What Are the Types of Financial Advisors?

Types of Financial Advisors

The term financial advisor covers many different roles, but there are four main distinctions. Knowing how these advisors are alike and different could help guide you toward the right financial professional.

1. Certified Financial Planner

A certified financial planner is a financial professional who has met rigorous standards set by the CFP board. To earn this designation, they must:

• Fulfill an education requirement: This involves completing financial planning coursework and obtaining a bachelor's degree or higher within five years of passing the CFP exam.
• Pass the CFP exam: This covers topics like tax planning, retirement planning, estate planning, insurance and financial planning principles.
• Gain experience: That can be either 6,000 hours of professional financial planning experience or 4,000 hours of an approved apprenticeship.
• Meet an ethics requirement: This involves pledging to act as a fiduciary to their clients, which means acting in their best interest at all times. They must also adhere to other standards around ethics and conduct.

A CFP can be a good option for folks who are seeking comprehensive financial guidance. That can include budgeting, investing, retirement planning, estate planning and general financial education.

2. Wealth Manager

Wealth managers also provide in-depth financial advice and investment guidance, but they're geared toward high-net-worth individuals with large portfolios. The goal is to help them manage their assets and plan for how their wealth will be passed down to the next generation, which often involves legacy planning. For example, a client may choose to leave a large portion of their wealth to charity.

Most wealth managers have a bachelor's or master's degree, usually in finance, business or economics, as well as experience working in the financial field. Many also hold the CFP designation, but it isn't required. Wealth managers can also secure the following:

• The Wealth Management Certified Professional certification: Provided by the American College of Financial Services, this certification requires candidates to complete coursework, pass a final exam, comply with a code of ethics and procedures, and get recertified annually. To use the designation, they must also have at least one year of experience working as a financial professional.
• Accredited Wealth Management Advisor certification: Offered by the College for Financial Planning, this certification requires financial professionals to complete an eight-module program, pass a final exam and adhere to a code of ethics. The focus is specifically on high-net-worth clients and their unique financial needs.

3. Investment Advisor

Investment advisors often monitor accounts and recommend different securities to help their clients get the best returns. In many cases, they also execute trades on clients' behalf. Above all, registered investment advisors (RIAs) have a duty to act as a fiduciary, which means they're obligated to only make recommendations that are in their clients' best interests.

Investment advisors typically have a finance-related bachelor's degree. After that, they must pass the Series 65 exam from the Financial Industry Regulatory Authority (FINRA). Many investment advisors choose to pursue additional certifications, such as the CFP designation, though it isn't required. The final step is to register with the U.S. Securities & Exchange Commission (SEC); once they are registered, they are required to act as a fiduciary.

When it comes to investing, an advisor can do most of the legwork for their clients, including managing their investment accounts. That could be an attractive perk for folks who want an expert on their financial team.

4. Investment Broker

The term investment broker can refer to a licensed stockbroker who works for a full-service brokerage firm. These financial professionals work directly with investors, buying and selling securities on their behalf. They tend to offer investment resources and advice as well.

A stockbroker is a financial professional who has:

• Earned a bachelor's degree, typically in finance or business
• Been sponsored by a FINRA-member brokerage firm or investment bank
• Passed a series of licensing exams (some employers may require additional licensing)

Tip: Robo-advisors are automated digital investment platforms that can buy and sell securities on your behalf once you provide your investing preferences. Going this route can be significantly less expensive than working with a stockbroker, though there's little if any human interaction.

What Type of Financial Advisor Is Right for You?

Below are some simple steps for choosing the right financial advisor:

1. Decide what type of financial advisor makes the most sense. That might be a wealth advisor who specializes in high-net-worth clients or a certified financial planner who provides general financial advice. Consider your financial goals and let that lead you. Also ask yourself if you're looking for a financial professional to manage your investment accounts on your behalf.
2. Understand their fee structure. Fee-only financial advisors do not receive commissions on any financial products they suggest. Instead, they may charge a flat rate, hourly fee or retainer. Commission-based financing works the other way around. Some financial advisors make money through a combination of service fees and trade commissions.
3. Compare financial advisors. You can start with the National Association of Personal Financial Advisors, which maintains an online search tool. You can also ask for referrals from friends and family. Either way, consider taking informational meetings with financial advisors to see if they're a good fit.

Learn more: Questions to Ask a Financial Advisor

The Bottom Line

There are several different types of financial advisors. Some provide general financial guidance, while others zero in on investment advice and wealth management strategies. The right one for you will depend on your financial needs and the kind of support you're looking for. If you do decide to work with a financial advisor, be sure to do your research and go with an accredited professional—that can help weed out potential fraudsters.