Should I Select a Financial Advisor or an Investment Advisor?

You may already know titles in the financial service industry don’t mean much. Most investment advisors and financial advisors use the titles that create the lowest amount of sales resistance and the highest close ratio when they sell investment services and products. The only meaningful difference between a financial advisor and an investment advisor is the range of services that advisors provide investors.

“Financial Advisor” implies a broader range of services than the words “Investment Advisor”. A financial advisor could be more of a generalist. An investment advisor could be more of a specialist if his only services are investment related.

Warning Label

You also may know that anyone in the financial service industry can claim to be a financial advisor or an investment advisor. This is a major issue when sales reps claim to be financial advisors. They use this deceptive marketing practice to minimize sales resistance – they know you do not want salesmen investing your assets. A title change can have a major impact on investor decisions when they do not ask the right questions.

Advisor Characteristics

Real investment advisors and financial advisors have four characteristics in common:

  • They are RIAs (Registered Investment Advisors) or IARs (Investment Advisor Representatives). RIAs are firms that can be one advisor or multiple advisors. IARs are registered with the RIAs (firms)
  • These registrations permit them to provide financial advice and ongoing services such as performance measurement
  • They are both financial fiduciaries who are held to the highest ethical standards in the financial services industry
  • They are both compensated with one or more of the three types of fees (hourly, fixed, or asset-based).

Make sure advisors document these characteristics in writing so you have a permanent record of their responses.

Investment Versus Financial

Investment advisors may limit what they do to investment advice and services. They help you develop Investment Policy Statements, allocate assets, select money managers, and monitor performance. Some advisors will also make decisions on behalf of clients without their approval in advance.

Financial advisors provide a broader range of services that can include one or more of the following: Planning services, investment services, insurance advice, and tax services. The actual combination of services will vary by financial advisor.

Proceed with Caution

Investment advisors are usually limited to one type of service so it is pretty easy to determine if they are experts. Financial advisors claim to be experts in a number of disciplines (planning, investing, insurance, tax) that may or may not be true. It is easier to accept this claim when a team of specialists provides the services.

Do not be lured into selecting a financial advisor who delivers multiple services because you do not want to pay separate fees to several professionals. Your goal is to get the best advice you can afford that will help you achieve your financial goals.

Jack Waymire worked in the financial services industry for 28 years before he left to found the Paladin Registry ( in 2004. This investor education website was based on the Principles in Jack’s first book: “Who’s Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor.” 
The Registry also has a free service that matches investors to advisors who meet Paladin’s minimum requirements for competence and trustworthiness.

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