Financial Adviser Vs Advisor: Why The Difference Matters (2024)

Executive Summary

Financial advisor vs financial adviser vs financial planner vs financial consultant vs investment adviser or advisor. The financial services industry uses a remarkably wide range of labels to describe what are substantively similar job titles that are meant to convey the person is in the business of giving financial advice. But does it actuallymatterwhich label you use, or is it simply about individual preference?

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at the question of why there's a distinction between financial advisor vs adviser, how the labels have evolved over time, and why it actuallycanmatter which spelling you use, at least some circumstances.

Because the reality is that while most financial advisor labels are just thrown around for marketing purposes, the Investment Advisers Act of 1940doesactually define the terms RIA (registered investment adviser) and IAR (investment adviser representative), and those are spelled adviser with an E-R at the end. Because that's how Congress wrote it into the original law, nearly 75 years ago.

Of course, in the end whether an individual must actually register as an investment adviser or not is dictated by what he/shedoes, and whether that person is in the business of giving investment advice for compensation. If that's true, becoming an IAR of an RIA is a regulatory requirement, regardless of whether it says financial advisor vs financial planner on your business card.

Nonetheless, in today's environment, where advisor with an O-R seems to be the dominant spelling, arguably the decision to use financial adviser actually does connote some distinction - a sense of greater formality, perhaps, giving the Old English roots of the E-R spelling of the word. So while financial advisor vs adviser have the same dictionary definition, and regulators will ultimately judge you by what you do, you may still want to choose the spelling that fits with the kind of brand you want to communicate. But remember, any time you're actually writing out the definition of the acronyms RIA or IAR, use the adviser with an E-R spelling, because that's the way it's written in the law itself!

Financial Adviser Vs Advisor: Why The Difference Matters (1)

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)

#OfficeHours with @MichaelKitces Video Transcript

Welcome, everyone! Welcome to Office Hours with Michael Kitces!

This week's question is a seeminglysimple one, but it has an interesting history.

Carl asks:

"Some publications refer to us as advisers spelled with an E-R at the end. Most advisors I know spell it advisor with an O-R at the end. Is one more proper than the other?What's the difference between financial advisor vsfinancial adviser?"

This is an interesting question, because there are a few different ways to answer... depending on whether we're talking about technical grammar and dictionary definitions, or how they're defined for regulatory purposes, because some of these terms are actually enshrined in regulation!

Defining Financial Adviser vs Advisor [Time - 0:59]

If you look up adviser, frankly spelled either way, adviser with an E-R or advisor with an O-R, in the dictionary you get a definition of "someone who advises." Aperson who engages in the act of advising, whois giving a recommendation or a suggestion.

Notethe root there.An adviser is someone who advises. So the natural noun version becomes adviser with an E-R at the end. Because advise is spelled with an E at the end.? The word is not adviso [to become advisor], it's advise [to become adviser].

If you actually look up adviser on Merriam-Webster, the original etymology of the word comes from a French word aviser, A-V-I-S-E-R, and the root word there is the French word for "opinion". So aviser in French became adviser or the act of advising in the British English, which became an adviser where we simply took the word advise and added an R onto the end to make it a noun.

So given these roots, when you look at the historical use of the word adviser, it was all spelled adviser with an E-R. The O-R spelling really didn't appear until about the past hundred years or so, and frankly it's notentirely clear why. Certainly, we see lots of differences in words that are spelled British Old English style versus how we spell themin the US. They spell theatre with an R-E at the end. We spell it with an E-R. We write the words color and honor with an O-R. They spell it with an O-U-R. Then, you get a couple of words that are spelled E-R in British English and spelled O-R in American English, of which advisor appears to be part of that trend.

Though I suspect that actually, the other reason why we've seen a shift is that one of the distinctions we do make is that "to advise" is the verb of giving someone recommendations and suggestions, while "advice" itself is the noun. We actually have different spellings between the verb to advise for the act of advising, and the noun for the advice itself that was given.

Accordingly, I wouldn't be surprised ifthe growth of the O-R version of advisor was trying to make this same distinction. For instance,an adviser with an E-R was simply an informal term for a person who advises. Advisor with an O-R was the more formal job title version to describe an "advisor" person. In fact, when you look in most industries outside of financial advising, advisor with an O-R is often what gets used in a formal job title. Theformal term is the O-R version.

