The Four Types of Financial Advisors

Here’s a look at four different types of advisors you are likely to encounter and how they stack up against each other in some key areas. Armed with this information, you should be able to better assess which type is best suited for you based on factors such as your goals, the complexity of your financial situation and your net worth.

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If the changes in your life create more financial complexity, more than likely you will need to move up the pyramid to an advisor that manages more than just investments. By doing so, it will allow you to navigate those areas and ensure that the decisions you make maximize your opportunities and minimizes risks. Working with a Wealth Manager or Virtual Family Office typically will give you peace of mind that each of the areas of your financial life are being addressed in a systematic manner.

If your main concern is help with investments, an Investment Advisor or Financial Advisor is likely appropriate. Typically, families that have concerns with other areas of their lives including minimizing taxes, taking care of their heirs, protecting their assets, and maximizing charitable gifts would be better served moving up to a Wealth Manager or Virtual Family Office. If you are unsure if your current strategies are addressing those other areas, a stress test may be a good tool to determine any shortfalls in your planning.

Many people feel that way as it can be difficult to understand how each financial decision a family makes can affect other areas of their finances.  A simple example of this involves managing your Social Security benefit.  Taking Social Security at the wrong time can have a major negative impact on your long-term financial success.  Understanding how each decision affects other parts of your finances is one of the biggest keys in making better choices.  So, to answer the question, it is likely that you have more complexity in your life than you realize, but with the right type of advisor, you can identify your biggest challenges and opportunities and navigate them successfully.

The short answer is not necessarily.  No matter where an advisor falls on the pyramid, one of their primary responsibilities is to provide you with a successful investing experience.  Think of your investment planning as the foundation for your financial house.  If it fails, the rest of the house will not be far behind.  So, investment performance is generally not tied to where an advisor is on the pyramid.  However, most advisors that have done a reasonable job in this area will have a disciplined process that they can explain to you in everyday understandable terms.  If you are not able to have a general understanding of how your money will be invested, it may be helpful to interview other professionals.

Investments are the foundation of long-term success in reaching your most important goals.  However, as you become more successful in building wealth, various other financial issues arise.  A Wealth Manager or Virtual Family Office will have a systematic process to help you identify these issues which generally fall into four broad categories:  Minimizing taxes, taking care of your heirs, protecting your assets from lawsuits and being unjustly taken, and maximizing charitable gifts.  Other unique issues can fall outside of the big four which can be addressed by a qualified advisor, but consistently addressing these core issues will put you in a great position for maximizing your long term success.

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