When you start the search for a financial professional, you can expect a smorgasbord of titles: investment advisor, financial planner, wealth manager, financial advisor, investment advisor representative, asset manager—the list goes on.

How do you know which professional is right for you? Though a simplification, these professionals can be grouped together as investment advisors or financial planners. In this article, we’ll discuss what each group does, how they can help you, what you should be aware of when selecting a professional to work with, and how you can get started.

Our hope is to cut through the confusion so that you can choose with confidence the financial professional that meets your needs and goals.

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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.

How Can They Help You?

If you’re looking for someone to help with your investments only, then an investment advisor (and especially an RIA) might be your best bet. Every investment advisor is different, of course, but their common services include:

  • Making investment recommendations based on your long-term goals and risk tolerance
  • Implementing their recommendations so you don’t have to
  • Managing your portfolio and continuously updating it so it remains aligned with your goals
  • Counseling you in times of rocky markets so you don’t panic and act rashly, endangering your investments’ ability to help you reach your goals

If you want help with your finances in general, then a financial planner (and preferably a CFP® professional) might work best for you. Ideally, a financial planner will take a comprehensive, objective look at your long-term goals, current situation, savings, assets, and debt. They will then provide recommendations, usually in a financial plan, that takes a multifaceted approach to meeting your goals. If you’re working with the planner over a period of time rather than just once, expect them to check in regularly with you to make sure your life and your plan remain in sync.

What areas will your financial plan address? It should consider every area of your financial life that needs help. CFP® professionals adhere to seven core areas—which may help you when choosing a financial planner to work with:

  • Financial management
  • Investment planning
  • Insurance and risk management
  • Tax planning
  • Retirement planning
  • Estate planning

One final note before we move on: Some financial planners call themselves wealth managers. Wealth managers work with high-net-worth people, whose financial needs can be incredibly complex. If you’re an affluent individual who needs specialized advice in areas such as capital gains and charitable foundations, then you may want to seek out a wealth manager (with a CFP® designation).

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Who Should You Choose?

While it’s impossible to detail every scenario in this article, here are a few common ones that would lead someone to seek out a financial professional. Apply these scenarios to your own situation to get an idea of the type of financial professional you should work with.

  • Investment management only: Say you’re a young entrepreneur and you want to handle your own finances, which are pretty uncomplicated at this point. However, you do want someone to build and manage an investment account for your retirement. Our pick: RIA firm (with or without CFP® designations).
     
  • Financial planning, no investment advice: You’ve got a 401(k) plan set with your employer, but you want a financial plan for the rest of your life that includes budgeting, a future home purchase, and your children’s college fund. Our pick: CFP® professional (can be an RIA or not).
     
  • Financial planning with investment advice: You have a new job, and you don’t know what to do with the 401(k) from your previous employer. You also want to know whether you are saving enough for retirement and whether you should get long-term-care insurance. Our pick: RIA firm with CFP® professionals.

It’s probably obvious by now that your most comprehensive option is to find a financial planner (preferably a CFP® professional) that is an RIA. They will be able to integrate financial and investment strategies into a comprehensive plan that addresses your concerns and helps reach your goals.

What Should You Watch Out for?

You should be diligent when selecting an investment advisor or financial planner. Since practically anyone can call themselves a financial professional of some sort, you should make sure you are confident that the one you select will act as your steward, not their own.

We already touched on the fiduciary duty, but it bears repeating: A financial professional should have a fiduciary obligation to act in your best interest at all times.

Some professionals go by the suitability standard, which means they can recommend products that are suitable for your goals. But it also means that another product might have been better for you, but they didn’t tell you so because that product wouldn’t have earned them a commission.

This brings us to an important issue: how financial professionals get paid. You’re going to find three primary ways:

  1. A commission for the securities or other products they sell you
  2. A fee based on the assets they manage for you
  3. A hybrid (usually called fee-based) that combines the commission and fee structures

In our view, No. 2 is the way to go since it eliminates conflicts of interest. Your advisor or planner is working for you, not some company that is basing their paycheck on the products you buy.

Look for financial professionals who call themselves “fee-only.” This means they are paid by you only, much as your attorney or CPA is. How a fee-only professional is paid may vary, with some charging a fixed fee, others an hourly fee, and still others a fee based on the value of the assets they manage for you.

When assessing a financial professional, try to meet with them face to face. Discuss with them the services they will provide, the costs involved, and how they get paid. Here are some recommended questions:

  • What experience do you have, especially with people in my circumstances?
  • Do you offer investment services only? What are your financial planning areas of expertise?
  • Can you recommend only a limited number of products or services to me? If so, why?
  • How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
  • What is the process that you use to identify my goals?
  • What is the process that you use to identify my investment risk tolerance?
  • What does your financial plan look like? Can I see an example report or the technology you use?
  • How often will you revisit my financial plan?
  • How frequently do you meet with clients? What is discussed at the meetings?
  • What kind of performance reporting and benchmarking do you provide (such as an investment policy statement)?
  • Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?
  • For registered investment advisors: Will you send me a copy of your Form ADV? (ADV 2a details information about the advisor’s business and whether they’ve had problems with regulators or clients. ADV 2b lists the advisor’s services, fees, and strategies.)

If the professional has a certification, check with the certification’s provider to see if that person does indeed have the designation and whether they’ve ever been in trouble. For example, you can check with the CFP Board to see if a CFP® professional is a member in good standing.

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How Do You Get Started?

Whether you want to hire an investment advisor or a financial planner, you can start with recommendations from friends and family. Do an internet search for professionals in your area, and read their website to get an idea about the type of professional they are, the services they offer, and how they are paid.

If you’re interested in a CFP® professional, you might search letsmakeaplan.org for someone in your area.

Whatever path you choose, we wish you every success now and in the future!

Schedule a Free Consultation

If you decide you want to work with a financial planner, we offer a free, no-strings-attached consultation.

At Berno Financial Management, Inc., we have been offering fee-only financial planning and personal wealth management since 1993. An RIA firm based in Cincinnati, we draw on our team of CFP® professionals to help proactive individuals and families make the most of their personal finances and achieve financial peace of mind.

To discuss how we may be able to help you, please reach out.

We’d love to talk with you!

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