Investment advice is not financial planning. This is an important distinction to understand when you go shopping for financial advice. Do you only need help with investment decisions, or do you need guidance on all aspects of your financial life?
Investment advisors focus only on helping you with the investment decisions that are important for your financial wellbeing. These can include assessing your tolerance for risk, helping you select an appropriate asset allocation, selecting good fund managers, paying attention to lowering costs, and minimizing taxes. They do not provide guidance or direction on any other aspect of your financial life.
If you need help with selecting the appropriate retirement plan, analyzing retirement income needs, drafting wills and trusts, reviewing insurance needs and coverages, implementing tax strategies, dealing with longevity risks, protecting assets, increasing wellbeing, and a myriad of other financial questions, then you need financial planning.
In many cases, a person needs both investment advice and financial planning. Unfortunately, it isn’t always easy to tell whether financial professionals offer both.
The titles “investment advisor” or “financial planner” are not regulated. Anyone can claim them. The burden is totally on you to figure out if someone holding themselves out to be an investment advisor or financial planner actually provides the services they advertise. Many do not do comprehensive financial planning, but simply sell financial products like insurance and annuities, or do only investment advising.
In other words, you cannot rely on the title the financial advisor or their company uses to advertise themselves to determine what they actually do. If you think this is crazy, you are right.
Can you imagine going to a medical professional that advertises they are a board-certified pulmonary specialist, who in fact is a dentist? How about an attorney who advertises their specialty is special needs trusts, who really specializes in criminal defense? How about hiring a general contractor that turns out to be a plumbing firm?
You get the point. You don’t expect to have to verify that a professional in any field is actually trained in or will actually perform the services they offer. Yet that’s exactly what you must do when you are looking for financial advice.
The first step in seeking the right financial advisor is to determine whether you need to buy a specific financial product like indexed universal life insurance, an indexed annuity, fixed annuity, mutual fund, or a private REIT. If so, you want to look for a person that sells these products. Just as with buying a car or an appliance, you need to do your research to determine which company and which product is best for you. The salesperson’s incentive to sell you their product will be a commission.
If you don’t know whether you actually need any of these products, don’t ask the salesperson; you need unbiased financial advice before you go shopping. You want to find an investment advisor who doesn’t have a conflict of interest from selling products, but who charges a fee for investment advice.
Further, if you want financial advice in every area of your life, you will need to find an advisor that does comprehensive financial planning.
The only way to determine if the advisor is a salesperson, an investment advisor, or a financial planner is by carefully reading their websites and ultimately interviewing them, armed with specific questions to sort out what services they actually provide.
Sounds like work? It is. The National Association of Personal Financial Advisors lists financial planners who are vetted to be doing only fee-only financial planning. Beyond that, there are few shortcuts. It’s up to you to research and find the services you need.