Unlike the legal or medical industries, job titles in the financial industry are a bit more fluid and ambiguous, with the exception of industry certifications (including a Certified Financial Planner, known as a CFP® or a Chartered Financial Analyst, commonly referred to as a CFA). With general titles like “advisor” or “planner,” one may specialize in life insurance, while another focuses on estate planning. It can make filtering through all the professionals at your disposal a little confusing.
You might see financial planners, investment advisors, wealth managers, and even Certified Public Accountants refer to themselves as a financial adviser. It's a broad category that includes multiple schools of expertise. That said, there are some common differences between a financial planner, investment manager and wealth manager.
What is a Financial Planner?
Financial planners are generally interested in the entire process of financial planning, from gathering personal information, to implementing and monitoring a plan. Financial planners don’t limit themselves to your investment portfolio. They primarily assist with lifestyle planning, including budgeting, cash flow planning, taxes and saving for college and retirement.
Currently, the only regulation that exists for who can call themselves a financial planner is at the state level. For example, to call yourself a financial planner in Nevada, you have to operate at a fiduciary level (meaning you must legally put client financial interests first). Otherwise, financial planner titles are regulated only in relation to the other services provided. For instance, a Certified Public Accountant who calls himself a financial planner would be regulated by a state board of accountancy.
What Is an Investment Advisor or Manager?
According to the U.S. Securities and Exchange Commission (SEC), which is the U.S. agency regulating registered investment advisors: “Most financial planners are investment advisors, but not all investment advisors are financial planners.” Both investment advisors (also sometimes referred to as investment managers) and financial planners are alike in that they help you with managing your assets, but investment advisors provide specific services.
Turning once again to the SEC: “An investment advisor is an individual or a firm that is in the business of giving advice about securities to clients.” Investment advisors can help you select and manage stocks, bonds, and other securities that make up your investment portfolio.
A registered investment advisor (RIA) firm is registered with either the U.S. SEC or a state regulatory agency. RIA firms and their employees (investment advisor representatives, or IARs) have to meet a higher standard than other professionals who may call themselves investment advisors. RIAs have what is called a fiduciary duty. That means they have to put your interests ahead of their own. Put another way, the recommendations they make about your investments must be made to help you reach your goals, rather than how much money they can make.
Here is where it may get confusing: Most financial planners are also IARs. They have simply expanded their scope to offer services beyond investments. If you shop for a combined IAR/financial planner, you can find the best of both worlds: someone who can take a holistic view of your entire financial life, including your investments.
What Is a Wealth Manager?
Wealth managers are a subset of financial advisors distinguished by their clientele. Wealth managers primarily serve high-net-worth and ultra-high-net-worth individuals. And, as the title implies, they usually manage large amounts of wealth for these clients. These clients often have more complex investment portfolios, real-estate holdings, insurance needs, personal and business financials, tax situations, and estate-planning needs.
Wealth managers work closely with their clients to offer a variety of services rolled into one comprehensive, advisory package. A client’s needs are the determining factor for which services a wealth manager will provide.
Which Financial Professional Is Right for You?
When you start the search for a financial professional, you can expect a smorgasbord of titles: investment advisor, financial planner, wealth manager, financial advisor, investment advisor representative, asset manager—the list goes on.
Since the titles like financial planner, financial advisor, investment advisor and wealth manager are so generic, it is important to look for an accredited designation after a professional's name. You generally don't need a certification to call yourself a financial adviser, but you do need to complete training to perform most financial activities, like trading securities, selling insurance, preparing taxes, or managing large sums of wealth.
Certain certifications carry weight, and the Certified Financial Planner designation is a leader in the industry. Most financial certifications, like the CFP® designation, hold professionals to certain ethical standards. To attain and keep credentials, a financial professional needs extensive and ongoing education, experience and ethics.
Our Roundtable™ team of specialists and advisors at Wealth Enhancement Group holds many credentials across multiple disciplines and are held to the fiduciary standard. To help demystify what these credentials mean, we've explained several of them here.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The opinions expressed in this material do not necessarily reflect the views of LPL Financial.
CFP®, CPA, Series 7 Securities Registration,1 Series 66 Advisory Registration,† Insurance License As a Certified Public Accountant and CERTIFIED FINANCIAL PLANNER™ professional, Ryan brings an extensive tax and retirement income planning background to Wealth Enhancement Group. He helps lead the Tax Strategies group of our Roundtable team of specialists and is a frequent guest on our weekly “Your Money” radio program....Read More