendations resulting from a financial planning engagement. A financial plan can range from a one-page summary to a multi-hundred-page report depending on the planner and the scope of the engagement. The CFP Board requires that CFP® professionals follow a defined six-step process, but non-CFP® advisors face no comparable requirement.

A broad, unregulated title used by professionals who help clients with financial decisions. Unlike "attorney" or "CPA," the title "financial planner" carries no licensing requirement — anyone can use it regardless of education, credentials, or regulatory status.

A general title used by professionals across the financial services industry, including brokers, insurance agents, RIA representatives, and bank employees. Like "financial planner," the title has no regulatory definition or licensing requirement. FINRA and the SEC do not restrict its use.

A marketing title typically used by advisors or firms serving higher-net-worth clients, implying a broader scope of services such as estate planning, tax strategy, and investment management. The term has no regulatory definition and no minimum asset threshold. It is used by sole practitioners and global banks alike.

A professional designation granted by the CFP Board to individuals who meet requirements in education, examination, experience, and ethics. CFP® professionals must act as fiduciaries when providing financial advice and must follow a six-step financial planning process. The designation does not dictate a compensation model — CFP® professionals may be fee-only, fee-based, or commission-based.

A predetermined dollar amount charged for a defined scope of financial planning work, agreed upon before the engagement begins. Flat fees may be charged per project, per engagement, or as an ongoing annual retainer. They are not tied to asset levels, transaction volume, or product sales.

A compensation model in which the client pays the advisor for time spent at an agreed-upon hourly rate. Hourly fees are common in the advice-only and Garrett Planning Network models and are often used for one-time or limited-scope engagements where an ongoing relationship is not needed.

Compensation paid to an advisor by a product provider — such as a mutual fund company, insurance carrier, or annuity issuer — when the advisor sells that provider's product to a client. Commissions create a financial incentive to recommend products that pay higher commissions regardless of whether they are the best option for the client.

A financial institution that holds and safeguards client assets such as securities and cash. Common custodians for RIAs include Charles Schwab and Fidelity Investments. In the advice-only model, the advisor typically does not select or direct a custodian because the client retains full control of their own accounts.

A term used in at least three distinct ways in financial services: (1) an advisor not employed by a wirehouse or bank, (2) an RIA not affiliated with a broker-dealer, or (3) a franchise or 1099 contractor advisor at a firm like LPL or Ameriprise. The meaning depends entirely on context, and the term is often used in marketing without clarification.

One of the four largest traditional brokerage firms in the United States: Merrill Lynch (Bank of America), Morgan Stanley, UBS, and Wells Fargo Advisors. The term dates to an era when these firms were connected by private wire communication networks. Wirehouse advisors are typically W-2 employees operating under the firm's compliance, branding, and product platforms.

An advisor who leaves a wirehouse or large broker-dealer to start or join an independent RIA. The term is commonly used in recruiting and trade media. It generally implies a move toward greater autonomy and, often, a shift from commission-based or AUM-based compensation to an independent fee model.

A digital platform that provides automated, algorithm-driven investment management with minimal human interaction, typically at a lower cost than traditional advisors. Most robo-advisors charge a percentage of AUM. The term is sometimes applied loosely to any technology-forward advisory firm, even those with significant human involvement.

The primary disclosure document filed by registered investment advisers with the SEC or state regulators. Part 1 contains data about the firm's business and disciplinary history. Part 2A (the "brochure") describes services, fees, conflicts of interest, and disciplinary information in plain language. Part 2B provides background on individual advisory personnel.

A two-page disclosure document required by the SEC for both RIAs and broker-dealers, intended to give retail investors a brief summary of services, fees, conflicts, and disciplinary history. Critics note that the format's brevity and required structure can obscure meaningful differences between firms.