Understanding the Difference Between Investment Advisors & Investment Managers

People are often confused by the number of different professionals who provide investment advice. There are financial advisors, brokers, investment consultants, wealth managers, financial consultants and financial planners. Given the fact that there is an ever-increasing amount of the nations liquid investable wealth in the hands of these investment professionals, it is important for investors to be knowledgeable about the role of the different persons involved in the investment process. If you add in the fact that people are becoming increasingly concerned about their retirement security, it is entirely possible that investors are going to have much higher expectations of their financial professionals as time goes by.

The Big Investment Lie: What Your Financial Advisor Doesn't Want You to Know by Michael Edesess Reveals the unfortunate truth behind the financial advisory industry that professional investors cannot, and never have been able to, beat market averages.

In order for investors to make an informed choice among the various financial service providers, they should first understand that any firm or individual who receives compensation for providing advice about securities (“investment advice”) is required to register with the SEC (or at the state level) and is regulated under the Investment Advisers Act of 1940. This applies to any firm or individual, such as financial advisors, brokers, investment consultants, wealth managers, financial consultants and financial planners. With that said, here are the main differences between Investment Advisors and Investment Managers.

The Investment Advisor is best defined as a professional who makes decisions about asset allocation, developing the investment strategy, implementing the strategy with appropriate Investment Managers and monitoring the strategy on an ongoing basis.

The role of the Investment Advisor is considered the most important, yet most misunderstood, role in the investment process. The Investment Advisor is a professional who provides comprehensive and continuous investment advice; the operative words being “comprehensive” and “continuous.” Because of the trust and confidence clients put in them, an Investment Advisor is considered a fiduciary.

A fiduciary is a person responsible for managing the assets of another person and stands in a special relationship of trust, confidence, and/or legal responsibility. Investment Advisors have a fiduciary duty to clients, which means they must put their clients interests ahead of their own. He or she must recommend the best investment for the client. The compensation of an advisor cannot be dependent upon which products or assets a client ends up investing in. This distinguishes Investment Advisors from those who are product driven, with more of an interest in selling financial products, rather than providing reliable investment advice.

• Types of Investing Risks
  Investing in stocks is a risky business. There are some risks you have some control over and others that you can only guard against. Thoughtful investment selections that meet your goals and risk profile keep individual stock and bond risks at an acceptable level.

The Investment Manager, on the other hand, is responsible for making investment decisions, including buying and selling individual securities (such as individual stocks) for an investment portfolio. Examples include money managers who are responsible for separate accounts and mutual funds.

Although it is possible to serve in both capacities, as an Investment Advisor and as an Investment Manager, it is very difficult to be an expert in both. You should keep this in mind when choosing a financial advisor. In other words, if you follow the time proven maxim of doing what you do best, you could choose an Investment Advisor whose role is to manage the investment process and to delegate the investment decisions about individual stock and bond picks to the Investment Managers.

In summary, the Investment Managers make the decisions about which stocks or bonds to buy and sell. Investment Advisors manage the Investment Managers.

• Creating Cash Flow Formula for Your Investment
  there may be times when you need to generate some cash flow and there are some relatively safe strategies you can use to produce income...

Do you understand the importance of the role of Investment Advisors in helping people manage their wealth? Do you have any questions about the difference between Investment Advisors and Investment Managers?
What is your opinion? Do you believe investors are going to have increasingly higher expectations of their Investment Advisor as a result of their concern about retirement security?

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