Gaining an understanding of the financial service industry can be confusing. There are many different roles, certifications, and titles that people hold. This can leave the average person searching for answers when trying to decide who they want to look after their money. Finding the right fit is as important as ever with the uncertainty that surrounds the global and domestic economies. Often times, many people will turn to a financial advisor or a wealth manager when looking for guidance with their finances. However, many people confuse the two roles together despite their distinct differences.
What is the Difference Between a Wealth Manager and a Financial Advisor?
When looking for someone to manage their money, many people ask this question. The following is an easy-to-follow guide on the similarities and differences between these two roles.
What is a Financial Advisor?
A financial advisor is an individual who is an expert on certain topics such as financial planning and/or investment management. Financial planners can provide assistance on key decision points for their clients portfolios, but is not often as all-encompassing as a wealth management service. They tend to focus on specific areas of needs for individuals, such as guiding investment decisions on specific stocks and options based on changes to the market or assessing current assets, liabilities, and debts a person may have. Financial planners can be a great option for people just entering in the personal investment realm. Their services can allow individuals to see the potential that their portfolio can reach.
The certifications and qualifications that a financial advisor has are extremely important as this can signal an area of expertise. For example, you wouldn’t want an advisor that is only certified in tax codes and reducing the burden of taxes to look after your retirement plan, as that is not their particular area of expertise. This article will break down specific credentials that people in the financial service industry have and what they mean in a later section.
What is a Wealth Manager?
A wealth manager is a subset of individuals within the financial advisory field and often offers a more all-inclusive package of services.
Wealth managers typically work with clientele that have a higher net worth than those seeking a traditional financial advisor. This makes people’s portfolios more unique and complex, thus wealth managers usually have higher levels of training and more credentials and certifications. Wealth managers often look at individuals’ portfolios that have matured assets and are looking for guidance into retirement.
For a deeper look into some of the considerations and topics that wealth managers specialize in for retirement, we recommend visiting our article on Tax Savings Strategies. Private wealth advisors tend to take a more holistic approach to managing money and guiding individuals through crafted plans. This process typically includes taking into account many factors, such as taxes, income, future aspirations, and Social Security, among others.
A key differentiator between wealth management and financial advisory is the role they play in estate planning.
While financial advisors typically can offer a glimpse into the future and begin to set up people’s portfolios with long-term goals in mind, wealth managers specialize in guiding clients on the future of their portfolio and how it will be passed on to the next generation.
- The process of estate planning starts with taking an inventory of all assets an individual owns.
- Next, people take into account the wants and needs of their family or any other heirs that their estate will be disbursed to.
- People then look into directives, meaning the vehicle and methods in which their estate will be passed on. These can include wills, trusts, power of attorney, and decisions relating to medical care in an instance of incapacitation.
- Following this step, there is a review check on all accounts held, including retirement and healthcare, to ensure the proper beneficiaries are noted.
- Taxes are the next thing to be taken care of, people must be aware of the state and federal taxes their estate may incur.
- Lastly, people tend to check and update their estate plan in order to plan around changing circumstances. A wealth manager will be able to aid throughout this entire process and simplify what seems to be a daunting task.
How Do I Know If I Need a Financial Advisor or Wealth Manager?
A key first step in the process of finding the proper person to look after your money is to determine what your needs and goals are. Someone looking to simply have their investments managed and adjusted based on the market will require a different service than a person looking to pass along their assets and wealth to the next generation or a charity. It is pertinent that this base is established before search begins for any sort of assistance. Reflect on your primary financial goals and categorize them into the following 4 categories:
- investment services,
- accounting services,
- insurance services,
- banking services.
Both financial advisors and wealth managers are capable of providing a mix of services from various financial sectors, appealing to those with diverse financial needs. However, it’s important to recognize the distinct roles and expertise of each when considering portfolio management. Understanding these differences will guide you in making an informed decision about who will best meet your financial objectives.
What Certifications Do These Roles Require?
There are no certifications absolutely required, rather it’s a matter of what people want to acquire and be able to call themselves. With that being said, there is an abundance of certifications that people in both the financial advisor and wealth management role can obtain in order to differentiate their services. It is important to note that each designation furthers a person’s professional knowledge on particular subjects.
An advisor that is consistently seeking new certifications is one that will be able to help you with an increasing number of your concerns, making them a person you can go to for nearly all your financial concerns. Although this is not an extensive list, the following are some of the major and key certifications that may be obtained within the industry:
- Certified Financial Planner (CFP®) – A designation given by the Certified Financial Planner Board of Standards, an individual must demonstrate competency across all areas of financial planning. This certification includes an extensive exam, completed qualifying work experience, and adherence to the board’s code of ethics.
- Certified Public Accountant (CPA) – This designation is provided by the Board of Accountancy on the state level. This title is held by licensed accounting professionals and requires the passing of exams in the subjects of accounting and tax preparation. People with this certification do not manage or sell investments.
- Chartered Financial Analyst (CFA®) – A designation offered through the CFA® Institute, requires completion of three separate, rigorous exams, along with three years of qualified work experience. Tend to be held by people who work in the institutional money management and stock analysis realms, with an emphasis on rating investments. Individuals who hold this title typically manage portfolios rather than making the actual plan for people’s assets.
