Financial Advisors

There are million people out there that market themselves as financial advisors. And understanding the difference can be confusing.

To compound the confusion, many of these professionals have services that overlap. What that means is that although they may specialize in one particular area, they may also be licensed to offer other products and services.

For example, there are many tax advisors and insurance brokers that also offer some investment products. And financial planners and investment advisors often will offer some tax advice or insurance advice as part of their service. And all of these people may or may not offer mortgage, banking and credit card services.

In addition, all of these people claim to be able to assist with estate planning while an estate planning attorney may be needed to actually implement estate plans.

With all the overlap, a common dilemma is how many different types of financial advisors do you need? And even if you know how many, who should you choose to work with?

The answer to these questions will depend on your personal situation and your personal knowledge.

But understanding how each type can help you will make these decisions easier.

Types of Financial Advisors

At one time, each of these financial advisors specialized in their individual area and there was little overlap. The idea was that a professional should specialize in one particular area so that they could become an expert at this area. In addition, the various categories could benefit by referring business to other professionals that specialized in other areas.

Over the years, this has changed. Companies began to realize that the difficult part of each of these businesses was getting new clients. Once a client has a financial advisor that they trust, it is easy for that professional to assist the client with all sorts of financial advice. The truth is that most of these sub-categories already require some knowledge of the other categories.

After employee costs, marketing is one of the largest cost to a financial firm. So the more products that firm can offer each client, the more profitable the firm will be.

So today, you will see that banks and insurance companies are buying all the brokerage firms. There is more and more consolidation in the financial services industry and there are more financial advisors that offer other related products and services.

Understanding the Difference

Bank Professionals deal with banking products like checking and savings accounts, CD’s, and all types of loans including personal, business and mortgages.

Investment Advisors specialize in all types of investments including stocks, bonds, mutual funds and annuities.

Insurance Agents sell all types of insurance including life, health, auto, homeowners and umbrella policies.

Tax Advisors help you file your taxes but also help with small business bookkeeping and audits.

Finally, Real Estate Agents help people buy and sell commercial and residential real estate.

However, as I have stated above, many of these professionals will offer products and services outside their specialty.

Knowing Who to Use

In addition, if an investment advisor that you know and trust can help you with a loan, it may be worth it to go with that person, even if it costs a little more.

Financial services and products can be complicated and there are always a million ways for an unscrupulous advisor to take advantage of people. Having someone you can trust is worth a lot.

That said, in general, if you don’t have a professional you trust who can help you, your best bet is usually to go with the person that specializes in that particular area.

For example, even though most investment advisors are licensed to sell life insurance, many are not very qualified to sell it. That’s because insurance can be extremely complex and if the broker doesn’t do a lot of it, mistakes are easy to make.

In addition, although your insurance agent may be a smart person who knows a lot about taxes, using that person for tax advice is often a bad idea. Rules change every year and that person may not be up to date on the information. Further, someone who doesn’t make their living by doing taxes may not be as worried about making a mistake.

Another reason why you should consider sticking with a specialist is that often the professionals from other sub-categories doesn’t have access to as many products as the specialist. Lack of choices will often cost you as a client.

For example, insurance agents will often recommend people invest in either mutual funds or annuities. But most insurance agents can only offer these types of products and are limited in the the types of mutual funds and annuities they can show you. They are usually not licensed or able to sell individual stocks, bonds, and other investments. What they offer you may be the best investment they have to offer, but that doesn’t mean it’s the best investment for you. An investment advisor can offer you every product.

Conversely, an investment advisor may offer mortgages. But because they only offer a couple of products from a limited number of companies, the rate and the fees may be high.

Finally, the last benefit of having multiple financial advisors is that it allows you to create a system of checks and balances among your advisors. You can always ask your tax professional, for example, what he or she thinks about your investments. That tax advisor will often have some knowledge about investments and can let you know if he or she thinks your investment guy is doing a good job. (Be careful of people who tear down another professional just to try to get the business for themselves.)

To learn more about what to watch out for with various financial professionals, click on the links below.

Insurance Agents