Understanding Types of Financial Advisors and the Credentials They Hold

Financial advisors are professionals who help clients plan for their short-term and long-term financial goals. They might also provide investment, tax, and insurance advice, and spend much of their time researching and analyzing investment opportunities and meeting with clients to discuss investment strategies.

However, the term “financial advisor” is a broad term that encompasses many types of advisors, specializing in topics ranging from retirement planning to investment management. The level of education, training, and experience a financial advisor undergoes makes a difference in their area of expertise. They can also go by different names, which can make it confusing to know which type of advisor would be most suitable in helping you meet your current financial requirements.

Additionally, you may also find advisors with credentials after their names, such as CFP and CFA, that indicate the different financial certifications the advisors hold. Knowing what the credentials represent can be quite challenging. Hence, it is important to get a better understanding of the various types of financial advisors, the roles they perform, and the value of the credentials they hold, so you can make an informed decision while hiring an advisor for your financial needs.

In this article, we try to help you understand the different types of financial advisors and the services they provide. We will also cover the top credentials you should look out for in financial advisors, so you can ensure that the advisor you picked is top certified in their area of expertise.

Types of Financial Advisors

1. Accountants

An accountant’s job involves analysis, auditing, and financial statement analysis. They work with accounting firms or internal account departments within large companies. Accountants are also eligible to set up their own, individual practices. A professional accountant is certified by national professional associations only after meeting state-specific educational and testing requirements.

The most important reason for hiring an accountant is getting financial records and operations in order, and filing tax returns.

An accountant’s primary functions are:                                                                                  

  • Filling in your correct tax return to avoid audits.
  • Looking for deductions that you might have overlooked. For example, child care deduction.
  • Filing for an extension on your taxes.

To a business owner, an accountant can prove to be even more helpful. An accountant manages petty finances, keeps books of accounts, and tracks all the income and expenditure.

2. Insurance Agents

Most people subscribe to some form of insurance. Working out your insurance needs and requirements, how much to pay, which insurance provider to choose, and which plan to select, etc., can be quite a tricky and time-consuming process. An insurance agent can help assess your situation and and accordingly recommend the best policy from the variety of insurances available. They can compare different insurances offered not only by a single company but can also compare policies and insurance offers across the market to find the best fit for your requirements.

3. Stock Brokers

Stock Brokers are also known as registered representatives. They are licensed by the state(s) they practice in. Their function is to buy and sell securities products such as stocks, bonds, and mutual funds. They generally earn commissions on all their transactions. Stockbrokers must be registered with a company that is a member of the Financial Industry Regulatory Authority (FINRA) and must have passed FINRA-administered securities exams.

Read our article on What is FINRA and What is the Role of FINRA to understand the importance and authority of this not-for-profit organization backed by the Securities Exchanges Commission. (SEC).

4. Financial Planners

A financial planner evaluates and analyses your finances. He or she employs his skills to understand your financial health and is the one you should discuss your financial targets and issues with. He can help you strategize to accumulate and grow wealth, such as clearing your debts, saving for important occasions, or planning for your retirement. Additionally, if you need the help of an expert, such as an attorney, your financial planner can help you get in touch with one.

You can either hire a financial planner on a consultation-basis reaching out to one when needed, or you can hire one for an ongoing consultancy. Your financial planner can also help you set up a complete and comprehensive financial plan. This plan will be suited according to your financial needs and goals, be it savings or investment, insurance, or retirement.

A financial planner plays a significant role in helping you gain an understanding of the inflow and outflow of money.  If you happen to make an inheritance, or even if you happen to get a pay hike that will fetch you more money than earlier, it makes sense to pay a financial planner to help you use it wisely. A financial planner can also help you coordinate all your accounts, save taxes, make wise investment decisions, and plan your estate – giving you freedom from a lot of cumbersome paperwork and giving you more time to relax and focus on the more important matters of the family and business.

5. Investment Advisors

The difference between financial planners and investment advisors is commonly misunderstood – partly because both the titles are often used interchangeably. However, their roles vary. While financial planners look at the big picture of one’s financial situation, an investment advisors’ role is to solely focus on helping their clients choose the best investments.

