• An advisor is a licensed professional who provides financial advice for investors.
  • There are two types of advisors: a licensed investment advisor and an investment company.
  • Investment advisors offer a variety of investment options, such as stock and bond investments, individual retirement accounts (IRAs), mutual funds, real estate investments, college funds, and more.

What is an advisor?

Hiring someone to work for you is never an easy task. When that person is managing your money, insurance policies, or other personal finances, the duty becomes even more challenging. You must make sure that the one you hire to manage your savings are knowledgeable and are putting your best interests above all else.

When it comes to money management and investment, an advisor is a go-to person capable of handling your cash. Good advisors will help you develop realistic expectations about the potential risks and rewards of your investment options.

Types of advisors

A financial advisor can be either an individual or company. Both provide investment options depending on your business needs and help you make better decisions regarding your assets. Let’s review the different types:

Licensed investment advisor

A licensed investment advisor is a trained and certified professional who can assist you in managing your investments. They offer advice and determine which financial options suit your needs. Many professionals in the financial sector are qualified to work as investment advisors. They can be attorneys, insurance consultants, accountants or financial planners.

The Investment Advisers Act of 1940 classifies the investment advisor into two categories based on their services:

  • Financial advisor: The U.S. Securities and Exchange Commission (SEC) requires financial advisors to provide services that include assisting you (the investor) in making financial decisions. These decisions include: saving up for your college education, buying a home, or even planning for retirement. They charge fees on an hourly basis or as a percentage of the investments they manage for you.
  • Broker-dealers: While they serve some of the principal functions of financial advisors, the SEC sets them apart by considering them as financial intermediaries. Being an intermediary financial means that you are someone who helps connect investors to individual investments, such as stocks or mutual funds. Broker-dealers are paid on commission (a set percentage of the value involved). For example, Stockpile is a broker-dealer.

Investment company

An investment company can also be an advisor. These companies comply with the rules and regulations set by the Investment Advisers Act of 1940. Investment companies manage and sell funds to the public. While their primary purpose is to keep and maintain investment products, they also offer a variety of investment services, such as managing your taxes, doing your accounting and providing legal services.

Is a financial advisor necessary to invest?

Because of new trading apps, gaining access to the stock market through a financial advisor is no longer necessary. Over the years, there has been significant growth in stock trading. Many investors enter the stock markets to test their luck and earn serious profits. But it’s easier said than done. Many people still lose money in the stock market. And this is where an advisor comes in and can help.

An advisor can help you choose your stocks, determine when to sell, and manage potential risks and tax decisions – all at the same time. Financial advisors can potentially prevent you from picking the wrong stocks that lead to significant losses. With the right guidance, you can buy the right shares at the right time to earn a profit. 

Good advisors will not guarantee get-rich-quick schemes. In fact, they will help you prevent the following:

  • The urge to sell a stock when stock prices are falling.
  • The desire to buy when stock prices are going up without any substantial change in the market supply and demand (which determine stock prices).
  • The belief that you can time the market.

Having a professional and honest advisor on your side can help you access valuable market insights and ultimately, help you understand your stock portfolio better. Advisors should be able to sit with you and help you carefully plan out your stock investments or other financial properties. They will share recommended investment options as well as the benefits of securing your money for the long haul. While it is not necessary to use a financial advisor to invest, it is important to understand all of your options.



This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stockpile assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell. There is no guarantee that any strategies discussed will be effective. Each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services and should seek advice from an independent advisor before acting on any information presented.

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