What’s the Difference?
It can be confusing when trying to figure out which type of financial professional you need. In fact, a lot of people will contact an investment advisor in the belief that the advisor will help with other areas of their financial lives, such as budgeting or retirement planning. But this isn’t necessarily true.
As the U.S. Securities and Exchange Commission (the U.S. agency regulating registered investment advisors), says: “Most financial planners are investment advisors, but not all investment advisors are financial planners.”
What Investment Advisors Do
Again turning to the SEC: “An investment advisor is an individual or a firm that is in the business of giving advice about securities to clients.” Investment advisors can help you select and manage stocks, bonds, and other securities that make up your investment portfolio.
A registered investment advisor (RIA) is registered with either the U.S. SEC or a state regulatory agency. RIAs have to meet a higher standard than other professionals who may call themselves investment advisors.
RIAs have what is called a fiduciary duty. That means they have to put your interest ahead of their own. The recommendations they make about your investments must be made to help you reach your goals rather than how much money they can make.
What Financial Planners Do
Financial planners don’t limit themselves to your investment portfolio. Financial planners (or financial advisors—the terms are interchangeable for purposes of this article) take a bigger-picture view of your money to give you advice on everything from savings, to taxes, to insurance, to retirement.
Here is where it may get confusing: Most financial planners are actually RIAs. They have simply expanded their scope to offer services beyond investments. So if you shop for a combined RIA/financial planner, you can find the best of both worlds: someone who can take a holistic view of all your financial life, including your investments.
It’s important to note that there are no industry requirements for education and experience when it comes to someone calling themselves a financial planner. Certain certifications carry weight, however, and the CERTIFIED FINANCIAL PLANNER™ designation is a leader in the industry.
To attain and keep the CFP® credential, a financial planner needs extensive and ongoing education, experience, and ethics. And like an RIA, a CFP® professional has a fiduciary duty to act in your best interest. In the next section, we’ll talk more about the services a CFP® professional can provide.