What Do Financial Advisors Do?

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They aren’t all the same.

For years, I have been hearing folks refer to “my Financial Advisor”. When I ask them what that person does for them, they usually say something to the effect: “they take care of my investments”. I will then ask if they provide any other services and the usual answer is no. I would not call these folks financial advisors, but Investment Advisors or Wealth Managers.

As an industry, the financial service industry has done a poor job of differentiating between different types of advisors and what they do. We could have a great conversation over a cup of coffee as to whether this confusion is created intentionally, but that isn’t the purpose of this discussion. See, the barrier to be able to call yourself a “Financial Advisor” is very low. In fact, just about anyone can call themselves that, depending on what kind of activities they intend to do.

What are the main types of advisors?

1. Registered Representatives or Account Executives: affiliated with a broker/dealer (Merrill Lynch, Morgan Stanley, etc.) generally are transaction oriented. Will recommend for purchase and sale; individual stocks, mutual funds and other investments (like partnerships, annuities and ETF’s). Will usually inform you of each transaction.
2. Wealth Managers, Money Managers, Investment advisors: these advisors will usually manage portfolios for a fee. Usually charge a percentage of the assets they manage. They will buy and sell positions in the portfolio, but won’t discuss each transaction beforehand.
3. Uncle Bob, an older brother, friend, etc.: generally works in another profession and has strong opinions about investing based on their experiences or reading. Considers themselves smarter than most. Charge no fees and take no responsibility. Usually believe that any advice contrary to theirs is either dumb or a scam. A very dangerous advisor for most.
4. Fee Only Planner: Will charge a fee for financial advice. Some will provide comprehensive financial planning services. Usually retained to help analyze and resolve financial issues pertaining to taxes, investments, succession planning, estate planning, paying for college or retirement, etc. They will provide a written plan or provide advice. Also they are able to do a comprehensive plan covering all of the topics mentioned above. These folks are generally considered by many to be the only source of unbiased financial advice. I have found everyone has opinions and bias; these folks are no exception. Sometimes, because they don’t handle specific investments for clients, they don’t fully understand the ins and outs of some financial tools and investments because they don’t have experience with them. These folks won’t invest your money, but will be usually be able to review investment decisions and analyze them for you. These folks will work with you under the “fiduciary standard”, which means they have to put your interests before theirs.

Also, these advisors will usually have advanced designations like CFP (Certified Financial Planner), CFA (Certified Financial Analyst), ChFC (Chartered Financial Consultant), CPA (Certified Public Accountant), JD (Juris Doctor), MSFS (Master of Science in Financial Services) to name some of the more important ones. There are some “Junk” designations that can be bought, like CSA (Certified Senior Advisor) you should watch out for since there is little training required to obtain those designations and usually little benefit you will derive from that training. It is fairly easy to check the validity of someone’s credentials online these days.

1. Fee Based Planner: Will do the things that a Fee Only Planner will do. They also tend to have the advanced designations mentioned above. They also provide advice under the “fiduciary standard”. The biggest difference is that they will also help you put in place investment, protection or other strategies. They do this by creating portfolios or providing investments, obtaining insurance products and other items needed to take your plan from the theoretical to actual implementation of the agreed upon strategies. Because they operate under the fiduciary standard mentioned above, they must put their client’s interest before theirs.

They will usually earn a commission or fee for these services. Some planners on this model will continue to charge an hourly or other fee while designing and implementing specific tools, strategies and investments, while others “turn off the clock” when putting together products to implement a strategy. If you choose to work with others to buy those products, you would then pay just their fee for designing and vetting the strategies.

This is the model we follow at Gainer Financial and Insurance Services Inc. After working with clients for over 27 years, we have found that our clients appreciate the ability to have the entire spectrum of financial considerations integrated and coordinated, but enjoy the flexibility to just work on a single issue or investment without creating a holistic financial plan. This allows them to work at a pace that is comfortable for their needs and comfort levels.

If you would like to have additional information or discussion on this topic, contact us by clicking on this contact link. If you aren’t sure if a planner can provide value to you, take advantage of our free consultation offer, just click above and we can schedule a time!
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