As you seek help with your investment decisions, it’s useful to understand the different types of financial professionals and how each can help you achieve your various financials goals.
Are you confused by the variety of professionals who call themselves experts at managing money? Does your head spin when you hear the following terms tossed about: certified financial planner (CFP), stockbroker, money manager, investment advisor, and financial consultant?
While many of the names overlap in one way or another, with an understanding of each professional’s role you can quickly decide which is appropriate for your situation without sitting through endless meetings. In this article, I’ll help you understand the roles of CFPs, stockbrokers, and money managers.
CFPs: Ideal for Financial Plans
A CFP has broad knowledge in various areas of finance (including the creation of personal budgets) insurance, and estate planning. These professionals can customize an individual financial plan that is tailored to your financial situation, whether it’s saving for retirement or college tuition, or buying a second home. In addition to creating a financial plan, they can guide you through important financial decisions such as buying insurance, setting up a will and trust for your heirs, refinancing a home, or paying off credit card debt. Once your financial plan is established and you’ve made financial decisions about insurance and trusts, the next step is to either manage the money yourself or hire a professional money manager.
Stockbrokers: Guiding Investment Decisions
If you choose to manage the money yourself, you may want to seek the help of a stockbroker. With access to economic commentary, research reports, and various investment instruments, stockbrokers can help you make informed investment decisions.
These professionals can also manage your money for a fee. Usually this entails enrolling a wrap-fee program, which bundles multiple investment services for a single fee. In this scenario, the brokerage firm selects pre-qualified outside money managers to manage its clients’ investments. The broker will create an asset allocation for you and choose the most fitting investment manager based on your investment style and asset classification. Keep in mind that this approach can be expensive, with fees typically ranging anywhere from two to three percent of assets per year.
Money Managers: An Affordable Alternative
As an alternative to working with a stockbroker, you can work directly with a money manager. Generally, money managers charge lower fees than those associated with traditional WRAP fee programs or those paid to a financial advisor who manages mutual funds. Money managers are responsible for making buy-and-sell decisions pertaining to a specific investment strategy. They typically have a thorough understanding of financial statements and how the economic cycle impacts future investment decisions. In a sense they are similar to the fund manager at a financial institution who is making the buy-and-sell decisions for a mutual fund.
Instead of investing in a mutual fund, you will invest in individual securities that the money manager purchases on your behalf. Whereas you have no contact with the manager of a mutual fund – nor insight into their investments – your relationship with a money manager is completely transparent. That means you will see every transaction – including fee-related ones – associated with your investments.
Make Informed Decisions about Your Investment Future
Hiring a financial service professional can seem overwhelming, but with a little homework you can make informed decisions regarding your investment future. Once you have an understanding of what type of professional would best suit your style of investing, the next step is to meet with the financial advisor to determine if his or her personality and style are right for you.