If you’re looking to invest and would like guidance from someone experienced with financial matters, you may wonder whether or not you should go to a financial advisor or an investment banker?
Although both professions also have a lot in common, like education levels and salary, with the median average for both groups being around $90,000 a year, each plays a distinctly different role in the financial sector. Financial advisors work with individuals while investment bankers work with companies.
What Do Financial Advisors Do?
Financial advisors work in a number of different types of firms, and, according to the Bureau of Statistics a quarter have their own business.
A financial advisor will work with you as a private client, either as an individual or a couple. He or she will help you figure out your personal finances.
Your advisor will help a client understand their financial picture, pointing out strengths, weaknesses, opportunities, and threats to it. You will also get help with developing your short, medium, and long-term financial goals. Your initial discussions will mainly be about how to find and optimize a strategy and how to avoid common pitfalls as you try to reach long-range financial goals.
After you and your advisor agree on a strategy that fits your financial situation, the advisor will help you take action on their plans. The work of finding a strategy and, more importantly, tracking results is often facilitated by financial advisor software. Using the right software will help your advisor show you the difference between an IRA and a Roth plan, or the difference between a 401 (k) and a 403 (b), so that you can make some informed decisions on your best course of action.
Your financial advisor should have comprehensive knowledge about financial issues like insurance and taxes, funding for higher education, planning for retirement, or investing.
Once you’ve created your financial plans, you will meet with your advisor regularly. If your financial situations shifts due to life events, your financial advisor can help you change course accordingly.
Your financial advisor will usually not simply tell you where to invest your money, but will correlate investment ideas with a financial analyst. The job of a financial analyst is to research the best investment for your portfolio and offer some recommendations.
What Do Investment Bankers Do?
You may be curious what investment bankers do. Here is a quick overview:
Investment bankers work with corporations. They help them decide on the best type of transactions they should use for different aspects of their business.
Investment bankers work in investment or commercial banks. They are usually consulted when a client is looking for underwriting services for new stocks and bonds, and they help companies work through all the complexity of launching an initial public offering (IPO).
This work includes things like:
- Evaluating the worth of a company.
- Confirming that it’s eligible to be publicly traded.
- Arranging to purchase shares at a discount and sell them at the arranged IPO cost to investors. These investors could be either individuals or other companies.
Investment bankers also work with mergers, as well as acquisitions and company sales. Their role is to get all the information on a company’s value and the cost of its operations. It’s also to help structure deals.
How to Choose a Financial Advisor
Naturally, unless you are running a company and plan to go public, you will probably need a financial advisor to help you with managing and growing your personal finances.
When choosing a financial advisor, experience is important, as well as some good testimonials from clients. However, you also want to make sure that the financial advisor has the proper licenses and certifications, especially if you’re considering buying insurance products from them.
People who call themselves financial planners or advisors should have a Certified Financial Planner credential. The CFP standard is high and requires a bachelor’s degree, at least three years of relevant work experience and passing a wide number of exams on statistical modeling, insurance, taxes, and investments.
The Bottom Line
Although a financial advisor will be happy to help you with your best financial strategy, you should still continue to take an active interest in investments and find out what top investors have to say about the best strategies.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
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