Once you’ve decided it’s time to get some professional financial help, you may be asking yourself: “Which type of financial professional is best for me?” From a financial advisor or financial planner to an investment advisor or a wealth advisor, it’s helpful to know the differences between each category of financial experts before committing to a long-term engagement. According to the CFP Board, “consumer use of financial advisors has increased significantly in the last five years,” going up approximately 10 percent in the span of just five years.1
When advisors were surveyed about the benefits of cash flow management and budgeting, nearly 100 percent of them stated that their clients became more confident and secure about their financial futures after utilizing the service.2 However, “consumer use” does not necessarily mean every age group of consumers is jumping on the bandwagon. The Society of Actuaries found that “only 52 percent of pre-retirees and 44 percent of retirees consult a financial planner or advisor.”3 Before you make a final decision, we’ve rounded up some of the key differentiators between each group so you can sign your contract with confidence.
Term #1: Financial Advisor
The most used term, a financial advisor is someone who helps you with different aspects of your financial life. This might include planning for and transitioning to retirement, investment advice, life insurance, 401(k) plans, IRAs, budgeting and more. Every financial advisor is different in what specific areas they specialize in and what services they provide, so if you are looking for help in one particular area, it is always best to ask.
Financial advisors can be compensated in a variety of ways – they can be fee-based, fee-only, or charge a percentage based on your total AUM (assets under management). Learn more about the fee-only difference here.
Term #2: Financial Planner
Often synonymous and hard to tell from afar how they differ from a financial advisor, a financial planner is actually quite a bit different. As the name would imply, a financial planner is typically focused more on planning. Just like us at Kelley Financial Planning, we pride ourselves on being financial planners. All of our ongoing client relationships begin with a financial plan. We do this before any investment accounts are opened.
Term #3: Wealth Advisor
With more money comes more responsibility, and wealth advisors’ duties are catered specifically to those who have a decently-sized estate, often labeled as high-net-worth and ultra-high-net-worth individuals. Also known as wealth managers, some of the topics wealth advisors cover include risk management and estate planning.
Term #3: Investment Advisor
An investment advisor is a professional who focuses on just that – your investments. An investment advisor will manage your portfolio with the goal to get the highest rate of return that you can over the long run. Before they begin designing your portfolio, investment advisors should evaluate your current financial picture, as well as determine your optimal risk tolerance, which may involve you filling out a questionnaire.
After discussing your needs and goals with your advisor, they typically will then present an investment strategy tailored according to the unique aspects of your life. Some investment advisors actually manage your money and do the investing for you, others simply “advise” on what you should do, leaving you to implement the strategies on your own.
Keep in mind, many firms may categorize their own business under more than one of these labels (they might say they are a “financial advisor” as well as a “wealth advisor”. Of course, the best course of action is always to contact any financial professional you are interested in working with directly and learn more about their business model and what services they provide to their clients.
3 https://www.soa.org/globalassets/assets/Files/Research/research-2014-retire-survey-findings.pdf
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
