Types of Financial Advisors
Never put off until tomorrow what you can do today.
What types of financial advisors are there?
What terms do you need to understand when interviewing financial advisors?
What questions should you ask when interviewing financial advisors?
What are some tips for getting the most out of your appointment with your financial advisor?
When it comes to managing your finances, having a professional to guide you can make all the difference. However, finding the right financial advisor can be a daunting task. The term “financial advisor” can encompass a variety of job titles, and many advisors earn certifications that can help speak to the depth of their training.
Below are different types of financial advisors. Be sure to understand your needs, and then compare them to the services your financial advisor will offer, the credentials they hold, and what was required to obtain their particular certification.
Certified Financial Planner (CFP) - These advisors provide all-around planning of all areas of finance such as retirement planning, tax planning, estate planning, and risk management, and ensure their clients have adequate insurance. These advisors have completed a rigorous course of study and passed a comprehensive exam, and are qualified to provide comprehensive financial planning advice to their clients.
CFP is considered one of the top 3 financial advisor credentials.
Chartered Financial Analyst (CFA) - These advisors have completed a course of study in investment analysis and portfolio management, and have passed a series of exams. They are typically focused on investment management and are often employed by institutional investors, such as mutual funds or pension funds.
CFA is considered one of the top 3 financial advisor credentials.
Personal Financial Specialist (PFS) - credentialed by the highly regarded American Institute of Certified Public Accountants (AICPA); This professional is a Certified Public Accountant (CPA) with additional expertise in all aspects of financial and wealth management including estate planning, retirement planning, investing, insurance and additional areas of personal financial planning.
PFS is considered one of the top 3 financial advisor credentials.
Certified Public Accountants (CPAs) are trained to provide tax advice and prepare tax returns, but they can also provide other financial planning services such as retirement planning and estate planning.
Registered Investment Advisor (RIA) - These advisors are registered with the Securities and Exchange Commission (SEC) or state securities regulators, and they are typically fee-based or fee-only. They must act as fiduciaries, meaning they are legally required to act in their client’s best interests.
Investment Managers/Advisors usually only handle what is right in front of them and are typically more related to the trade of stocks, bonds, and other types of investment vehicles. Since investment managers are specifically focusing on decision-making related to this one area of your portfolio, your existing (and potential) investments, they can usually dive deeper into these investments seeking out potential flaws and opportunities for growth. Note: If your advisor only looks at one piece of your portfolio, then they are likely an investment/asset manager and not a financial planner.
Asset Manager manages assets including real estate, stocks, bonds, etc. Assets management services can be expensive, so they are usually used by high-net-worth individuals, governments, or corporations.
Wealth Managers are financial planners that oversee all areas of finance for their clients, however, wealth managers usually specialize in working with high-net-worth clients and usually have asset minimums to qualify for their services. Wealth managers can sometimes offer services to clients with lower levels of assets for things such as full-service business, estate, and tax planning, family foundation management, philanthropic planning, legal services, and more, but for those who do not have more complex planning issues, a traditional financial advisor will often be better.
Insurance Agents specialize in helping clients purchase insurance products such as life insurance, disability insurance, and long-term care insurance. They can also provide guidance on how insurance fits into a comprehensive financial plan.
Registered Representatives, also known as brokers or broker-dealers, are financial advisors who work for brokerage firms buying and selling securities and other investment products for their clients. They must pass licensing tests and be registered with the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). They adhere to the suitability standard and are typically compensated through commissions on the sale of investment products. They may also provide investment advice and financial planning services.
Robo-Advisors are automated online digital platforms that use algorithms to provide investment advice and create and manage investment portfolios for clients. Robo-Advisors are typically lower-cost and accessible to those with smaller portfolios. They can offer carefully curated collections of ETFs and prebuilt portfolios, and a more diverse selection of individual stocks, mutual funds, and fixed-income investment vehicles, however, they typically are not able to offer robust personal advice that a traditional advisor can.
You May Want a Financial Advisor When:
You can meet account minimums.
You find the annual management fees reasonable.
You want more than just investment advice.
You need a variety of investment options at your disposal.
You May Want a Robo-Advisor When:
You need to start with a low opening account balance.
You would prefer to pay lower management fees.
You only need basic investment advice.
You’re comfortable with a few low-cost investment options.
Top 3 financial advisor credentials
CFP – Certified Financial Planners have a minimum education level of a bachelor’s degree and coursework in financial planning with up to 1,000 hours to complete the required coursework and exam, pass a comprehensive one-day (six-hour) exam, and must have at least three years of professional financial planning experience. They must also agree to be bound by the code of ethics or fiduciary responsibility putting the client’s best interest first.
CFA – Chartered Financial Analyst need to hold a bachelor's degree from an accredited institution or have equivalent education or work experience have 48 months of related professional work experience in an investment-related field and pass three required examinations (each exam is six hours and must be taken over several years) and they cover accounting, economics, ethics, finance, and mathematics.
PFS – Personal Financial Specialists are credentialed by the highly regarded American Institute of Certified Public Accountants (AICPA); This professional is a Certified Public Accountant (CPA) with additional expertise in all aspects of financial and wealth management including estate planning, retirement planning, investing, insurance and additional areas of personal financial planning.
These credentials require rigorous study, experience, and high ethical standards, but remember, even though someone might have a lot of initials behind their name, doesn’t necessarily mean they are a good advisor. Be sure to do your own research.
It’s important to note that some financial advisors may provide multiple qualifications or designations and provide services in different areas of expertise. When selecting a financial advisor, it’s important to consider your specific needs and goals to find an advisor that is right for you.
Disclaimer: I am only learning myself, so I cannot guarantee this information is completely accurate, but my hope is that it can give you a good starting point if you are interested in finding a financial advisor as well. Be sure to do your own research and let me know if you have any additional information or corrections to add to this information.
To learn more, check out my Financial Professionals page for additional information.