Investment Advisor vs Adviser As An RIA Under the '40 Act [Time - 4:00]

For financial advisers, though, there's an additional significance to this distinction of advisor versus adviser. It's regulation. It's the fact that those of us who are not just advisers but "registered investment advisers", legallywe are regulated by the Investment Advisers Act of 1940.

The Investment Advisers Act of 1940 came in the aftermath of the crash of 1929 and the Great Depression. It was essentially created to be a crackdown on much of the investment advising abuses that happened during the booming 1920s. The purpose of the rule was in large part tocreate a distinction between salespeople who werebrokers, and those who really formally gave ongoing investment advice for compensation. They advised on investments, which meant they were advisers, with the E-R spelling.

In fact,if you look historically at the use of the word adviser with an E-R, it had a massive spike in historical use in the 1920s driven by this kind of boom of investment advising, including abuse of the term. Which is why the Investment Advisers Act of 1940 cracked down on advisers. That was the whole point of the legislation.

Financial Adviser Vs Advisor: Why The Difference Matters (2)

So now we have this E-R version of adviser enshrined in regulation, because back in the 1920s, 30s and 40s when the regulation was happening, that was the dominant spelling for the label. It was virtually all spelled with an E-R. It's only with the later rise of advisor with an O-R that we ended up with this strange distinction, where advisor with an O-R became the formal label for advisors, but adviser with an E-R is actually what it says in the regulations. Which means if you use the acronym RIA for Registered Investment Adviser, that is adviser with an E-R at the end, because that's how it's written in the law itself.

Registering As An Investment Adviser Or Advisor [Time - 5:48]

It's worth noting in terms of registering as an investment adviser, and being subject to the legal standards of an investment adviser, it doesn't actually matter whether you call yourself advisor with an O-R or adviser with an E-R. The requirements to register as an investment adviser arebased ultimately on what you do, and what kind of business you are engaged in. If you are engaged in the business of providing ongoing investment advice for compensation, you have to register as an investment adviser.

Technically, there are three parts to thetest of whether you're giving investment advice that would trigger registration. You have to be:

  • Providing investment advice;
  • As a business;
  • For compensation.

If you do all three of those, you have to register as an investment adviser. What you write on your business card and which label you use is up to you. It's not as though you can avoid registering as an investment adviser or fiduciary obligation to your clients because you call yourself an O-R advisor instead of an E-R adviser.

Nonetheless, wheneveryou're talking about the Investment Advisers Act, being a Registered Investment Adviser, being an Investment Adviser Representative of the firm, an IAR of the RIA, in all of those contexts the proper use is E-R, because that's literally what the law says, at least if you spell out those acronyms.Obviously if you're just writing RIA or IAR and you're not spelling it out, no one knows which version of adviser you're using and it doesn't really matter. But ifyou're writing it out, if you're explaining those terms in print, E-R really is actually the legally proper and accurate spelling.

Should You Market As A Financial Planner vs Advisor Vs Adviser? [Time - 7:18]

In the end, what do you use, this E-R versus O-R? Or do you just market as a financial planner instead?

If you're using the labelsin least in writing, I think you have to recognize the context. That's why when you read articles in Nerd's Eye View, you'll actually see me use both the O-R and the E-R spellings. It's not because I'm having a crazy multiple personality day. It's because I use O-R to describe the general label of financial advisors. I use E-R any time we're talking about investment advisers legally registered as such or the Investment Advisers Act or being an RIA, because that's the actual legal term.

So again, what that means is any time you're writing out those legal and regulatory terms, whether that's on your business card or your website or your email signature or whatever, if you're writing out registered investment adviser or investment adviser representative it should be the E-R. That's the actual accurate spellingof those titles.

If you're just trying to set your job title, frankly you can make it whatever you want. Again, regulators are going to judge you based on what you do, not based on what you call yourself. Frankly, whether you're calling yourself advisor with an O-R or adviser with an E-R, financial planner vs consultant, or any of the other numerous plethora of titles we give ourselves in the industry...the SEC, to the extent frankly that they enforce the line between advisers and salespeople at all, which they're not great at,isnot driven very much by which spelling version of adviser you use on your business card.The SEC cares about what you're doing, whether you're hold out as and engaging with clients as a person who gives investment advice for compensation.

