Elite List: The 10 Types of Financial Advisors

In his book In Defense of Food: An Eater’s Manifesto, author Michael Pollan sums up the secret to a healthy diet in seven simple words: “Eat food. Not too much. Mostly plants.” When it comes to protecting and growing wealth, the adage goes something like this: “Invest. Not too aggressively. With the right kind of advisor.”

The quest to find the right advisor begins with making sure the business model fits, but financial advice, like food packaging, isn’t always properly labeled. Here’s a field guide to the professionals clamoring to be your financial advisor.

Accountants: Certified public accountants (CPAs) are regulated by state authorities and have expertise in tax planning, filing income tax returns and preparing personal and corporate financial statements. In recent years, CPAs have begun expanding into other areas of financial planning, including investments. The American Institute of Certified Public Accountants (AICPA) offers a Personal Financial Specialist (PFS) designation to the growing number of CPAs wishing to demonstrate specialized proficiency in financial planning. To quality, CPAs must be members in good standing of AICPA and complete educational and testing requirements. Find an accountant with a PFS designation online at www.aicpa.org/credentialsrefweb/PFSCredentialSearchPage.aspx. 

Attorneys: Lawyers must pass a bar examination in the state where they practice and, in the context of financial advice, typically specialize in trust, estate or tax planning. Often attorneys partner with investment advisors, brokerage firms and financial planners to refer business to each other. Trust and estate lawyers draft trusts, handle trust disputes, and write wills and powers of attorney as well as comprehensive estate plans. Many attorneys who specialize in tax and estate-planning work are solo practitioners or part of a larger firm with many specialties. Still, there are several well-known national and international private client law firms focused exclusively on the personal, business and even charitable needs of wealthy individuals and families. Private client law firms may also handle transactions that involve a family business or family office, as well as litigation, family and employment law. The American College of Trust and Estate Counsel has a website featuring attorneys who have made substantial contributions to the field of trust and estate law. Visit www.actec.org/public/roster/FindFellow.asp.  

Brokers:  Like “investment advisor,” “broker” is a legal term that refers to a professional who buys and sells securities on behalf of a client. (The term “broker/dealer” describes firms that also sell securities they own.) In addition to being regulated by state securities commissioners and the SEC, brokers are subject to oversight by the Financial Industry Regulatory Authority (FINRA), a self-regulatory body. (To vet a broker online, go to finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm.) Brokers are generally not considered to owe a fiduciary duty to their clients. Instead, they must recommend “suitable” investments, a generally weaker standard. The lines are blurry, however: Some brokers may also be investment advisors, and the advice they provide on certain products and services may be held to the higher fiduciary standard. Brokers are legally called “registered representatives,” but may also call themselves “financial advisors,” “financial consultants” or “investment consultants.” The term “wirehouse broker” refers to the large, national firms. Independent broker/dealers, by contrast, are stand-alone operations that affiliate with a national broker/dealer for infrastructure and investment support. Discount brokers tend to charge lower commissions than do full-service rivals, but the trade-off can be no-frills service.

Financial Planners: Although it’s not a term defined in any law or regulation, “financial planner” commonly refers to advisors who develop and implement comprehensive financial plans based on an analysis of long-term goals, including investments, estate planning, tax planning, insurance and even debt management. Caveat emptor: Some 90 different professional designations in existence today are designed by various entities to convey expertise in some or all aspects of financial planning. Not all of them are credible; still fewer may be relevant to your situation. The most widely respected designation is Certified Financial Planner (CFP). These advisors must pass a comprehensive financial planning exam; abide by a code of ethics, which includes adhering to a fiduciary standard; and comply with certain practice standards. Most financial planners are investment advisors, but the reverse is not necessarily true. Some financial planners also call themselves “wealth managers,” especially those aiming for higher net worth clients. Financial planners may be fee-based, meaning they charge both commissions and fees, or fee-only. You can find an advisor with a CFP designation at cfp.net/search.

Insurance Agents: Insurance agents—many of whom are also financial planners—are licensed and regulated at the state level and tend to work on commission. Independent insurance agents sell policies for more than one insurance company; exclusive agents represent a single company. Some large national and international insurers coordinate their services to high net worth individuals and families through dedicated private client groups, which offer advice and underwriting for property, casualty, life and long-term care polices, and can advise on the integration of insurance into estate planning.

Investment Advisors: This legal term describes advisors who provide advice on investments and are registered with state securities regulators or with the U.S. Securities & Exchange Commission if they have more than $25 million under management. Investment advisors are typically paid based on a percentage of assets under management, not commissions on transactions, and must provide certain up-front disclosures to investors. (To research basic information about an advisor, visit adviserinfo.sec.gov.) Most importantly, investment advisors owe a “fiduciary duty” to their clients and are thus legally bound to put clients’ interests first. In practice, this means investment advisors must have a reasonable basis for the investment decisions they make and ensure that those decisions are consistent with a client’s strategy and objectives. Most investment advisors are small businesses that operate independently of big financial services firms. They may also call themselves financial advisors, money managers, asset managers, investment managers, investment counselors, portfolio managers or registered investment advisors (RIAs).

Investment Consultants: These advisors specialize in evaluating, selecting and managing other investment advisors, rather than the underlying securities. Some earn a percentage of the assets under advisement; others charge an hourly or project fee. Consultants typically serve institutional investors, but some also cater to ultra-wealthy individuals and families with sizeable portfolios.

Multifamily Offices: For individuals and families with more than $20 million to invest, multifamily offices provide wealth management services with a focus on the protection and growth of financial assets and the preservation of family heritage. Traditional services such as investment, tax and financial management are often supplemented with asset protection, financial education and philanthropic services. Multifamily offices have typically evolved from a single-family office that added new clients to exploit economies of scale. Clients benefit from cost savings, group purchasing, an alignment of interests and the advantages of being a client rather than the manager of what is essentially a financial services business. A single-family office may require as much as $50 million to $100 million in assets in order to be viable.

Philanthropic Advisors: If your commitment to philanthropy has grown beyond your ability to manage it, a philanthropic advisor can help. Philanthropic advisors can coordinate the start-up activities of a family foundation with your legal, tax and financial advisors to ensure that your charitable efforts are integrated with your overall financial plan. They can also provide assistance with everything from developing a family philanthropy mission statement and goals, to researching and recommending specific grants, to helping manage the nuts and bolts of a charitable foundation, including advice on bylaws, governance and board and grantee communications.

Private Bankers: Private banking dates back to 2000 BC, when the first private banking system recorded was established in Babylon. In Switzerland, where most private bankers can trace their origins back to the 18th century, when King Louis XVI of France appointed the Genevese private banker Jacques Necker head of the royal treasury, the term has legal significance: It refers exclusively to firms structured as private partnerships in which at least one partner has unlimited liability for the bank’s obligations. Outside of Switzerland, all manner of firms, from commercial bankers to trust bankers to wirehouse brokers, refer to themselves as private bankers or as providers of private banking services. The common thread: All are aiming to serve high net worth and ultra-high net worth investors. Another common thread among firms that call themselves private banks is the service model. Typically, a relationship manager serves as the point of contact and coordinates advice from various parts of the bank or firm, including investments, trusts, philanthropic services, insurance and tax planning.

Curator