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Investment Advisor vs. Financial Planner

Whether you’re investing in mutual funds or simply looking to transform your wealth with a financial plan, you may be considering working with a financial advisor. Investment advisors and financial planners are two of the most common types of financial advisors that clients work with. These advisors ultimately offer guidance on different financial topics, but one thing they have in common is your money. If you’re thinking about working with one of these advisors, it’s important that you understand what each can do.

Investment Advisor vs. Financial Planner

Both investment advisors and financial planners are alike in that they help you with managing your assets, but the services they provide also differ in some notable ways. An investment advisor assists you with handling your investments and securities so that you’ll have a strong investment portfolio. These advisors first assess your financial situation and also determine your investment risk tolerance.

Following this, they propose an investing strategy specifically tailored to helping you meet your goals. You can also give them permission to purchase investments for you. Investment advisors typically possess a lot of knowledge about market patterns, so if you’re planning on investing in stocks, mutual funds or other securities, they’ll be able to propose the most reasonable strategy in relation to your personal financial situation.

Registered investment advisors (RIAs) operate under a fiduciary standard. This means they must legally operate in your best interest. Additionally, these advisors are registered with the U.S. Securities and Exchange Commission (SEC). They typically earn money through one of two ways:

  • Fee-only: These advisors charge a flat or asset-based rate for their services. This is their only method of compensation.
  • Fee-based: Conversely, these advisors simultaneously charge clients standard fees and earn commissions from the sale of financial products.

Don’t forget that, despite the differences above, both fee-based and fee-only advisors act as fiduciaries. That means all SEC-registered advisors, regardless of how they make their money, are bound by law to act in your best interest.

Commission-based investment advisors earn commissions from investment transactions with clients. While fee-based advisors have a fiduciary duty to their clients, commission-based advisors do not.

Should I Get an Investment Advisor or a Financial Planner?

Investment Advisor vs. Financial Planner

Financial planners provide clients with advice aimed at helping them enhance their wealth and plan for the future. Some have the certified financial planner (CFP) certification, while others hold the chartered financial consultant (ChFC) certification. The services financial planners aid their clients with could include retirement planning, estate planning, investment or insurance planning.

As their name indicates, investment advisors focus on investing and the creation of investment portfolios. While financial planners often engage in investing to a certain degree, advisors take things a step further. This difference shows itself in the form of strategy creation, diversification and asset-allocation planning. All investment advisors must have a Series 65 license.

The type of investment advisor or financial planner you choose depends solely on your goals. If you want to create a stronger portfolio, an investment advisor who is a fiduciary might be useful.

If improving your overall financial situation is of more importance to you, a financial planner might be the better option. Similar to investment advisors, financial planners come in fee-based, fee-only and commission-based variations.

How Do Investment Advisor and Financial Planner Fees Differ?

The fees for both an investment advisor and a financial planner vary based on the specific advisor and the financial guidance you want in return. An investment advisor will normally earn money through one of three ways.  He may charge you an hourly fee, a flat rate or a percentage of the investments he manages for you, he may sell you financial products from which he’ll earn commission or some combination of those two. Investment advisors who charge a percentage of investments typically charge anywhere between 0.20% and 2.00%.

The average price most financial planners charge typically ranges between $1,000 and $3,000 for a full financial plan.  However, prices vary for fee-only, fee-based or commission-based planners. Therefore, the amount of money will also largely depend on the type of advisor you choose. Both fee-only and fee-based planners earn money from the financial plans they create for clients. Commission-based planners, however, only make money from the financial products they sell to clients.

If you choose to get guidance from your financial planner on more than one occasion, he might charge you a certain percentage of your managed assets. So you’ll have to decide whether you want to create or continually manage a financial plan. Managing a plan with a financial planner will cost you more money over time than simply getting a one-time plan. Overall, the price range for a financial planner chiefly depends on the type of planner you hire, the assets under your management (AUM), the products you buy and the services you require.

How to Find an Investment Advisor or Financial Planner

Investment Advisor vs. Financial Planner

When looking for a financial planner or investment advisor, you should narrow your search down to licensed planners and fiduciary investment advisors. You should also look online to see which firms and financial planners are the closest to you.

CFPs are normally the safest option when it comes to financial planners. This is mainly because of the rigorous coursework, exams and experience required for such a certification. These planners must also work a minimum of three years in financial planning before they can pursue a CFP certification.

If you’re having trouble finding an advisor that best suits you, try using SmartAsset’s financial advisor matching tool to find the right fit. You’ll start by answering a series of questions on your finances, your goals and your preferences. Based on that integral information, we’ll match you with up to three advisors in your nearby area. When speaking with your potential advisor, you should come to the conversation ready with these questions you should ask a financial advisor.

Bottom Line

Investment advisors and financial planners both work to help you reach whatever financial goals you have. While the two share similarities, they differ in the types of service they offer and the rates at which they offer them.

You should choose an investment advisor if you’re hoping to make a potentially successful investment, but aren’t entirely sure where to begin. A financial planner, however, is a great choice for those looking to build long-term financial plans. If you want to map out what it’ll take to grow your wealth, a financial planner might just be what you’re looking for.

Tips for Finding a Financial Advisor

  • One of the first steps in finding a financial advisor, whether he’s a financial planner or an investment advisor or another type of advisor, is identifying what your financial situation is and what you want to accomplish. This will make the process of planning much more effective when you’re dealing with the advisor. SmartAsset’s financial advisor matching tool can simplify your search for an advisor. After you answer questions about your finances and preferences, we’ll match you with up to three advisors in your area.
  • You should also pay close attention to the experience level and qualifications the advisor has. Try to find reviews to see what other clients have said and whether they had good experiences. Though review responses vary, make sure to look for patterns. If a large number of clients have made the same review, there may be some truth to it.
  • Finally, remember that different advisors and planners charge different fees. Before selecting an advisor, make sure their rates align with your financial situation. The goal is to not lose money in the process of trying to make more.

Photo credit: ©iStock.com/EmirMemedovski, ©iStock.com/simonkr, ©iStock.com/mapodile

Rickie Houston CEPF® Rickie Houston writes on a variety of personal finance topics for SmartAsset. His expertise includes retirement and banking. Rickie is a Certified Educator in Personal Finance (CEPF®). He graduated from Boston University where he received a bachelor’s degree in journalism. He’s contributed to work published in the Boston Globe and has worked alongside award-winning faculty for the New England Center of Investigative Reporting at Boston University. Rickie also enjoys playing the guitar, traveling abroad and discovering new music. He is originally from Wilmington, North Carolina.
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