There are many pros and cons in obtaining a financial advisor, but shockingly, few people truly understand the role of a financial advisor in between the much more advertised occupations of investment advisor and financial planner. According to the Security and Exchange Commission (SEC), there is stark difference, and it’s broken down like this:
- Investment advisor: “[An] individual or a firm that is in the business of giving advice about securities to clients. For instance, individuals or firms that receive compensation for giving advice on investing in stocks, bonds, mutual funds, or exchange traded funds are investment advisers. Some investment advisers manage portfolios of securities.”
- Financial planner: “Most financial planners are investment advisers, but not all investment advisers are financial planners. Some financial planners assess every aspect of your financial life—including saving, investments, insurance, taxes, retirement, and estate planning—and help you develop a detailed strategy or financial plan for meeting all your financial goals.”
So, do you need a financial advisor? It really depends on what you are trying to accomplish. Do you want to make a quick investment into a private equity or mutual fund? If this is what you want, and you already know the ins and outs of how these funds generally operate, you’ll probably want to go with an investment advisor. If you need someone to manage your money—the broader financial aspects of your life which might also include investment advice—you will need a financial planner or advisor.
Many people choose financial advisors as they have accumulated so many funds (or have so many different monetary accounts and investments), they are no longer able to keep track of all of their financial resources. But before you go out and find the first financial advisory service on the market, here are a few considerations to keep in mind:
It is vital that before you settle on a specific service, the costs of said service is outlined clearly. Some financial advisory services will charge a single, flat rate for their services, while others might charge hourly. On top of this, they may charge a cut or percentage of a stock or similar investment that becomes successful.
Conflict of Interest
There are some myths out there that maintain financial planners steer customers into financing investments the financial advisor (or his firm) has a stake in. As such, there are many misconceptions that financial advisors who are not certified tend to have a conflict of interest than those who have certification. While each industry has its own code of ethics that governs how these rules and practices are carried out, it is your decision to do due diligence on the firm, its background, cost(s), and how they plan on handling your finances (in terms of what you want to do with your money).
Professional knowledge & insight
One advantage of going with firms that have particular experience in this field means that you can obtain some great education about the financial services industry. Even if you decide to drop a service later, you can find out all sorts of information about what you can do with your money, how to manage it, and a variety of low-risk (even high risk) investments one can opt to make.
While it is not guaranteed that a financial advisor can make you more money, highly-experienced firms with a track record of making good investments (and who charge little for their services) are often more successful than other financial advisory firms. If you have little time or expertise to pay attention to all of your resources at a bird’s eye view or even watch the ups and downs of the stock market, a solid, highly experience financial advisor can help you do this while increasing the size (and profitability) of your portfolio.
It is important that all of your questions are answered before you land on any financial or investment planning service. Make sure you understand what all services cost, what they plan on helping you with, and how the money is managed. Once all of these important considerations are made, finding a financial advisory service in a medium to major city should be a hassle-free endeavor.