While there are many finance professionals that provide financial advice and services and fall in the general financial advisor category, they are not all the same. Advisors vary in their area of expertise and the kind of financial services they offer. These financial professionals help evaluate their client's financial situation and offer suitable financial advice and services based on the client's needs. Advisors offer their financial expertise in various fields such as investment management, tax management, estate planning, insurance, retirement planning, and more. The different types of financial advisors include accountants, insurance agents, financial planners, portfolio managers, investment advisors, retirement planners, wealth managers, robo-advisors, and more. In order to hire the most suitable advisor for your unique financial needs, it is important to make an informed decision by understanding the different types of advisors, the financial services they offer, and the value of the credentials they hold.
Below is a list of the different types of financial advisors and the credentials you should look out for at the time of choosing an advisor, so that you can choose the right advisor based on your specific financial situation.
Here are the different types of financial advisors
Financial advisors can be differentiated based on their qualifications and the type of financial services they offer.
1. Portfolio managers:
A portfolio manager is primarily concerned with the management of their client’s investment portfolio, including decisions related to the investment of a fund’s assets and enforcing the fund's investment strategies. Portfolio managers tend to take either one of two roles when managing a portfolio: active or passive management. As a passive portfolio manager, their investment strategy mimics a specific market index. Alternatively, a portfolio manager undertaking an active approach to investing tries to consistently outperform average market returns.
2. Investment advisors:
Though there is some overlap between the services offered by financial planners and investment advisors, their primary roles differ. A financial planner is chiefly concerned with improving the overall financial situation of his client by helping them create a budget, choose investments, save money for retirement, tax planning, insurance coverage, and more whereas an investment advisor solely focuses on helping their clients pick the best investments. That said, an investment advisor also helps manage and diversify your portfolio to minimize exposure to market volatility. Generally, these advisors charge fees as a percentage (1% or more) of the total value of the investment portfolio they manage.
3. Wealth managers:
As is evident from the name, wealth managers are primarily concerned with wealth preservation, and typically work with wealthy investors. Their areas of expertise involve investment planning, tax planning, charitable donations, estate planning, insurance planning, and more. A wealth manager focuses on combining all aspects of a high-net-worth individual’s financial life wherein he coordinates the services needed to manage the client's assets. This includes creating a strategic financial plan that meets their present and future financial needs such as creating a will, trust, business succession plan, or offering advice on philanthropic activities or banking services.
4. Financial planners:
A financial planner is a professional who helps individuals manage their money, build wealth, and reach their long-term financial goals such as reducing or eliminating debt, saving money for buying a home or starting a business, or planning for retirement. The planner can also help create an exhaustive financial plan to enable you to reach your financial targets and goals. He can advise you on how to save your money, reduce taxes, manage your accounts, make wise investments, and create an estate plan.
Robo-advisors are digital advisors who deploy computer algorithms to manage a client’s investments and savings. Robo-advisors are inexpensive in nature and more suited to new investors. These advisors require minimal human supervision. To hire a robo-advisor, you must take a short risk-profiling questionnaire wherein you offer information about your income, risk appetite, goals, etc. Based on the information shared by you, the system generates recommendations for suitable investment opportunities.
The primary job of an accountant is to analyze, audit, and conduct an analysis of financial statements. They either establish their own accounting practice, work with accounting firms, or internal account departments of big companies. They must fulfill state-specific educational and testing requirements before they are deemed eligible to receive a certification from national professional associations. An account is in charge of tidying up your financial records and operations and filing timely tax returns without incurring penalties. The primary functions of an accountant are as follows:
- Filing correct tax returns in a timely manner to avoid audits
- Ensuring that you file for all possible deductions that you qualify for such as child care, etc.
- If needed, the accountant may file for an extension for payment of due taxes.
Stock brokers are licensed professionals who buy and sell financial products such as stocks, bonds, and mutual funds. They typically require a state license to conduct their practice. Stockbrokers earn commissions based on their transactions and must be registered with a firm that holds membership of the Financial Industry Regulatory Authority (FINRA). The brokers should have cleared FINRA-administered securities exams as well.
8. Insurance agents:
When it comes to insurance, you need to do a lot more than simply selecting an insurance plan. You need to figure out which needs you wish to cover, how much premium to pay, which insurance provider to select, which plan to choose, etc. This can be a challenging and time-consuming affair. An insurance agent can help evaluate your financial situation and suggest a policy that best meets your unique needs. Doing so involves comparing policies from different insurance providers to find one that best fits your budget and needs.
9. Money coaches:
A money coach helps you manage your financial affairs by evaluating your personal habits, beliefs, and behavior to teach you the necessary skills needed to manage your finances. The coach helps you identify unhealthy spending habits, where and how you can save money, and where you should ideally invest your money such as your health, creating alternative income streams, etc. A money coach helps you reevaluate your spending and saving habits to ensure that you have enough funds to maintain your lifestyle.
What financial credentials should you look for in your financial advisor?
If you are thinking about hiring a financial advisor, you should always check what certifications and credentials they hold. Some of the well-known financial credentials include Certified Financial Planners (CFPs®), Chartered Financial Analysts (CFAs), and Certified Public Accountants (CPAs). An advisor needs to undergo a stringent process of accumulating years of experience, and formal education, and successfully clear a set of standardized exams. These financial advisors are regulated and monitored by various state and local agencies.
Seeking professional guidance can help you better prepare for your financial future. It is advised that you do your research on the type of financial advisor that would be the most suitable to meet your financial needs before hiring one, to ensure that they are a good match for you. If you are looking for a financial advisor to grow and manage your finances, you may also use the free advisor match tool to get matched with 2-3 vetted financial advisors. This free service takes your financial situation into consideration to find the best advisors that may suit your particular financial situation. All you need to do is answer a few simple questions about yourself, and the match service will connect you with 2 to 3 advisors that match your financial needs. This service is absolutely free and you have no obligation to hire the advisors. You should take advantage and interview these advisors to know more about their practice and fees to find the advisor that you can be the most comfortable with.