Craig Lemoine, Ph.D., CFP®, Director of Consumer Investment Research
Financial service professionals call themselves lots of things — most of the time using the title established by their firm. Why the confusing variety? Regulators of financial planning firms and accrediting bodies do not lay out differences in nomenclature. As a result, titles such as “Financial Planner,” “Financial Analyst” and “Financial Coach” are unregulated.
On the other hand, activities such as giving investment advice or selling a mutual fund are regulated. For example:
- Registered Investment Adviser (RIA) is a firm who provides investment advice to consumers and is regulated by the SEC or State
- Investment Adviser Representative (IAR) is an individual who works for that investment adviser. Investment adviser representatives have mandated continuing education and examination requirements which encourage a minimum level of competency when working with clients and customers
RIAs commonly use two titles for their IARs: Financial Advisor and Wealth Manager. These titles generally point towards different job duties as well as levels of sophistication. Note that because neither of these terms are regulated, they are going to mean slightly different things across different firms.
Financial Advisors and Wealth Managers have a common knowledge and skill sets. Both are trained to help clients identify their financial goals and chart a plan towards those goals. Assuming both work for an RIA firm, they have both completed the securities exam covering investment rules, laws and types of securities. Both should be fluent in the language of stocks, bonds, mutual funds, exchange traded funds, asset allocation, dollar cost averaging and both know the differences and applications of various types of retirement accounts.
What Do Financial Advisors Do?
A Financial Advisor works with clients. They are often one of the first people clients meet in a financial planning or investment engagement. Financial Advisors build personal relationships with clients, conduct meetings and work with clients to identify and meet their financial goals.
Financial Advisors generally focus more on relationships and goal setting than selecting securities and specific investment products. Advisors are fluent in the world of investments and building wealth but often work with an investment team or committee in creating model portfolios and security selection.
What Do Wealth Managers Do?
The phrase Wealth Manager has been used more frequently in the last decade and generally connotates an IAR who works with affluent clients or those with more complicated situations. These advisors may have a background in tax or small business planning, specialize in high-net-worth families or make sophisticated investment recommendations.
Wealth management is also a phrase used to describe the process of choosing a client’s investment portfolio. When we phrase a process as “managing family wealth” or “managing client wealth,” we are generally referring to considering current income, legacy and philanthropic goals of a client’s portfolio.
Managing wealth requires the skills of a Financial Advisor plus competence in tax and estate planning. A firm may utilize the terms “Senior” or “Vice President” to identify a more experienced Wealth Manager.
Over their careers, Wealth Managers often begin to specialize. Some may become skilled at working with clients who have found sudden wealth. Others may become talented working with business owners hoping to transition into retirement. And some Wealth Managers may specialize in working with high-net-worth families. Wealth Managers refer to wealth in terms of generations (G1, G2, G3) and may build sophisticated offices to assist families as they evolve and pass wealth through generations.
The size, history and culture of an RIA firm shapes its titles. A larger nationally known operation is going to be more selective in its roles and levels. They may set experience, assets under management or other criteria to be able to use the term Wealth Manager. Smaller firms likely have more space for creativity and scope of titling.
Choosing the Right Financial Advisor or Wealth Manager for You
When choosing someone to trust with your financial planning, it’s wise to consider more than titles. Ask questions and get to know who you’re working with, as well as their underlying firm. Here are a few to consider:
- How much experience do you have working with clients like me?
- Are you a fiduciary? Is the firm you work for a fiduciary?
- What certifications do you have? Are you a Certified Financial Planner®? Do you have other certifications?
- How are you compensated? Do you earn commission for selling financial products? Charge a set fee for providing financial planning and investment advice? A combination of both?
- How are investment portfolios selected within the underlying RIA or brokerage firm?
These questions will help you find a personal financial planner that is qualified to help you navigate a personal financial journey.
Craig Lemoine is not affiliated or registered with Cetera Advisor Networks LLC. Any information provided by Craig Lemoine is in no way related to Cetera Advisor Networks LLC or its registered representatives.