Financial Planner, Investment Advisor or Asset Manager – Which is Right for You?

Jacob Johnson / November 11, 2016

So, you’re looking into investing, or maybe have been cracking at it for a while when a friend says, “My investment advisor told me to buy this mutual fund”. You ask, “What’s an investment advisor?” Another friend over lunch that same day says that they finally got their estate documents under control, “My financial planner told me to work with Greg, he’s a good estate attorney”, she explained.

Later at the bank you see your investment man Carl who has exciting news for you, “Your patience has paid off! We’re about ready to sell one of the stocks your purchased a few years back, it’s made a pretty good return!” .“Carl?” you ask, “What is your job title for dealing with my money?” The response is similar yet another title, “I’m your money manager, or Investment manager”

Money Manager, Financial Advisor, Financial Planner. They all basically do the same thing, right? Actually, there are some significant differences between the three. Here’s the breakdown:

Asset Manager

An asset manager gives personalized, individualized service on a portfolio on an ongoing basis for a fee, usually a flat percent of the Assets Under Management (AUM). Many are arms of banks, but some work from a private practice.

This is popular because of the believe of a conflict of interest that may exist when a broker buys or sells your securities with a transaction-based fee. There have been many lawsuits due to broker/dealers churning assets to generate commissions. The belief behind choosing an asset manager is that they will be on your team acting as a fiduciary, because they get paid more only when you make more money. Fiduciary means that they are legally bound to act in your best interest; it’s hard to do that when a conflict of interest exists, such as making more money for frequently selling and buying for commissions.

There is a range of requirements to be an asset manager. Some companies require a master’s degree, others a bachelor’s Degree. Legally in the U.S. asset managers need a combination of ‘Series 65’, ‘Series 7’, and/or ‘Series 63’ licenses, each requiring certain knowledge and passing a skills test. Requirements to legally sell and buy securities vary from state to state.

Investment Advisor

Like an asset manager, an investment advisor provides financial products and services to their clients. Also, like an asset manager, they are compensated for services and are required to hold proper licenses. That’s about it in how they are similar.

Investment advisors are not always required to be a fiduciary. They may not offer full service for a portfolio either. Insurance Agents are financial advisors, but they may only sell insurance products like whole life or variable universal life insurance policies. They may be a broker / dealer selling financial products and actively holding a portfolio.

They are compensated in a variety of ways: hourly fees, AUM fees (like an asset manager), flat fees, commissions for selling securities per trade, or commissions for selling securities from the money invested (a “load”).

Insurance agents, online stock trading sites, and broker/dealers are examples of these.

Though some worry about conflict of interests for some types of financial advisors, many argue that broker/dealers can potentially be cheaper for clients with smaller portfolios depending on the honesty and integrity of the financial advisor.

Financial Planner

A financial planner should look at the big picture of your financial situation, utilizing tests and interviews to uncover your goals, needs, potential risks, risk tolerance, and other factors to come up with a plan on how to invest, protect, and organize your finances.

They are usually compensated on an hourly fee, or yearly fee to look at initially and update your financial plan based on new situations that arise.

A financial planner can be a financial advisor and can also be a money manager! Some planners will also be a money manager, and most will work with CPA’s, attorneys, and insurance agents (financial advisors) to help you actively manage your financial plan. They will help you get your tax situation planned, your investments managed, your estate planned, power of attorney, and ensure that your investments are well poised for your risk tolerance and age, even if that means working with multiple companies and institutions that hold your investments.

Financial planners can be compensated in many ways: hourly or yearly fee to create and update your financial plan, AUM fees for acting as a money manager, or commissions for acting as an investment advisor if they sell insurances or act as a broker dealer instead of money manager.
Many professionals and other sources will tell you that if you work with a financial planner, ensure that they are a legal fiduciary.

In Summary:

An asset manager is an investment manager legally bound to act in your best interest on your portfolio.

An investment advisor is a company or individual who offers any form of financial product or service.

A financial planner utilizes information they collect about you to create a plan on how to organize, grow, protect and pass-on your finances. They can be investment advisors or asset managers, too!

Jacob Brad Johnson, The Financial Ginger