Investment Consultation by Investopedia
What is an ‘Investment Consultant’
An investment consultant provides investors with investment products, advice and/or planning. Investment consultants do in-depth work on formulating clients’ investment strategies, helping them fulfill their needs and reach their financial goals.
BREAKING DOWN ‘Investment Consultant’
An investment consultant works with clients to form an investment strategy and develop a long-term working relationship. The investment consultant’s role is to actively monitor the client’s investments and continue to work with them as their financial objectives change over time. Investment consultants receive remuneration through charging fees and/or commission.
Investment Consultant Qualifications and Licensing
Investment consultants have a bachelor’s or graduate degree in finance related disciplines, such as accounting, business or economics. In the United States, most investment consultants are licensed by the Financial Industry Regulatory Authority (FINRA), which is an independent regulator. At a government level, the Securities and Exchange Commission (SEC) oversees the activities of investment consultants.
Types of Investment Consultants
Investment consultants fall into four main categories:
Registered representatives:Investment consultants who get paid a commission to sell investment and insurance products e.g., stockbrokers and banking representatives. They work for what is known as sell-side firms; financial organizations that create, promote and sell financial instruments. Registered representatives typically hold a Series 6 or Series 7 license.
Financial planner:Investment consultants who manage their clients’ personal finances. For example, they may develop a financial plan to help a client manage college tuition fees. Qualified financial planners hold a Certified Financial Planner (CFP), Certified Public Accountant (CPA) or Personal Financial Specialist (PFS) certification.
Financial advisors:Investment consultants who give general and personalized financial advice. They are compensated through charging fees and typically hold a Series 65 or 66 license.
Money managers:Investment consultants who make investment decisions on behalf of the client. Money managers work for asset management firms, fund managers or hedge funds; referred to as buy-side firms.
Choosing an Investment Consultant
Research an investment consultant’s background before hiring their services. Review their compliance records and check for any serious breaches. For instance, have they been investigated for insider trading? It’s also prudent to check their fiduciary status and criminal record. Check an investment consultant’s certifications to ensure he or she holds the correct licenses. Assess their education and association memberships to determine if they have the necessary experience and expertise. Before selecting an investment consultant, organize an in-person meeting to determine if they understand your financial goals and are accessible. Ask about fees and whether they receive any commissions.