- Chartered Financial Consultant (ChFC) – This designation was introduced as an alternative to the CFP® and is offered through the American College of Financial Services. It requires similar knowledge as the CFP®, including the qualified work experience and vast financial planning expertise, but exams are taken after each learning section instead of a final comprehensive exam.
- Chartered Investment Counselor (CIC) – A designation that is overseen by the American Advisor Association, it is only offered to individuals that already have a CFA®. This program is focused heavily on portfolio management and is typically only held by “major players” in the financial industry, meaning people who manage large accounts and mutual funds.
- Certified Private Wealth Advisor (CPWA®) – A credential received by advisors via the Investment and Wealth Institute, this advanced program allows advisors to work with high-net-worth individuals. The program focuses on the life cycle of wealth and how to minimize taxes, monetize and protect assets, maximize growth, and transfer wealth.
In addition to these certifications, there are also security licenses that can be obtained by people working in the industry. These different certifications, ranging from Series 3 to Series 7 licenses, allow individuals to market and sell investments in different financial categories. The following are some six most sought-after Series licenses that can be obtained:
- Series 3 – Allows individuals to sell commodity futures contracts, which are considered the riskiest publicly traded investments. Licensed representatives usually specialize in commodities but are also trained in options, hedging, and margin requirements.
- Series 6 – Limited-investment securities license, allows individuals to sell packaged investment products such as mutual funds, variable annuities, and unit investment trusts.
- Series 63 – Uniform Securities Agent license, required by each state in order to transact business within the state. All series 6 & 7 license holders must also have this designation and it pertains to what rules are permissible during transactions.
- Series 65 – Required for any individual that intends to provide any financial advice or service on a non-commission basis. Covers the rules and regulations related to registered investment advisors, investment vehicles and disciplines, and related topics (many of which are covered on the series 7 exam as well).
- Series 66 – Combines the series 63 & 65 into one exam. Only available to candidates that already hold their series 7 license.
- Series 7 – General securities representative license, the longest and most rigorous exam and process. Allows individuals to sell almost any type of security, such as common and preferred stocks, packaged products, call and put options, and many more. The only securities and investments Series 7 licensees cannot sell are futures, life insurance, and real estate.
- Life & Health Insurance License– Although slightly different from the series licenses, these are required by each state in order to sell insurance policies. These are the only two guaranteed products that can be sold by an agent.
What is a Fiduciary? Are All Financial Advisors and Wealth Managers Fiduciaries?
A fiduciary is a trustee, otherwise known as a person or entity that acts in the best interest of an individual. Fiduciaries are required to put their clients’ interests ahead of their own. In the case of financial advisory, this means that a fiduciary must only buy and sell investments that are the best fit for their clients.
Not all financial advisors and wealth managers are fiduciaries. The key distinction lies in the standard to which they are held. A fiduciary is bound ethically and legally to act in the client’s best interests. This means they must not only provide sound financial advice but also disclose any potential conflicts of interest and ensure their decisions favor the client’s needs and goals.
For example, at Fuchs Financial, we are fiduciary financial advisors meaning that we always act in our clients best interests!
In contrast, some financial advisors operate under a suitability standard, which is less stringent than the fiduciary standard. Advisors under this standard are required to ensure their recommendations are suitable for the client’s situation, but this does not necessarily mean they must place the client’s interests above their own at all times.
When choosing a financial advisor or wealth manager, it is crucial to understand whether they are acting as a fiduciary. If they are, you can be more confident that they are committed to providing advice and management services that align closely with your best interests. This distinction can significantly impact the advice you receive and the long-term success of your financial planning and investments.
The Big Question: Do You Need a Financial Advisor or a Wealth Manager?
Knowing which kind of service you need can seem like a daunting task, but we hope that the information previously covered gives you a better grasp of what services these roles provide. In order to offer further clarification, the following is a consolidated look into who should be looking into a financial advisor versus who should consider a wealth manager.
People who do not have as much direction when it comes to their savings and investments should look into financial advisory services. This is a great start to a fiscally successful life as financial advisors are able to guide key decision areas, such as where to put money in the market and indicators that guide investment decisions. Financial advisors often have knowledge in the realm of life insurance, risk assessments, and other important services that will help an individual grow their portfolio and begin their savings towards retirement. Although financial advisors can be highly skilled across many realms, they usually service clients in particular areas of expertise, thus, it is important to know the specific services and offerings you are looking for before committing to a particular advisor.
Private wealth managers tend to handle the same tasks as a traditional financial advisor, but with the addition of a couple key areas of expertise.
Investment tax guidance is a large area that a wealth advisor can help their clients with, which involves an understanding of the US tax system and how dividends and other capital gains play into an individual’s taxable income in a given year. This service is mostly needed when looking at large portfolios that have been growing for years, as this allows for the most intricate tax savings plans.
Retirement and estate planning are the two other services that wealth managers typically cover for their clients that are not as often focused on by financial advisors. These areas require specific certifications and a deep understanding of the goals of individuals. It is a complex process that is simplified by using a wealth advisor and can lead to the easing of the mind for people concerned about how their money will be handled into perpetuity.
In conclusion, you should look to choose a financial professional that will best align with your goals. Don’t be afraid to go to multiple financial professionals to get different opinions on your financial plans and how each could help you.