I read with disgust this news about a “financial advisor” stealing $1.3m from his client who also happened to be his father!

I want all of you to know that not all financial advisors are the same. In fact “financial advisor” is a free term. There is no educational requirement nor legal requisite. Justin Bieber and his grandmother could call themselves financial advisors and begin dispensing advice – and they would not get into trouble for it!

In reality though, there are generally four types of people who like to call themselves “financial advisors”:

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1. Insurance Agents – These folks have state issued licenses to sell life insurance. They are actually not legally allowed to give financial advice, except incidental to the insurance they sell. This does not prevent them from calling themselves financial advisors.

The thief in the story, Mr. Hugh Hunsinger Jr, is a insurance salesmen working for Lincoln Financial.

2. Stock Brokers – These folks usually have series 7 broker licenses. They are paid on commission. They like to churn your accounts to maximize their commission.

3. Pure RIAs – These folks have series 65 advisor licenses. They are not salesmen, as such they are not allowed to receive commission. I belong to this category.

4. Hybrid RIAs – These folks are the wolves in sheep’s skin. They usually have series 7 broker licenses, and series 66 advisor/broker licenses. They are both salesmen and advisors, what they do best is give self-serving advice.

So when you need a financial advisor, here are the people you should not use: insurance agents, stock brokers, hybrid RIAs. You should only use a pure RIA. In layman’s terms, they are called “fee-only financial advisors” or “fee-only financial planners”, since they are not allowed to receive any commission.