What Is an Investment Advisory and Its Types?

Written by True Tamplin, BSc, CEPF®

Reviewed by Editorial Team

Updated on March 22, 2023

Investment advisory services are a type of financial planning service that provides advice and guidance on investments.

An investment advisor can help you choose appropriate investments for your needs, manage your portfolio, and provide other guidance related to your investments. There are many different types of investment advisors, so it's important to choose one that is right for you.

Not all advisors are required to be registered or have a Series 65 license, so you should do your research to make sure that they are qualified to help you.

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Types of Investment Advisory Services

There are many different types of investment advisory services, but they can generally be divided into two categories: commission-based and fee-only.

A commission-based investment advisor is compensated through a sales charge, whereas a fee-only investment advisor charges fees.

Some examples of types of investment advisory services include: financial planning, portfolio management, insurance and endowment management, retirement plan guidance, education funding analysis and distribution planning.

With a financial plan from an investment advisor you can:

  • Feel more secure and confident about your financial future
  • Save money on taxes
  • Make wiser investment choices
  • Protect your family with life insurance
  • Better manage debt and credit
  • Achieve retirement savings goals

How Much Does It Cost

An investment advisory fee is typically based on a percentage of your assets, with 1% being common at small firms, but can be as high as 3% for investors with large portfolios. Some financial advisors may charge an hourly fee or a flat fee for specific services.

Choosing an investment advisor will cost you in fees paid to the investment advisor, but it can save in other ways.

For example, fee-only financial planners might help you avoid unnecessary commissions and insurance costs that can erode your savings.

Therefore, you will need to do a cost-benefit analysis of the fees paid compared to commissions and insurance costs you might have incurred if you had not worked with an investment advisor.

How to Choose an Investment Advisor

When choosing an investment advisor, it is important that their philosophy matches yours.

For example, if your financial goals are to live within your means and save for your children's college education, then you should choose an investment advisor who agrees with that philosophy and is willing to work with you to achieve those goals.

You can find out if the financial advisor's philosophy matches yours by asking:

  • What type of clients does the financial advisor serve?
  • Does the financial advisor prefer working with a certain type of investment?
  • What is the advisor's investment philosophy?
  • Does the advisor have a fiduciary duty to their clients?
  • How do the fees work?
  • Are there any hidden costs?
  • Can the advisor provide references from past clients?

Disadvantages of Working With an Investment Advisor

There are a few potential disadvantages of working with an investment advisor.

First, you need to be comfortable with the idea of someone else handling your investments. It is important that you trust your investment advisor and feel comfortable discussing your financial goals and concerns with them.

Second, investment advisors typically charge fees for their services. This can be a disadvantage if you are on a tight budget.

Third, not all advisors are registered or have a Series 65 license. This means that they may not be qualified to give you the best advice for your needs.

Why Should I Use an Investment Adviser?

There are several reasons why you might want to use an investment adviser.

  • You may not have the time or desire to manage your own investments.
  • An investment adviser can help you focus on other areas of your life while they take care of your investments.
  • A financial advisor can help protect against fraud and scams that target unsuspecting investors.

Some people are just more comfortable with someone else managing their money. If you are one of those people, then an investment advisor may be the right choice for you.

When considering whether or not to use an investment adviser, it is important to weigh the pros and cons and ask yourself if the cost is worth it.

If you decide that working with an investment advisor is the right choice for you, then it is important to do your research before choosing one.

Make sure that the financial advisor's philosophy matches your own, their fees are transparent and reasonable, and they have the necessary licenses to serve you.

The Bottom Line

Investment advisory services can be a valuable tool for those looking to secure their financial future.

By choosing an investment advisor who shares your financial goals and is willing to work with you to achieve them, you can save money on taxes, make wiser investment choices, and protect your family.

However, there are some disadvantages to working with an investment advisor, so it is important to weigh the pros and cons before making a decision.

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About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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