What Is a Financial Advisor?

Glass-Steagall Act ?EUR” A Brief History

After much speculation during the 1920′s and the ultimate collapse of the U.S. stock market, all confidence in the monetary system was lost. After much public pressure, Congress acted and created legislation to restore the public’s confidence. Among the legislation was the Glass-Steagall Act in 1933. The Act brought much needed supervision to the banking industry, which had engaged in speculative lending practices, and separated deposit banks from the more risky securities dealers and investment bankers. The FDIC was also set up in 1933 to protect depositors and help restore confidence. The Securities Exchange Act of 1934 was then established to provide oversight of the securities industry. So for many years, banking operations were segregated from the investment world until Glass-Steagall was repealed. This repeal occurred in 1999 under President Clinton and removed the barriers that banks had faced for decades. Today, banks are free to engage in a variety of activities, including some of the speculative activities of the banks during the roaring 20′s. So far we’ve seen some of the fruit of this repeal in the debacle of Enron Corp.

Back to the Present

Beginning 20-30 years ago, we’ve been experiencing a major consolidation of various players in the wealth management space. Insurance companies, banks, brokerage firms, and independent advisors have been redefining the landscape of our industry. This has also led to a “repackaging” of the advisor. Titles changed from Stockbroker to Financial Consultant to Wealth Advisor as the race accelerated. Today, it’s hard to tell who does what, as names can be deceiving.

Finally, this brings me to my question. What is a financial advisor? Do you only sell investments? Then you are a broker, plain and simple. Do you offer advice outside of investment advice and do you get paid only from investments? Then you are also probably a broker. If you offer advice and the advice is worthwhile, you should be paid for the advice. If your advice is not worth paying for, then how can you be called a financial advisor, since investment advice is only one piece of the entire financial advisory pie?

Thanks for reading. Have any thoughts? (By-the-way, I do offer and get paid for my advice in case you were wondering).