5 types of financial advisors

Financial Advisors


5 types of financial advisors

A young couple meets with a financial advisor.

Having a financial advisor in your life has great benefits, including organizing your finances and making wise financial decisions. A good advisor can guide you to stick to long-term plans even during difficult times, ensuring that you are doing not only what you think is safe now, but what you do to nurture wealth in the future.

However, financial advisors vary greatly in their focus, expertise, professional standards, and how they are compensated. For a deeper understanding, at Bankrate he explains 5 types of financial advisors, what they can do for you, and the pros and cons of each.

What is a Financial Advisor?

Financial advisor is a general term that includes someone who provides guidance on financial topics. This definition effectively allows anyone who provides financial assistance to call themselves an advisor. However, the types of financial her advisors vary widely, and those seeking advice should understand the types of services offered by different advisors.

Advisors can help you plan for retirement, create a budget and finance your household, plan your estate, manage your investments, find the best time to enroll in social security, and much more. This means that advisors can solve any financial question or strategy.

Advisors are compensated in a variety of ways. They may be paid by the hour or the job they do, or they may earn a portion of your assets under management if you are committed to investing. Some advisors are fee-only and only the client pays. Some companies get commissions not only from their customers, but also from the financial firms that sell their products. In addition, some companies fully indemnify themselves with the financial products they sell to their customers.


5 types of financial advisors

Man consulting an advisor online.

Below are five types of financial advisors, the types of services they offer, and the pros and cons of each. Of course, many of these roles overlap each other in important places.

1. Robo-advisor

A robo-advisor is a type of financial advisor that automates the investment process and builds investment portfolios. Robo-advisors can handle many mechanical investment tasks, as well as advanced tasks that are difficult for human advisors to manage.

Strong Points

  • Low cost, often as little as 0.25 percent of annual assets, or $25 for every $10,000 invested
  • High-end features such as loss recovery and portfolio rebalancing
  • May provide human advisors, including highly qualified and certified financial planners
  • Easy to use, just make regular deposits after making an initial investment plan


  • unparalleled advice. This means that you may not get advice tailored to your situation.
  • If you are not working with a human advisor, you may not be motivated to execute your plan

2. Certified Financial Planner (CFP)

A Certified Financial Planner is a highly qualified advisor who has been granted a CFP designation by the CFP Commission. CFPs may understand a wide range of financial issues and, importantly, have a responsibility to act with fiduciary duty as clients.

Strong Points

  • Experienced professionals with a minimum of 4,000 hours of work experience and a passing qualification exam
  • Adhere to fiduciary standards, i.e. take responsibility for doing what is best for the client
  • Extensive knowledge covering key financial and investment topics
  • May provide incentives to stick to investment plans even in recession


  • You may not be an expert on all topics, so you may need an expert on a specific topic
  • May require a large amount of capital to get started
  • May not match your personality or financial needs

3. Asset manager

Wealth managers provide high net worth individuals with comprehensive advice on a wide range of financial topics, especially on building and maintaining wealth over the long term. Major topics include investment management, financial planning, real estate planning, tax planning, etc.

Strong Points

  • Comprehensive financial management centered on assets
  • Focus on wealthy issues such as building wealth and passing it on to heirs
  • May focus on more esoteric issues such as tax and estate planning
  • May hold a CFP or other professional certification
  • It may help you stick to your long-term plans during a downturn


  • Fees can be high depending on assets under management
  • May not be a trustee.That means they don’t always act in your best interests
  • Requires a large amount of investable assets to get started
  • Experts may still be needed for niche topics such as legal issues

4. Portfolio manager

Portfolio managers focus more narrowly on your investments and everything related to them. A portfolio manager therefore selects your investments, decides when to sell, recovers capital losses as tax deductions, and generally manages other investment matters in your life.

Strong Points

  • May help you find attractive investments to increase your net worth
  • Possibility of outperforming the market due to familiarity with securities
  • Useful during market downturns when it is difficult to continue investing
  • May hold a major professional title such as Certified Financial Analyst (CFA)


  • Narrow focus, i.e. advisors are less familiar with other financial issues
  • May not be a fiduciary obligated to act in your best interests
  • May require a large amount of capital to get started

5. Financial Salesman

Some financial advisors are actually sales representatives of financial companies. That is, they have a strong interest in selling the products their company sells. While these products may be suitable for your needs, they may have higher fees or may not be optimal for your particular situation.

Strong Points

  • knowledgeable about the company’s products and services
  • May have extensive industry expertise


  • Your needs may come second or third as we are encouraged to sell our products
  • May be unreliable due to misaligned incentives
  • High fees may be embedded in the price of financial instruments
  • “Free” advice is often not so free when investment performance lags


How to choose the right type of financial advisor

Woman giving advice to a young couple in the office.

The right type of financial advisor starts with what you need, so a potential new advisor should align with your goals and aspirations. A wise and well-coordinated advisor can help dramatically improve your financial life. You have to be able to trust them with your money. So when you hire a financial advisor, it’s basically an interview to see if the advisor is a good fit for you.

Here are five key questions to ask a potential advisor:

  • Are you a trustee? Trustees are responsible for working in your best interests and supporting their actions in alignment with your goals, and are especially powerful when they are reward-only trustees.
  • How are payments made? “Whoever pays the Pied Piper calls the sound.” Fee-only advisors paid by you get paid by salespeople acting as advisors or in other ways. You are more likely to work in your best interests than a sales person.
  • How can you help me reach my financial goals? The value of having a motivational advisor is often overlooked during the difficult times that inevitably arise. Sticking to your game plan is even more important on a bad day.
  • How does your firm measure your performance as a financial advisor? This question explores the importance of incentives and how the firm measures advisor performance along the aspects that help you achieve your goals. It’s about the importance of measuring.
  • What if I change companies? Ideally, you want to hire advisors for the long term and build trust with advisors who are aligned with your goals. Therefore, even if the advisor moves to another company, we want to be able to follow them.

The answers to these questions will help you decide if a particular financial advisor makes sense for you. It may also be worth checking which advisors are recommending, as you may be able to draw on the experience of friends and colleagues. However, you should always conduct your own interviews to see if the advisor can meet your needs.

Here are six key things to look for when looking for a new financial advisor.


Investors may come across many different types of financial advisors, so it’s important to understand your own goals and whether you need investment advice, financial planning, or something farther afield. Advisors work for you and want to make sure they are aligned with your goals.

this story Produced by bank rate Reviewed and distributed by Stacker Media.

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