At first glance, financial advisors and investment advisors may seem quite similar as far as roles and responsibilities are concerned. Both are financial professionals who deal with investments in some capacity. But there are actually clearly defined differences between the two. Let’s dive in.

What Is a Financial Advisor?

“Financial advisor” is a rather generic term that can refer to various financial professionals, including those who do not offer guidance or help with investments. However, because the term can mean many things, financial advisors perform many duties. These tasks may include the following:

Investment management
Budgeting recommendations
Insurance recommendations
Asset management
Risk management
Retirement planning
Estate planning
Tax preparation

Not everyone who calls themselves financial advisors offer each of these services. Generally, the financial professionals who provide most—if not all—of these services are CERTIFIED FINANCIAL PLANNING® professionals.

What Is a CERTIFIED FINANCIAL PLANNING® Professional?

CERTIFIED FINANCIAL PLANNING® professionals (CFP® professionals) are licensed financial practitioners who help their clients with financial planning. Financial planning is the process of taking stock of a client’s short-term and long-term goals and strategizing ways to meet those goals financially.

All CFP® professionals are financial advisors, but not all financial advisors are CFP® professionals. That is because to become a CFP® professional, you must meet a strenuous set of requirements, including:

A Bachelor’s degree
A minimum of 4,000 hours of applicable experience
A set of CFP Board-approved financial courses
A passing grade on the CFP® Professional exam
Strict code of ethics

CFP® professionals go through a lot of education and training to provide their services. They also act as fiduciaries, legally obligated to work in their client’s best interests. CFP® professionals are held accountable under the oversight of the CFP® Professional governing body.

What Is an Investment Advisor?

The Securities Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have established that an investment advisor is not the same as a financial advisor. Investment advisors are professionals who may offer one or both of the following services:

Investment guidance
Analysis of investment portfolios

The key here is that investment advisors perform these tasks for compensation. Of course, according to this definition, many financial professionals qualify as investment advisors, including the aforementioned CFP® professional.

Broker vs. Investment Advisor

In understanding what defines an investment advisor, it’s helpful to distinguish between brokers and investment advisors. Some financial advisors are stock brokers or individuals who buy and sell investment securities for themselves and others.

Stock brokers can offer their clients investment advice without registering as investment advisors. However, they are not allowed to accept special additional compensation for this advice the way investment advisors are.

Stock brokers are not fiduciaries, while registered investment advisors are. That means investment advisors are legally required to put their clients first. Therefore, they must act in the best interests of their clients, and any guidance they offer must also be given with the client in mind first and foremost.

Financial advisors and stockbrokers held to the suitability standard are only required to make suitable recommendations to their clients. That means they don’t shoulder the burden of finding the most suitable option but simply an appropriate option.

This standard, of course, can lead to conflicts of interest in some cases. For example, the broker could make a recommendation suitable for the client and works in the broker’s best interests—but sometimes, not in the client’s long-term interests.

Roles of Investment Advisors

In some cases, investment advisors work in teams with financial advisors. In these scenarios, investment advisors usually work behind the scenes managing the client portfolios while the financial advisor handles the face-to-face interactions and planning directly with clients. Some investment advisors also follow quieter paths like research, financial analysis, and writing reports on the financial industry.

Should You Work with an Investment Advisor or a Financial Advisor?

Choosing the type of financial professional you should work with largely depends on your personal goals. For example, are you interested in investment guidance on its own? Do you want someone to manage your portfolio on your behalf? Are you looking for someone who can manage investments and help you budget? Do you need help with planning for retirement?

Your needs, wants, and goals dictate the type of financial advisor best suited for you. If you’re having trouble determining what kind of help you need, our team at Good Life Financial Advisors of Mt. Pleasant, South Carolina, is here to help. Here, all our client relationships begin with a free discovery call. During this call, we’ll ask the right questions to get to know you and your goals so we can make a sound recommendation for you.

If you’re ready to discover the Good Life, contact us today to schedule your free consultation. Again, thanks for visiting our blog; we hope to help you soon!

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The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.