An investment advisor aids in selecting and managing an investment portfolio. A financial advisor can manage an investment portfolio and offers insights on insurance needs, retirement and estate planning, taxes, and other areas of your finances.
When you start looking for a professional to aid you in managing your finances and helping them grow long-term, you might wonder how a financial advisor vs. an investment advisor compares. While their roles are different, both types of professionals offer financial insights and advice on managing your money. However, investment advisors focus more on helping you select and manage your investments. In contrast, financial advisors help with retirement planning, investing, life insurance, estate planning and anything relating to your finances. Here’s everything you need to know about how these professionals compare and when to use each.
Financial Advisor vs. Investment Advisor: An Overview
Take a deep dive into the services and insights an investment advisor vs. financial advisor provides to learn which might be best for you.
| Financial Advisor | Investment Advisor |
| This category includes various professionals: brokers, accountants, insurance agents and other professionals who analyze a customer’s financial status and provide related advice. They might also manage investments on behalf of the client. | An investment advisor is an individual or firm that helps a client select and manage investments. They also provide advice and market analysis. |
| Financial advisors must primarily follow the Financial Industry Regulatory Authority (FINRA) rules and regulations. However, just like investment advisors, they must register with the Securities and Exchange Commission (SEC) if they manage more than $100 million in assets. | The Securities and Exchange Commission (SEC) oversees these professionals and requires them to register with their state when managing assets valued at $100 million or more. |
| Although financial advisors can collect commissions on certain products, they still have a fiduciary duty to put their client’s best interests first. They must follow the rules regarding commission-based sales. | Fiduciary duty to put the client’s best interest first. |
Financial Advisor vs. Investment Advisor: Key Differences
There are several key differences between the work of a financial advisor and an investment advisor. First, an investment advisor focuses on providing advice and management for investments and securities based on your risk profile and financial goals. In contrast, a financial advisor might still offer investment advice, but that comes alongside reviewing your other finances, including your retirement accounts, estate, taxes, budgeting, insurance needs, and more.
Investment advisors specialize in focusing on one aspect of your finances, while financial advisors are more generalists who provide advice and insights for various financial needs.
Should You Work With an Investment Advisor or a Financial Advisor?
The answer to whether you should work with an investment advisor or a financial advisor comes down to your goals. If your goal is to build wealth with investments, you should hire an investment advisor to help you earn passive income with the assets you already have. But if your goal is to figure out how you’re doing financially, where you should place your assets and how to plan for long-term goals, such as retirement or purchasing your first home, a financial advisor is a better option.
Generally, people work with investment advisors once they have reached a certain point with their finances where everything is running smoothly, and they have a large sum of money to invest. More than likely, they’ve already worked with a financial advisor to build a strategy around retirement, insurance, and budgeting. While a financial advisor can guide a client on investments, they aren’t solely specialized in this area like investment advisors and might only handle assets up to a certain point.
Even within the terms investment advisor and financial advisor, some professionals specialize in certain types of financial planning. For example, some financial advisors work solely with business owners to help them understand how to maximize their tax advantages or better manage their assets to grow the business. Other advisors focus their services on those nearing retirement who want to know they are prepared.
Ultimately, financial advisors focus on a holistic plan for your financial well-being, while investment advisors help you grow your wealth through investment strategies.
How Do Investment Advisors and Financial Advisors Make Money?
Investment advisors and financial advisors make money in varying ways. When reviewing these professionals, you’ll see two key terms: fee-only and fee-based. At first glance, the terms seem to indicate the same thing, but here’s what they mean.
- Fee-only: These professionals charge a flat fee or a percentage of the assets they manage. This covers their services and is their only form of compensation. For example, they might charge $10,000 per year for their services. Or if you have them managing $500,000 in assets and they charge a 1% fee, you’ll pay them $5,000 per year for their services.
- Fee-based: While you’ll still likely pay a standard fee for services with a fee-based professional or firm, these advisors also make commissions on the products they sell. For example, you might pay an annual fee of $1,000 for the advice and insights a financial advisor provides. On top of that, the advisor might receive a commission for selling you life insurance or a specific security.
Although fee-based firms make money from selling some financial products, they have the same fiduciary duty to clients as fee-only firms. That means no matter which professional you work with, they are bound to your financial interests and only recommend financial products that will benefit you, despite the kickback they might get for that recommendation.
How to Find an Investment Advisor or Financial Advisor
You should start your search for an advisor by reviewing those with licenses in your area. You do not want any form of financial advice from a professional who is not registered with the SEC or FINRA. Follow this step-by-step process to narrow your search to the best professional based on your needs.
1. Start Online
Search for professionals and firms near you. Check on the advisor’s services and see if they have a specialty that matches your financial characteristics and goals.
2. Read Reviews
An important aspect of working with any professional is their customer service skills. How responsive are they? How easy is it to get an appointment? Do they make their clients feel dumb or unwise regarding money? Current and past clients share their experiences online for others to see and learn from — good and bad.
3. Review Credentials
If you’re planning to go with a financial advisor, a certified financial planner (CFP) is a wise selection. These professionals complete rigorous coursework to earn their credentials and must have adequate experience before being awarded the certification, including three years in financial planning.
4. Set Up Meetings
You should meet with a few advisors to see how well you work with them. These meetings can be digital or in person. Ask questions about your situation, such as how they work with business owners, generational wealth, estate planning, etc.
5. Understand the Fee Structure
Ask about the firm’s fee structure. Understanding what that means and how it could impact your total service cost.
6. Select Your Advisor
Once you’ve put the advisor through their paces, you can select your advisor and begin working with them.
Planning for Your Financial Future
Regardless of whether you select a financial advisor or investment advisor, you can start planning for your financial future now with advice and insights related to your unique situation to make the most of your financial circumstances.
Frequently Asked Questions
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Investment advisors are not the same as financial advisors. Financial advisor is a generic term that covers a variety of professionals and their services. In contrast, an investment advisor is a more specialized term indicating that the professional offers advice and management for investment portfolios.
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While you’ll be paying a financial advisor for their services, they can often earn higher returns than if you were investing the funds yourself. So, as long as you work with a skilled professional, the added returns should offset the advisor’s fees.
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A financial planner can help you prepare for the future and understand your unique financial situation. A financial advisor can help you move forward with financial confidence.
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Investment advice focuses on earning returns from assets through investments. Financial planning is a broader term that covers more than just investing, including insurance, retirement, estate planning, and taxes.