Investment-only vs. financial planning services - the difference
Depending on your needs, the financial services industry’s got you covered. What may be less obvious is the know with all of what you actually may be in need of. Knowing that there are two general avenues of services that you can hire, whether it financial planning or investment services, hopefully, this will serve as a guide so that you'll know the differences.
Financial planning is all-encompassing, providing advice on investments, insurance, retirement, tax and estate planning strategies. Under this umbrella of advice, you are generally locked in a fiduciary relationship, meaning that your advisor must act in your best interest which is bound by a contract and paid for with a financial planning fee. Your advisor should have the CERTIFIED FINANCIAL PLANNER™ designation and have the skill set to answer (or research and be able to answer) all of your financial planning questions. Financial planners are part of a community of experts and can draw on the expertise of others from different fields, such as tax and legal. They have state and/or FINRA securities, health and life licenses allowing them to provide real-world solutions to your financial plan.
Investment-only services are the original Wall Street advisor, a broker or stock-trader, who will generally only provide advice on what securities to buy and sell, based on your risk tolerance. They may charge a flat management fee on the portfolio or a commission on each transaction. There are no required designations other than state and/or FINRA securities licenses and there’s no general consensus on how investments should be managed, leaving it to the discretion of the broker, regardless of their credentials, experience, or skill set. They are bound under the Investment Advisors Act of 1940^1 and not under the Fiduciary rules that pertain to financial planners in most cases.
Financial planners offer more advice than brokers and are bound by stricter regulatory standards than those governed under the Investment Advisors Act.^2 The value that a planner can bring is incalculable, which includes influencing your better behavior with money, whether it’s saving, using a Roth 401(k) or a pre-tax 401(k), or making sure your insurances and estate planning needs are in alignment with your situation. Less obvious than a simple portfolio return, the right advice can take you light-years further toward your financial goals than any good year in the market.^3
At Eureka Wealth Management, I am a CERTIFIED FINANCIAL PLANNER™ and Accredited Portfolio Management Advisor℠. Licensed in state securities, health and life, I provide advice in all areas of financial planning. With 20 years of financial services experience, I can also leverage the advice of your other professionals, tax and legal advisors, to make sure that your team is on the same page, providing you with the most robust financial plan. Call for a free, initial consultation at (760) 537-0791 or book a meeting online at eurekawealthmanagement.com.
^3 “The Value of a Gamma-Efficient Portfolio” https://www.morningstar.com/content/dam/marketing/shared/research/foundational/831611-GammaEfficientPortfolio.pdf