There seems to be a lot of confusion in the marketplace when it comes to understanding who does what in the financial markets. One of the most costly mistakes that the individual can make is not understanding the difference between a broker and a financial advisor.
Simply put, a broker is a salesman. He sells (brokers) a product. A broker normally makes a commission on the product that he sells, just like any other type of salesman. Whether it is an annuity, house or car, the person that sells the product, a broker, realtor or car salesman, makes money because they made a sale. It is in the best interest of the salesman to sell the product rather than making sure that the product is in the best interest of the client.
When I refer to a financial advisor, I should clarify exactly who I am referring to (many people use this title on their business card). My definition of a financial advisor is commonly referred to as a fee-only financial advisor or financial planner. A fee-only financial advisor advises and/or manages assets for a client for a set fee. This fee is normally a percentage of the total assets under management. Instead of selling a product, the financial advisor would choose investments for their clients that they feel would grow over time in accordance with the client’s investment objectives. As the assets grow, the financial advisor would get paid more because if you receive a fee based on a percentage of the asset, as the asset grows, so does your fee.
The big difference between the broker and the fee-only financial advisor is that while the broker makes money as long as he sells you his product (he earns his commission), the fee-only financial advisor has a direct interest in your assets growing, because as you assets grow, he earns a larger fee for his services (based on a percentage of the asset).
The bottom line is that when searching for financial products, find out how the financial professional is getting paid. Understand where their money is coming from. This will give you the proper perspective to digest the advice that the financial professional is giving you.