Financial planners provide various types of planning services (personal, college, retirement, estate, charitable). The combination of services varies by financial planner expertise.
Financial advisors are focused on investment services such as strategy, asset allocation, manager selection and performance measurement. Or, the financial advisor is actually a money manager because he makes investment decisions for clients without their approval in advance.
Planning is an essential financial service because it is provides a roadmap for your financial future. Once you have a plan it should be updated annually for any changes that impact the achievement of your financial goals.
Most investment plans are built around two core concepts: Accumulate money during your working years and preserve money during your retirement years. This means you need investment advice that will help you accomplish both goals while minimizing your exposure to risk and expenses that are deducted from your accounts.
Financial planners may also provide investment advisory services and investment advisors may also provide planning services for three reasons:
- They want to provide an integrated package of services to their clients
- They want to control as many revenue streams as possible
- They want to keep competitors away from their clients
Note, only one of the reasons benefits you and it creates a new form of risk. The financial planner or financial advisor may be offering a package of services to protect his interests, but he is not an expert in all of the disciplines. Therefore, you may be impacted by bad advice.
Most financial planners and financial advisors want to control as many revenue streams as possible. It is time-consuming and expensive to win new clients so maximizing revenue per client makes sense if you are an advisor. However, it is a major source of risk if you are an investor. The advisor makes a great pitch to control all of the revenue streams and you buy the pitch because you like the advisor. What’s the risk? The advisor provides good advice in one discipline and bad advice in another. And, you act on the bad advice because you do not know the difference between good financial advice and bad advice.
Financial planners and investment advisors can hold insurance licenses that permit them to sell fixed and variable insurance products. The licenses are popular with planners and advisors because the sale of insurance products generates the biggest commissions in the financial service industry.
Planners and advisors ask one simple question that works 90% of the time: “Do you want me to handle your insurance requirements or do you want me to refer you to an insurance that I think is reliable.” It makes sense to leave insurance with the planners and advisors because they know what you need.