Types of Financial Advisors
In this current series we have been sharing the traditional and modern approach to wealth management, and how those approaches are met through two different types of financial advisors: the financial planner and the wealth manager. These approaches, and who delivers them, are based on the needs you have in managing your financial picture and investment portfolios. What can be overwhelming is the number of firms and individuals out there presented as “financial advisors.” Interestingly there are no credentials required to call yourself a financial advisor. In fact, this is a broad title that can be used to describe a number of typical providers:
- Financial Planners – evaluate your overall financial picture to develop a written financial plan that considers your short- and long-term goals. Can include budgeting, cash flow needs, investments, retirement, education planning, estate, and more.
- Wealth Managers – manages your overall investment portfolio.
- Broker/Dealers – buys and sells securities at your direction.
- Banks – may encompass basic cash management, wealth management, financial planning, depending on what the specific bank offers.
- Trust Departments – can be part of a bank or stand-alone, providing investment management and asset oversight in accordance with your trust document.
- Even, Robo-Advisors – apps that provide algorithm advice based on information you provide.
For more information on the different types of financial planners and investment advisors, download this helpful resource: https://greenwoodcapital.com/wp-content/uploads/2018/10/Cutting-Through-The-Confusion.pdf
Researching Financial Advisors
As you can see, there are many different approaches to the role of a financial advisor. Knowing what is right for you can be very confusing and/or overwhelming. To help with this, the Securities and Exchange Commission required a new disclosure in 2020 to help retail investors figure out what approach might be best for them. This disclosure is called the Client Relationship Form (Form CRS) and every registered investment advisor (any one that provides investment advice for a fee) and broker/dealer (any registered firm that buys/sells securities) must provide you one when you are discussing becoming a client. We also must display it prominently on our website. You can find Greenwood Capital’s at: Form CRS – Greenwood Capital Associates, LLC.
The Form CRS is structured the same for all firms you could be comparing and we all must answer these questions:
- What advice and services can you provide me?
- What fees will I pay?
- What are your legal obligations to me when acting as my (in our case investment advisor)?
- How else does your firm make money and what conflicts of interest do you have?
- How do your financial professionals make money?
- Do your or your financial professionals have legal or disciplinary history?
Believe it or not, being an investment advisor registered with the Securities and Exchange Commission (SEC) or a Broker/Dealer registered with the Financial Industry Regulatory Authority (FINRA) is no guarantee of by the US government or any regulatory body. Our own disclosures are required to state:
The information in this brochure has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority.
Therefore, it may be important to you to seek out financial advisors with various credentials that demonstrate additional and (in most cases) ongoing education, and a commitment to the industry to stay abreast of current topics. Here are a few of the more common financial advisor credentials you may come across and easily research.
- CERTIFIED FINANCIAL PLANNERTM – CFP®
- Personal Financial Specialist – PFS®
- Chartered Financial Consultant – ChFC
- Certified Retirement Planning Counselor – CRPC
- Chartered Investment Counselor – CIC
- Chartered Financial Analyst – CFA
Free Database Search
Another way you can find out more about the firm and people you are considering working with as a trusted adviser is to use one of the many free search tools, such as:
- Investment Adviser Firm & Individual Search: IAPD – Investment Adviser Public Disclosure – Homepage (sec.gov)
- Broker Check: BrokerCheck – Find a broker, investment or financial advisor (finra.org)</li >
It is important to check these governmental databases to determine if the firm or person you are working with has any type of required disciplinary disclosures. You will also find this information on the Form CRS and each individual’s personal brochure called the ADV 2B or on the individual search. You can visit each registered member of our team for a direct link to their Form ADV 2B (if required) and their IAPD database results. Just visit our Team Page and click on each person you wish to research.
- CERTIFIED FINANCIAL PLANNERTM Database: Verify a CFP® Professional | CFP Board
Financial Planning & Technology
Lastly, you may want to consider the technology your financial advisor, and more importantly, your financial planner utilizes:
- Developing plans, monitoring your accounts, and adjusting as your needs/goals change;
- Providing you access to and sharing information between you, such as plans, statements, legal documents, etc. in a secure and centralized manner;
- Aggregating your financial picture in one place for you to review and monitor; and,
- Communicating timely and regularly important information for your relationship and the markets/economy in general
In particular, financial planners utilize financial planning software that can determine your risk exposure to specific assets, your ability to spend or save, optimize tax savings, and rebalance accounts systematically to stay on track. We also leverage software that can import data directly from your 401(k) accounts, bank accounts, outside assets, credit cards, etc., in real-time that provides you a complete picture of your financial situation.
We are able to utilize software that generates various scenarios and stress tests them through what is called a Monte Carlo analysis. Those tests analyze your financial plan in 1,000 different ways to evaluate for a probability of success. This is helpful when a financial plan has a lot of flexibility in it… Clients may wonder well, what would it look like if we paid for all of our daughter’s college? How much longer do I need to work? What if I want to retire a few years earlier? How much could we afford to cover now? The scenarios clients can envision are endless and having the right technology can provide you the tools you need to monitor and actively engage in your financial future.
Compiled by William M. Coxe, Jr., CRPC | Denise H. Lollis, CPFA | Quintin A. Pile, CFP
The information contained within has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy. The opinions expressed are subject to change from time to time and do not constitute a recommendation to purchase or sell any security nor to engage in any particular investment strategy. Investment Advisory Services are offered through Greenwood Capital Associates, LLC, an SEC-registered investment advisor.