Are All Financial Advisors the Same? The 3 Types
When choosing a financial advisor, it can be challenging to differentiate between all available options.
They all say:
“I’ve been doing this for X years, and my returns have been stellar.” But what else should you be considering beyond returns?
While all advisors have something to offer, you’ll want to make sure you’re working with the right one to suit your needs.
Let’s look at it this way, if you had a heart attack, would you want to see your family doctor or a cardiologist? They will both provide you services that will put you in a better position than before, but a cardiologist would make sense in this case. It the same thing when it comes to financial advisors.
Here’s some inside information on the financial advisory industry, which you can use to make sure you’re working with the right advisor.
Bank Advisor (Client portfolios range from $0-$200,000)
I began my career working at a bank, so I got to know the ins and outs pretty well.
The experience you can expect
If you’re working with a bank advisor today, chances are you’ll be dealing with someone different within a few years. Your advisor will inevitably get promoted, move to another department, or switch branches. That means having to re-explain your financial goals every time you are placed with a new advisor.
It’s also difficult for these advisors to serve all of their clients. While working at the bank, I had over 4,000 clients under my care; there was no way to meet everyone once per year, let alone make calls to keep their portfolios up to date. This also meant there was little time for tax and retirement planning.
Investing
Your investment options are limited through a bank. You will have access to GIC’s and bank-owned mutual funds.
Target Market
In my opinion, working with a bank advisor is a good starting point as you begin building your portfolio. Once your portfolio reaches $200,000, it’s time to look at other advisors who can provide additional investment options, tax planning, and retirement planning.
Investment Advisor (Client portfolios range from $100,000+)
After working at the bank for a couple of years, I moved on to become an investment advisor.
The experience you can expect
Investment advisors focus primarily on investment performance. Very little attention is given to tax and retirement planning.
Investing
Investment Advisors are able to offer a wide array of investments such as:
- Stocks
- Bonds
- ETFs
- Mutual Funds
- Private Investments
- Alternative Investments
Target Market
Most investment advisors will only take on a client once their portfolio reaches a certain threshold (generally $100,000).
As an investment advisor, I was happy to provide clients with additional investment options, but I knew I could do more for my clients.
Once portfolios reach $500,000, the lack of tax and retirement planning begins to have an enormous impact on the bottom line, which is why I made the switch to a wealth management firm.
Wealth Management (Client portfolios are $300,000+)
It became apparent that if I wanted to offer my clients the best services available, a Wealth Management approach was required.
The experience you can expect
A Wealth Management approach takes a look at all facets of your finances. From putting together a tax and retirement plan to building out a portfolio. Additionally, they can also advise on other assets such as real estate and life insurance as they are true wealth advisors.
Due to this all-encompassing approach, most Wealth Management Advisors have a team. My team consists of a tax specialist, a portfolio manager, and an insurance specialist.
Furthermore, you should also find a wealth management team that matches up with your needs. If you’re a farmer, find a team that focuses on farmers. If you’re an NHL player, find a team that focuses on pro athletes. By working with a team that’s right for you, you’ll be able to get much better advice.
Today, my team works with people who are within five years of retirement or already retired. We’ve become the specialists for individuals in this transitory stage of their life.
Investing
Just like the investment advisor, a Wealth Management team will have access to an array of investment options:
- Stocks
- Bonds
- ETFs
- Mutual Funds
- Private Investments
- Alternative Investments
Target Market
A Wealth Management team becomes valuable once you have a portfolio of at least $300,000. At that point, there are many opportunities and strategies to utilize in building out a tax, retirement, and investment plan.
As previously mentioned, it’s important to work with an advisor whose specialty matches up with your needs.
Buyer Beware
Many investment companies will add the word Wealth Management to their business name to add a level of sophistication. If your advisor is a one-person show and mostly focused on investment planning, I would argue they are an investment advisor in a Wealth Manager’s clothing.
