Are You Working With an Investment Advisor or a Financial Planner? - Rodgers & Associates

Are You Working With an Investment Advisor or a Financial Planner?

The Investment Advisers Act of 1940 states that an ‘…‘‘investment adviser’’ means any person who, for compen­sation, engages in the business of advising others, either directly or through publi­ca­tions or writings, as to the value of securities or as to the advis­ability of investing in, purchasing, or selling securities…’

Unfor­tu­nately, there is little regulation over what people giving financial advice can call themselves – adviser, advisor (yes, there is a difference), financial consultant or wealth manager – just to name a few.  Therefore, even though we have this defin­ition above there is much confusion among consumers.

Investment advisors are often money managers and sales people who only give advice on invest­ments. In many cases, they are not permitted to even comment on other important areas such as tax or estate planning issues because they have not had any training in those fields. In contrast, financial planners generally provide more compre­hensive planning including invest­ments and other areas such as:

  • Cash flow analysis (planning and budgeting)
  • Retirement planning
  • Tax planning
  • Investment planning
  • Estate planning
  • Health insurance planning
  • Employee benefits
  • Risk management and insurance planning

There can also be other differ­ences between financial planners and investment advisors. Investment advisors typically give advice that is ‘prudent’ based on your risk tolerance, and may invest your account based on a prede­ter­mined portfolio. However, a financial planner is more likely to create a detailed and unique financial plan based on your specific needs and goals. Having your own financial plan instead of a collection of invest­ments can help determine if you are on track.  Maybe you need to save more to achieve your goals or maybe you can afford to invest more conser­v­a­tively or retire early.  Just knowing if you are on track or not toward reaching your goals is one of the primary benefits of the planning process.

If you decide to seek out a financial planner, the most qualified advisers are likely to be a Certified Financial Planner™ or CFP®. A lot has changed since 1940 and the CFP® desig­nation is often considered the gold standard for consumers looking for a financial planner.