Financial Advisor or Investment Adviser: Who is best for you?

Jonathan Baird |

Financial Advisor or Broker
Financial advisors are typically brokers who execute trades on behalf of clients. They are licensed by state security regulators, must register the Securities and Exchange Commission (SEC) and with FINRA, a government-authorized not-for-profit organization that oversees brokers to make certain they operate fairly and honestly. Brokers must work in the client’s best interest and are held to a “suitability” standard, which is a lower standard of care than a fiduciary standard. So long as the products the broker offers are “suitable” for their clients, they are able to sell said product.

Brokers may be compensated in a number of ways, which can affect the products said broker recommends in a given situation. There may be annual fees charged to the client, commissions paid when trades are executed in the account, sales loaded mutual fund fees, and trailing fees from certain products. Trailing fees typically pay financial advisors an ongoing fee as a motivation to sale the product, which can affect their recommendations along with the other incentives.

Investment Adviser Representative
Investment adviser representatives are financial professionals who give advice and manage assets on behalf of their clients. Advisers are registered with the SEC or the state authorities depending on the amount of assets they manage, and are bound by a fiduciary standard to act in the best interest of their client. They are also required to be transparent and disclose material facts to their clients.

Investment advisers are compensated by a fee charged to the client as a percentage of assets under management, a flat or hourly fee, or a retainer. As independent advisers they are not tied to any product and do not sell or accept any compensation from the products that they offer. They often times work with trusted professional to achieve their client’s goals without any fee sharing arrangement.

Who do you trust?
Knowing the difference in who you trust to guide you on your financial path is very important. There is a wide array of advisers in the market seeking to help people make better financial decisions. As you can see there can be a difference in the motivation the advisor has in their advice to you. Advisors who have a financial incentive to sell a product may not put you in a product that is a best fit for you. Look for those advisers that have a fiduciary responsibility to do what is in your best interest. Also look for someone that will help determine your financial goals and make a plan for you to achieve those goals. Your financial future is up to you, but having a great adviser by your side can help you stay on track.

What should you do?
Should you hire a professional to manage your money? Can you manage your money yourself and save on fees? Depending on the complexity of your life situation you may need someone to help you navigate those complexities and develop a plan to help you achieve those goals. If you expect an adviser to beat the market, you might be disappointed. An adviser will help you diversify your portfolio to match your risk tolerance to help navigate the volatility in the market.

Portfolio allocation is important and should be tailored to fit an individual’s risk tolerance, time horizon, and goals. Letting a professional assess these areas, along with considering the tax implications of the investments, likely will outweigh the fees you will pay. A comprehensive plan will not only include investing and tax planning, but charitable gifting, insurance needs, and estate planning among other things. Choosing someone you trust in helping you navigate the complexities of financial planning is vital to staying the course and achieving your investing goals.

“Don’t put off until tomorrow what you can do today.” –Benjamin Franklin. Start investing today with a course in mind and stay committed to the course. Chose an adviser that you trust and will help you navigate the course to the finish line.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.