And so in general business use, this is mostly a matter of preference. Given the Old English connotation of adviser with an E-R, ironically I think in our industry spelling adviser with an E-R now is the more formal version, because the O-R version is the common standard use. Which means if you're trying to convey a moreformal brand - maybe you've got more formal older clientele - they might actually appreciate the E-R version. It's kind of a subtle twist on your brand, to help convey that sense of formality, if that's what you want.

But, to get back to Carl's original question of "are you supposed to use financialadvisorversus adviser", it's really up to you whether you use financialadviser vs financialadvisor vsfinancial planner or financial consultant or some other label. Butany time you're talking about an RIA or an IAR or the Investment Advisers Act, you really should use the E-R spelling because that's literally what the law says.

And in the end, regulators will judge you by what you do, not merely how you hold out. The difference is primarily about your brand and marketing, not what regulations or legal standard you're subject to.

I hope that helps a little. Some food for thought around the difference between financial adviser versus financial advisor. This is Office Hours with Michael Kitces, 1:00 p.m. East Coast time on Tuesdays. Hope you've enjoyed thistoday. Have a great day! Thanks, everyone! Bye!

So what do you think? Do you spell it financial advisor or adviser in your marketing and communications? Do you make a distinction when talking about an investment adviser vs advisor instead?Please share your thoughts in the comments below!

Greetings, financial professionals and enthusiasts! I'm an expert in the financial services industry, well-versed in the distinctions among various job titles such as financial advisor, financial adviser, financial planner, financial consultant, and investment adviser or advisor. My expertise extends to the regulatory landscape, historical evolution, and practical implications of using these terms.

Now, let's delve into the concepts discussed in the article:

1. Distinction in Job Titles:

  • The financial services industry employs a variety of labels to describe roles related to providing financial advice.
  • The article questions whether the choice of label matters or if it is merely a matter of individual preference.

2. Evolution of Labels:

  • The labels "financial advisor" and "financial adviser" are explored, examining how they have evolved over time.
  • The author, Michael Kitces, suggests that while these terms have similar dictionary definitions, the choice of spelling may convey a sense of formality, with "adviser" having Old English roots.

3. Legislative Framework:

  • The Investment Advisers Act of 1940 is highlighted as a crucial legislative framework that defines terms such as RIA (Registered Investment Adviser) and IAR (Investment Adviser Representative).
  • The Act specifically spells these terms with an E-R at the end, dating back to its enactment nearly 75 years ago.

4. Regulatory Requirements:

  • The decision to register as an investment adviser or investment adviser representative is based on the activities a person engages in, regardless of the label on their business card.
  • The author emphasizes that regulatory requirements are tied to actions and not merely the job title.

5. Historical Roots of "Adviser":

  • The article provides insights into the historical roots of the term "adviser," tracing it back to a French word, "aviser," meaning "opinion."
  • The E-R spelling has a longer historical use, while the O-R spelling emerged more recently, possibly to distinguish between the verb "to advise" and the noun "advice."

6. Regulation and Formality:

  • The distinction between "adviser" and "advisor" takes on added significance in the context of being a registered investment adviser, where the legal term is spelled with an E-R.
  • The author notes that in today's environment, the O-R spelling is more common but suggests that the E-R version may convey a sense of formality.

7. Branding and Marketing Considerations:

  • The choice between "financial adviser" and "financial advisor" is discussed in terms of branding and marketing.
  • The author suggests that the choice may depend on the desired brand image, with the E-R version potentially conveying greater formality.

8. Regulatory Compliance:

  • While the choice of spelling may affect branding, regulatory bodies primarily focus on the actions and services provided rather than the specific label used.

In conclusion, the article provides a comprehensive exploration of the distinctions between financial adviser and financial advisor, incorporating historical, regulatory, and branding perspectives. The discussion underscores the importance of understanding the implications of these terms in different contexts within the financial services industry.

Financial Adviser Vs Advisor: Why The Difference Matters (2024)


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