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Financial Advisor vs. Insurance Agent: When Do You Need One?

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Financial Advisor vs. Insurance Agent: When Do You Need One?

A financial advisor can help you create a strategic plan for managing your money. Part of that plan might include buying insurance, something that an insurance agent can also help with. When working with a financial advisor vs. insurance agent, it’s important to know how their services differ and what you might pay.

A financial advisor can help you manage your investments, plan for retirement and more. Find a trusted advisor today. 

What Is a Financial Advisor?

A financial advisor is a professional whose job is to give financial advice. The term financial advisor can refer to a broad range of individuals, including stockbrokers, financial planners and investment advisors.

Financial advisors can hold a number of certifications or professional designations if they hold expertise in a specific area. For example, you might work with a certified financial planner (CFP) or a chartered financial consultant (ChFC). Registered Investment Advisors (RIAs) may also obtain a license to sell insurance as part of their advisory services.

A financial advisor may help their clients with:

  • Budgeting
  • College planning
  • Estate planning
  • Investing and saving
  • Retirement planning
  • Taxes

An advisor’s scope of services may be broad or narrow. For example, larger advisory firms may offer services in all of the areas listed above to a wide variety of investors. Boutique financial advisors, on the other hand, may specialize in a particular planning area or cater their services to meet the needs of a niche demographic.

Financial Advisor vs. Insurance Agent: What’s the Difference?

Financial Advisor vs. Insurance Agent: When Do You Need One?

The main difference between a financial advisor vs. insurance agent lies in what they do. Advisors give advice, including advice about insurance, but they’re not all licensed to sell insurance products. Insurance agents, on the other hand, are licensed to do exactly that.

An insurance agent can be licensed to sell many different types of insurance, including:

  • Health insurance
  • Disability insurance
  • Life insurance
  • Long-term care insurance
  • Homeowners insurance
  • Auto insurance
  • Identity theft insurance
  • Jewelry insurance

Some insurance agents may offer multiple types of insurance while others limit their selection to one specific area, such as life insurance. Agents who sell life insurance may also be licensed to sell annuity products or mutual funds to their customers.

An insurance agent’s main job is to sell you an insurance policy, not necessarily give comprehensive financial advice. A financial advisor who’s also a licensed insurance agent, on the other hand, can do both. For instance, an agent who is a chartered life underwriter (CLU) can offer financial advice in the capacity of an investment advisor.

Avoiding Conflicts of Interest When Buying Insurance

Can you buy insurance through a financial advisor? Yes. Should you? That’s a more difficult question to answer.

Financial advisors can sell life insurance in one of two ways. First, they can sell products directly if they’re licensed as an insurance agent. So, while you’re getting advice about retirement planning you might be able to purchase a long-term care insurance policy from your advisor.

The other way advisors “sell” life insurance is by recommending products sold by a licensed insurance agent. Instead of buying the policy directly from your advisor, you’re buying it from another agent based on their recommendation.

Where you can run into conflicts of interest when buying insurance from a financial advisor or insurance agent has to do with how they make money. Financial advisors can be fee-only or fee-based. Fee-only advisors solely charge fees based on the services they provide. Fee-based advisors, on the other hand, can charge fees for their services and also earn commissions from the products they sell.

A fee-only advisor is held to the fiduciary standard, meaning they’re obligated to act in their client’s best interest at all times. Fee-based advisors, however, are held to what some critics believe is a less stringent standard known as Regulation Best Interest when they’re acting in a sales capacity.

If you’re buying insurance or an annuity through a fee-based advisor, it’s important to scrutinize any recommendations they make to you. A fee-only advisor, on the other hand, isn’t driven by commissions. If you’re worried about a conflict of interest, choosing a fee-only advisor or buying insurance directly from an agent could help to avoid that issue.

Financial Advisor vs. Insurance Agent: Which One Do You Need?

Financial Advisor vs. Insurance Agent: When Do You Need One?

Financial advisors and insurance agents can play different roles in your financial plan and whether you choose one over the other will depend on what you need.

A financial advisor can offer comprehensive advice on different areas of financial planning, including insurance. An agent, meanwhile, can help you buy an insurance policy. You might get advice from your advisor first, before reaching out to an agent to take the next step.

Of course, you could split the difference and work with someone who’s both an advisor and an insurance agent. That could simplify the process of choosing and buying insurance and it may also cut down on the fees you pay.

Tips for Hiring a Financial Advisor

Hiring a financial advisor is the same as hiring any other type of professional. It’s important to do your research first. Asking some key questions can help you find an advisor that’s right for you. Here are some questions to ask:

  • What financial planning services do you offer?
  • Who is your typical client and what problems do you help them solve?
  • Which financial licenses or designations do you hold?
  • How long have you been working in finance?
  • Are you a fiduciary?
  • How are your fees structured and what do you charge?
  • How often do you meet with clients?
  • What is your preferred way to communicate?
  • What is your overall investment style?

Transparency is a good thing when vetting financial advisors. If an advisor appears to be dodging certain questions or only offers the bare minimum when answering, those could be red flags that you may want to look elsewhere for advice.

Bottom Line

Working with a financial advisor can give you perspective on potential gaps in your financial plan and the best ways to fill them. That may include buying life insurance, long-term care insurance, annuities or other insurance products. Knowing how a financial advisor can help you vs. what an insurance agent can do for you can help you decide which one you need.

Financial Planning Tips

  • Consider talking to your financial advisor about which insurance products might be necessary to round out your financial plan. If your advisor isn’t licensed to sell insurance they may be able to connect you to an agent who can help you get the coverage you need. And if you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • There are certain rules of thumb to keep in mind when buying insurance and insurance products. For example, if you’re looking at life insurance policies the general rule is that the younger and healthier you are when buying a policy, the less you’ll pay for premiums. The best age to buy an annuity, on the other hand, may be age 70 to 75. Knowing a little about how different types of insurance work and what they’re designed to do for you can help you decide which policies belong in your financial plan.

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