Getting Investment Advice From Someone You Can Trust
The number of different professionals who provide investment advice often confuses people. There are financial advisors, brokers, investment consultants, wealth managers, financial consultants and financial planners. Given the fact that an ever-increasing amount of the nations liquid investable wealth is in the hands of investment professionals, it is important for you to be knowledgeable about the role of the different persons involved in the investment process.
In order for you to make an informed choice among the various financial service providers, you should first understand that any firm or individual who receives compensation for providing advice about securities (“investment advice”) is required to register with the SEC (or at the state level) and is regulated under the Investment Advisers Act of 1940. This applies to any firm or individual, such as financial advisors, brokers, investment consultants, wealth managers, financial consultants and financial planners. With that said, here are the main differences between Investment Advisors and Investment Managers.
The Investment Advisor is best defined as a professional who makes decisions about asset allocation, developing the investment strategy, implementing the strategy with appropriate Investment Managers and monitoring the strategy on an ongoing basis.¹
The role of the Investment Advisor is considered the most important, yet most misunderstood, role in the investment process. The Investment Advisor is a professional who provides comprehensive and continuous investment advice; the operative words being “comprehensive” and “continuous.” Because of the trust and confidence clients put in them, an Investment Advisor is considered a fiduciary.²
A fiduciary is a person responsible for managing the assets of another person and stands in a special relationship of trust, confidence, and/or legal responsibility.³ Investment Advisors have a fiduciary duty to clients, which means they must put their clients interests ahead of their own. He or she must recommend the best investment for the client. The compensation of an advisor cannot be dependent upon which products or assets a client ends up investing in.
The Investment Manager, on the other hand, is responsible for making investment decisions, including buying and selling individual securities (such as individual stocks) for an investment portfolio. Examples include money managers who are responsible for separate accounts and mutual funds.
Although it is possible to serve in both capacities, as an Investment Advisor and as an Investment Manager, it is very difficult to be an expert in both. You should keep this in mind when choosing a financial advisor. In other words, if you follow the time proven maxim of doing what you do best, you could choose an Investment Advisor whose role is to manage the investment process and to delegate the investment decisions about individual stock and bond picks to the Investment Managers.
In summary, the Investment Managers make the decisions about which stocks or bonds to buy and sell. Investment Advisors provide comprehensive and continuous investment advice and manage the Investment Managers.
¹ Prudent Practices for Investment Advisors, Fiduciary 360, 2006.
² Ibid.
³ Ibid.
Return from Investment Advice to Investing
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- Choosing a Financial Advisor to Help You Address Your Financial Planning and Wealth Management Needs
- How to Find a Financial Planner with Expertise in Retirement Planning
