What are the Different Types of Financial Advisors?

While there are various types of finance professionals who offer financial advice and services falling under the general financial advisor category, it should be noted that they differ significantly. These advisors vary in terms of their areas of expertise and the specific types of financial services they provide, and tailor their advice to their client’s financial situation, needs, and goals. These professionals also hold expertise in various fields, such as retirement planning, tax management, estate planning, investment management, insurance, debt management, wealth management, and more.

There are several kinds of financial advisors, including financial planners, retirement planners, portfolio managers, insurance agents, wealth managers, accountants, investment advisors, robo- advisors, stockbrokers, and more. In order to ensure you select the most suitable advisor for your unique financial requirements, it is essential to make an informed decision by understanding the different types of advisors, the financial services they provide, and the significance of their credentials. This article discusses the different types of financial advisors you can choose from based on your specific financial needs and goals.

Below are the different kinds of financial advisors you may choose from:

1. Investment advisors

Investment advisors are financial professionals that help their clients choose the best investments for their unique financial needs. These advisors charge a fee for security analysis and investment recommendations. Investment advisors help manage and diversify a client’s portfolio to limit their exposure to market volatility. They must also register with the U.S. Securities and Exchange Commission (SEC) if they manage $100 million or more in assets. Typically, investment advisors charge a fee as a percentage (1% or more) of the total market value of the investments they manage on behalf of their clients. These advisors act as fiduciaries, which means they must always put their client’s interests first.

2. Portfolio managers

A portfolio manager is primarily responsible for investing a fund’s assets and managing their client’s investment portfolio. They also enforce the fund’s investment strategies and, therefore, are responsible for the fund’s overall returns. Usually, portfolio managers are one of two kinds: active or passive. An active portfolio manager tries to beat average market returns consistently and undertakes an active approach to investing. Conversely, a passive portfolio manager uses the market index as a benchmark and expects the returns to mimic the returns of that specific market index.

3. Wealth managers

Wealth managers primarily work with wealthy investors and hold expertise in several fields, such as investment planning, estate planning, tax planning, insurance planning, charitable donations, etc. Their main area of focus is wealth preservation. Wealth managers provide several financial services to meet the needs of high-net-worth clients, including creating a will, business succession plan, advice on philanthropic activities, trust, and more. Wealth managers may charge fees on an hourly, quarterly, or annual basis or a flat fee. They also work on a commission basis or as fee-based advisors who charge a mix of fees plus commissions based on the investment products they sell.

4. Financial planners

A financial planner is a professional who is chiefly responsible for improving the overall financial situation of his client. The planner helps their client manage their finances, create a budget, build wealth, choose investments, pick an insurance plan, and manage their taxes. In addition, financial planners help create an exhaustive financial plan for long-term financial goals, such as starting a business, lowering debt, saving money for retirement, or creating an estate plan. Generally, a financial planner charges fees at an hourly fee, by the project, or as a percentage of assets under management.

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5. Retirement planners

A retirement planner is a professional who helps ensure their clients are financially secure in the later years of their lives. They help prepare a retirement plan based on a client’s financial needs and goals. Apart from this, retirement planners also ensure your money is invested in the right instruments; they can help you create a budget, choose an insurance plan, lower tax liabilities, and create an estate plan to ensure you can pass on your assets to your heirs without any hassles.

6. Robo-advisors

Robo-advisors are digital advisors that offer automated investment services based on algorithms. These advisors are inexpensive, require minimal human supervision, and are generally suited for new investors who do not possess extensive financial knowledge or experience. Robo-advisors first ask potential clients to undertake a short risk-profiling questionnaire on their financial situation, risk appetite, future goals, etc. The algorithm then generates suitable recommendations based on the information shared by you.

7. Stockbrokers

A stockbroker is a financial professional who buys and sells financial products such as stocks, bonds, and mutual funds. Registered brokers must hold the FINRA Series 7 and Series 63 or 66 licenses and must be registered with a firm that holds the Financial Industry Regulatory Authority (FINRA) membership. Stockbrokers require a state license to carry out their practice and must have cleared FINRA-administered securities exams. Stockbrokers earn money through commissions based on the securities sold by them.

8. Accountants

An accountant is a professional who audits and analyzes accounts and financial statements. Accountants usually have their own accounting practice, work with accounting firms, or are employed in the internal account departments of big corporates. They are responsible for maintaining your financial records and must file tax returns on time to avoid penalties. To practice, an accountant must have certification from national professional associations. They must clear rigorous educational and testing requirements for the same. Accountants are responsible for:

1. Filing correct tax returns on time to avoid penalties, taxes, and audits.
2. Ensuring that you file for any and all possible deductions that you qualify for, including child care to minimize your tax liability.
3. Filing for an extension of time to pay due taxes, if needed.

Typically, the most common designations among accountants are Certified Public Accountant (CPA), Certified Internal Auditor (CIA), and Certified Management Accountant (CMA).

9. Insurance agents

Buying the right insurance plan goes a long way toward securing your future. You need to assess the needs you wish to cover, which insurance provider to select, the insurance premium you are willing to pay, which plan to choose, etc. This can be a pretty challenging and exhaustive process. This is where an insurance agent can help you out. The professional can assess your financial situation, compare policies from different insurance providers and recommend a plan that best fits your budget and needs.

When selecting a financial advisor, what credentials should you look for?

Checking an advisor’s certifications and credentials is essential, especially when hiring them to manage your finances. A few of the recognized financial credentials include Certified Financial Planner (CFP), Chartered Financial Consultant (ChFC), Chartered Financial Analyst (CFA), Certified Investment Management Analyst (CIMA), and Certified Public Accountant (CPA). The SEC and several state and local agencies regulate and monitor financial advisors.

To conclude

It is important to take measures to secure your financial future, and seeking professional guidance is one such way to prepare for the later years of your life and ensure you have enough saved to live comfortably in the golden years of your life. However, before choosing an advisor, it is highly recommended to do your due diligence and ensure they are a good match for you. Check the advisor’s prior work experience, their credentials, area of expertise, and the fees they charge. Based on this information, decide whether they are a good match for your specific financial requirements. It is advised to go for a financial advisor that you are most comfortable with.

You can use WiserAdvisor’s free advisor match service to find a financial advisor best suited to meet your financial needs and goals. Answer some simple questions about your financial needs, and our matching tool will connect you with 1-3 advisors who can best fulfill your financial requirements.