Sometimes the titles that investment advisors and financial advisors give themselves are indicators for the types of services they provide. Why do you need indicators? Think of the wolf in the sheep’s clothing. Investment advisors and financial advisors use titles that help them sell the most products with the least amount of sales resistance. So it pays to know the right questions to determine their actual services and how those services fit your particular requirements.
Professionals who use investment advisor as their title are usually more interested in investing your assets then they are providing a planning service. Professionals can make a lot more money investing assets that is because you are willing to pay more for investing then you are for planning.
The typical services of the investment advisor are to help you develop an Investment Policy Statement, allocate your assets, select money managers, provide performance measurement services, and conduct annual reviews to make sure there are no changes in your requirements. This investment advisor provides these services, but does not make decisions on your behalf. That is your responsibility.
In general, a financial advisor will provide a broader range of services than an investment advisor. They usually start with a financial plan that they implement when they help you invest your assets. Implementation includes many of the same services that are provided by investment advisors and financial advisors and also do not make decisions on behalf of their clients.
Money manager can be a confusing title. This is because some investment advisors have discretionary powers that allow them to make decisions on behalf of their clients and some don’t. Those that do may be called money managers. In general, there are two types of money managers. There are Separate Account Managers that build and manage separate portfolios of securities for you. As the name implies, you have a separate portfolio. This is important because the other type of money manager is a mutual fund or hedge fund. Your assets are pooled with other investors and invested in the securities markets.
Another source of confusion is the role of the financial planner. That is because there are three types of planners. The first type only provides planning services and is compensated with an hourly or fixed fee, similar to a CPA. The second type, also the most common type, provides planning and investment services. This planner helps you develop and implement plans. The third type is a sales representative who masquerades as a planner to sell investment and insurance products.