Finances can be complicated, but thankfully, some professionals can help you with them. If you’re busy running a business, you can’t expect yourself to be an expert over every detail. Picking the right kind of expert to help can be a bit of a challenge, though.
When it comes to handling your company’s funds, you might’ve heard about both financial and investment advisors. While these two titles sound similar, these are different kinds of professionals offering distinct services. You may need either one, but you shouldn’t hire one when you need the other.
If you want the right help, you’ll need to hire the right advisor. Here’s a closer look at the differences between the two.
What Does a Financial Advisor Do?
Financial advising is a broad category, which could be why people often confuse them with investment advisors. Generally speaking, though, a financial advisor is someone who helps you plan future monetary decisions to reach a goal. You can consult them about anything from savings plans to tax strategies.
More often than not, financial advisors are brokers who execute sales on your behalf. That’s not all they do, though, as establishing a plan is typically a significant part of their job. In many cases, you’ll hire one, set up a strategy and then they’ll guide you through the process afterward.
Financial advisors seek compensation in a variety of ways, though many will work for a monthly retainer. Many others charge a fee, usually a small percentage of the assets you invest. You may find advisors working for a bank or other institution, and they typically earn a commission on what they sell you.
What Does an Investment Adviser Do?
You may see some financial advisors advertised as “investment advisors,” but that’s not the same as an investment adviser. “Investment adviser,” spelled with an “e,” is a legal term referring to regulated professionals that provide investment advice. It’s a subtle distinction, but a crucial one.
Investment advisers could either be people or firms that charge for advice or reports about investments. As part of their legal definition, investment advisers provide these services regularly, not just once. Because the nature of this work is ongoing, these professionals need additional certification.
Suggesting investment opportunities is part of what these advisers do, but not all of it. They may also manage your portfolio, research and present industry reports or inform you about other advisors to hire. Like with financial advisors, they could ask for compensation in a variety of forms.
When to Choose One Over the Other
Now that you know the difference between the two, when should you go with either option? Given the overlap between the two, the best situation for each isn’t always clear. The best type of advisor for the job comes down to what your goals are.
While their services can look similar, investment advisers and financial advisors help you get to different ends. Investment advisers help you build or strengthen your investment portfolio while financial advisors assist in improving your overall wealth. Determine which option you need or want to decide between the two.
Depending on your situation, you may not need either one. If you want to retain total control, don’t have much to invest or don’t stand to earn much, then you’re better off on your own. Both types of advisors are usually expensive, so you want to be sure you can gain more than you spend.
Considerations to Keep in Mind
You should keep a couple of other factors in mind when looking at financial and investment advisors. Since both represent a significant investment, you want to be sure that you turn to a reputable advisor or firm. Asking for recommendations from friends or colleagues isn’t enough to determine that reliability.
If you ask anyone about an advisor, it should be a trusted professional in that industry. An insider opinion will help you ensure that you see a return on your investment. Outsiders may not know as much about the field to prove helpful.
You may not immediately think of cybersecurity when thinking about advisors, but you should consider it. While the SEC recommends thorough cybersecurity measures for investment advisers, it may not require it. Before you go into business with someone, assess if they would be a risk to your cybersecurity or not.
Hire the Right Person for the Job
You might want to turn to expert help in a number of fields for a variety of reasons. While there is plenty of help available, it’s not always necessary, and different options can produce varying results. To get the most out of your investment, you should know what to pick and when.
Financial advisors and investment advisers provide similar services with different ends. You should make sure you hire someone who can help you achieve your specific goals.
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