Back in the not so distant past, it was almost necessary to have a financial advisor. Information wasn’t readily available like it currently is. Today, thanks to advances in financial technology, retail investors have become educated enough to know what they need in a financial advisor. With that knowledge came a more segmented profession.
The term financial advisor is general, simply meaning they advise you on how to properly allocate your wealth. Factors include age, risk tolerance, tax implications and this list goes on. However, depending on your level of knowledge, wealth, and goals, you may be contacting a different financial advisor than someone simply looking to purchase stocks.
This article will help identify the different financial advisors you may encounter in your search.
High Net Worth
First up is the high net worth financial advisor. This individual is for millionaires who are looking to preserve and build wealth. Some of the more well-known investment bankers gravitate towards these types of clients. The reason being are their offerings is superior to smaller firms.
These financial advisors tend to dive into large real estate investments, capital markets, foreign investments, and more in-depth products retail investors have no use for. The cost though is significantly higher, thus exclusively meant for high net worth individuals.
Retail Financial Advisors
Next up are the financial advisors almost everyone knows about. These are the retiree advisors, who tend to manage under $1.5M in assets. While we won’t go through every single advisor, this category can be broken into several segments.
- General Insurance
- Mutual Fund
- Investment Reps
- Life Insurance
All of these play a roll in building a portfolio. Luckily, several of the common names have all these services in house. Meaning you may have one point of contact, and they reach out to the various departments for information.
Costs associated with these financial advisors vary depending on the firm. Some have it tied to the performance of your portfolio. Meaning if you do well and have a nice return, the financial advisor earns more. If your portfolio performs poorly then they earn less.
Others earn based on the products they sell. This can be a conflict of interest since they’re being paid on what they sell, not their performance. Be sure to research who you go with and remember; you can always find a different financial advisor if you become dissatisfied.
The benefit is if you do your own investing but need an insurance advisor, you can explicitly seek one out. Thanks to the Internet, we can research various advisors and even interview them. LinkedIn and other professional sites give us that opportunity.
Key things a financial advisor should have:
- Aligned financial interest
- Independent portfolio construction
- Strong reputation and trustworthiness
Take your time and find the one that suits you best. This will ease your mind and stress when selecting the correct type of financial advisor.