The more money you have, the more advisable it is to make appropriate investments to grow the funds wisely. An investment advisor will help you manage and diversify your portfolio. It is important to keep in mind that investment advisors generally charge fees as a percentage (1% or more) on the portfolio size that needs servicing and management. If your portfolio size is small, it may not be worth hiring and paying the commission to an investment advisor.

6. Debt Counselors

Debt counselors, also known as credit counselors, help people deal with their debt that has spiraled out of control. They can assist you in drawing up a budget, developing a plan to reduce the burden and eventually paying off your debt. They can also advise you on loan refinancing and debt consolidation.

If things are beyond control, the counselor can negotiate with your creditors to set up a debt management plan (DMP). This agreement would make the debt counselor an intermediary between you and your creditors. You need to pay a certain amount each month to the counselor, and they distribute this amount to your creditors. In some cases, when the counselor sets up the DMP, they can negotiate with your creditors to get you a lower interest rate or seek waiving of the penalties for previously delayed payments.

7. Money Coaches

A money coach evaluates your personal habits, beliefs, behavior, and teaches you the skills you need to handle your own money wisely. They can help you by:

  • Understanding your financial goals
  • Exploring personal issues and barriers holding you back
  • Bringing to light unhealthy spending habits
  • Figuring out where are you spending money and where can you save
  • Helping you understand how your finances matter in other aspects of life as well (for instance, health)
  • Helping you make financial decisions in line with your values

Some people hire money coaches because they think their finances and spending habits are not aligned with each other, creating a deficit. Some others do it to reevaluate their financial habits. If you know what you want from your money and need advice on how to achieve it, you should hire a financial planner. But if you’re trying to better your relationship with money with a re-evaluation of your spending and saving habits, a money coach would likely be of greater benefit.

What financial credentials should I look for in my financial advisor?

Some of the best financial credentials to check for include CFP, CFA, and CPA. These designations are worthy of your attention as they follow a rigorous qualification criteria that is regulated and monitored by various State and local agencies.

A chartered financial analyst, or a CFA, is a globally-recognized professional designation awarded by the CFA Institute. It measures and certifies the competence and integrity of financial analysts. To receive the designation, candidates are required to pass three levels of exams which cover subjects like accounting, economics, money management, ethics, and security analysis. Their focus is on portfolio design and investments. Consider a CFA Charterholder, if you are looking to engage with a professional to manage your investment portfolio.

A Certified Financial Planner, or a CFP, is a formal recognition of expertise in the areas of comprehensive financial planning – investing, taxes, insurance, estate planning, and retirement. It is a standard certification issued by the Certified Financial Planner Board of Standards, Inc. CFPs meet rigorous education, training and ethical standards, and are committed to serving their clients’ best interests.

A Certified Public Accountant, or CPA, as a title, refers to qualified accountants in most countries. In America, it is a designation given by the American Institute of Certified Public Accountants (AICPA), the world’s largest accounting body, to individuals who successfully clear all the uniform CPA examinations. It licenses a professional to provide accounting services to clients.  CPAs are mostly engaged by corporates and business firms for financial auditing and assurance services. CPAs may also act as business consultants and represent taxpayers in matters before the IRS. They may also operate in areas of finance spanning corporate governance, financial analysis and planning, corporate finance, venture capital and estate planning, to name a few.

Paladin makes it easy to look up an advisor’s credential with its free-to-use check a credential search tool. Simply type in the first few letters of the credential in the tool and gain access to reports and ratings about that credential, compiled through research of more than 250 certifications and designations that financial advisors use.

To sum it up

Professional financial advice can help you gain a better insight into how to plan for a secure financial future. The kind of financial advisor that is best suited to your needs will differ depending on your current financial situation and your goals. While a lot of people DIY (do-it-yourself) financial decisions, it is highly recommended that you do your research to find the type of advisor that meets your current financial requirements and can help optimize your gains.

To get in touch with the right kind of financial advisor, answer a few simple questions, and our free advisor matching tool on Paladin Registry will match you to 1-3 verified financial advisors near you. Set up an interview with them, and you can choose the professional advisor that would be the best fit for you to help you accumulate, grow, and manage your finances!

To learn more about the author William Hayslett view his short bio.

Other posts from William Hayslett