The internet makes it seem like you can create an investment plan in a few clicks and be on your way to great returns in no time. The reality is that to succeed you need to create a comprehensive financial and investment plan that considers your situation now and in the future. You can’t get that with a robo advisor, but you can with an investment professional, along with comprehensive plans that mitigate taxes and maximize returns.
When considering working with an investment professional, look for someone who offers a holistic approach to financial planning. You’ll want your investment advisor not only to know the ins and outs of investing, asset classes, and allocation, but also to have deep knowledge of wealth management, taxes, insurance, inheritance, and retirement planning. They need to understand how your investment plan fits into your broader financial strategy.
Not all investment professionals are created equal. Before choosing one to work with, you must understand the difference between brokers, investment advisors, and financial planners.
Broker-dealer is an individual or company that buys and sells securities for its own account or for customers. Brokers are limited in what securities they can sell based on the licenses they have. A broker with a Series 6 license is permitted to sell mutual funds only, while someone with a Series 7 license has more leeway to sell different types of securities.
Brokers are either full service, which means they provide an array of investment services, or discount, which means they provide research and the ability to execute trades.
Keep in mind brokers may have the firm’s interest in mind when it comes to selling securities. They are bound by the suitability standard, which means the transaction must be suitable to meet the client’s needs but is not necessarily the best option.
Investment advisors are individuals who provide clients with investment advice, choosing stocks, bonds, and mutual funds that match an investor’s goal. They are registered with either the Securities and Exchange Commission or with their state regulator and have discretion to make investment decisions for you without needing your approval before a transaction. Some investment advisors look at your finances to craft a holistic plan while others focus narrowly on stocks and bonds.
Financial planners/financial advisors
Financial planners or financial advisors craft financial plans for their clients considering all aspects from savings to loans. They look at budgeting, investing, insurance, inheritance, estate planning, and other aspects of your financial life.
Financial planners may be brokers or wealth advisors. What’s important for investors is to choose a financial planner that is a fiduciary. That means he or she must act in your best interest.
Also, make sure you understand how the financial advisor is paid. Do they earn commissions or charge fees? Do they earn a combination of commissions and fees?
If the financial advisor refuses to be transparent about how they earn money, then alarm bells should sound in your head. Chances are, they are profiting off you without providing value to you.