The Advantage of Investing With an Advisor

Tom Gilmour is a senior director of Planning Experience Integration for Northwestern Mutual.

Financial advisor, investment advisor, wealth manager: there are a lot of financial professionals with different titles, and it’s ok if you’re confused by their meaning. Here, we’ll help you understand what an investment advisor is and why working with one can be beneficial to your overall financial plan.

What does an investment advisor do?

All investments carry some level of risk, including the risk that you may lose some or all of your principal (the amount that you invest). However, a solid investment strategy from a credentialed professional like an investment advisor can help you manage risk and reduce the likelihood that you will lose money as your money builds over time.

An investment advisor is a financial professional or company who makes recommendations on securities to purchase or provides analysis on investments. Investment advisors manage investment portfolios and may provide additional financial planning services. With the proper licenses, they can provide brokerage services (such as buying or selling stocks or bonds) as part of an investment portfolio. Their goal is to help you  grow your wealth over a certain period of time.

Not just anyone can legally call themselves an investment advisor. The term refers to an individual (or company) who has registered at the federal or state level. In 1940, Congress passed the Investment Advisers Act which required an individual (or company) to register so that the government could protect consumers by tracking how investment advisors operate. At the federal level, they register with the Securities and Exchange Commission (SEC) when they manage more than $110 million in total client assets. For lower amounts, they register with a state securities regulator in the state where their main office is located.

Can you trust an investment advisor?

Letting someone else manage your money may feel scary. This is why it’s important to find an advisor you can trust who is part of a well-established company. In general, investment advisors are required to work in your best interest.  

How is an investment advisor different from a financial advisor?

Both investment advisors and financial advisors deal with sophisticated financial products and are regulated by nationwide organizations or their state. These regulators require that the advisor pass an examination. Let’s look at a few differences between the two.

One of the main differences is what they specialize in. A true investment advisor will focus most closely on your market-based investments and how to make your money grow. A financial advisor, on the other hand, takes into account all parts of your financial life. A plan from a Northwestern Mutual financial advisor starts with your goals and will include a range of financial options (including investments and insurance) to help you reach your goals—even if life throws a curveball.

An investment adviser is an individual or company who’s paid for providing advice about securities to their clients. Investment advisers are not the same as financial advisors. The term “financial advisor” is a generic term that usually refers to a registered financial professional (or, to use the technical term, a registered representative). By contrast, the term “investment adviser” is a legal term that refers to an individual or company that’s registered as such with either SEC or a state securities regulator." 

Another title you may have heard of is a wealth manager. This group usually has additional tools and specialization like more advanced investing strategies or a more in-depth analysis of a financial plan.

To ensure that you’re working with a professional who has the right training and expertise for your situation, consider their industry credentials or designations and what services you need them to provide.

How much money do I need to talk to an investment advisor?  

You might have already started investing through your employer’s plan or an individual retirement account. Maybe your friends or coworkers mention their “finance guy” or “insurance lady.” At some point, you naturally begin to wonder whether it makes sense to have a financial professional to focus on your portfolio and provide recommendations.

There’s a common misconception that you need to have a certain amount of money before you can work with a financial planner. This is probably because some investment advisors require you to bring a minimum amount of money before they will work with you. Different advisors have different minimums.

But not all advisors have minimums. At Northwestern Mutual, we have advisors who work with a lot of different income levels. We realize most people wish they were saving more and worry about their money. We’ll meet you where you’re at!

Is it worth paying an investment advisor?

There are lots of benefits to working with an investment advisor:

They bring industry experience

Investment advisors specialize in managing investments to an investor’s risk tolerance, timeline and financial priorities. When you work with a good advisor, you feel confident that the amount of risk you’re taking matches with your philosophy and goals.

They bring perspective

During periods of market volatility, investors often question whether staying invested in the market is the right move. Unfortunately, some take a short-term perspective and make decisions based on emotions, like pulling out of the stock market and putting most of their money in cash. Investors can also choose to sit on the sidelines, waiting until things settle down. Both of these “rookie mistakes” can lead to lost earnings.

An investment advisor can act as a brake to emotional decision-making and help you keep the long-term, big picture in mind. The advisor can also apply their knowledge of valuations, policy, the economy and market sentiment to increase or decrease the percentage of investment in different asset types.

You can be more confident about your finances

Confidence is a benefit that’s difficult to quantify but can be important. You can be more confident that your portfolio is appropriately invested when you’ve implemented recommendations from a qualified professional who knows you and brings an impartial perspective. This is especially true when you’re dealing with a windfall or another large amount of money.

How does an investment advisor get paid?

Three of the most common ways financial professionals can get paid include charging you a fee, charging a percentage of the assets they help manage for you or getting commission from any products or services you buy. Some advisors may even do a mix of each. Before you start working with someone, ask which services they will provide and how they will be compensated.

Why should I work with a Financial Advisor from Northwestern Mutual?

It’s common to think that financial planning starts and ends with investments. But investments aren’t the only piece of the puzzle. When looking at your financial goals, it’s important to build a plan that grows your wealth while also protecting what you’re building. That’s why we build plans that include investments along with other financial tools. A Northwestern Mutual financial advisor can look at all parts of your plan—including investing—to make recommendations that help you reach your financial goals, even if life doesn’t go exactly as planned. Our approach to planning has been shown to have a higher probability of leading to better financial outcomes over time.¹ With a plan like that, you can feel more confident about your financial picture.

1. EY, Benefits of integrating insurance products into a retirement plan, 2021.