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- Financial planners help clients develop plans to better reach their goals by considering the entirety of their financial health and standing.
- A financial advisor focuses on their clients' investments and how they can use them to build wealth.
- Though some of their services overlap, each has its pros and cons that make one more appropriate than the other in different circumstances.
Financial planners and financial advisors provide invaluable services if you're seeking money-management guidance, but these terms are not interchangeable. Though financial planners and advisors offer similar services, there are key differences. Knowing the difference between the two is important so you can accurately judge which is the better choice.
Here's a closer look at what financial planners and advisors do, when you might want to work with one over the other, and what to look for when considering which to go with.
What is a financial planner?
Planners consider your whole financial picture to develop a custom financial plan to help you reach your long-term and short-term goals. This can include paying off debt, saving for the future, or purchasing insurance.
"A financial planner will often assist a person or household with a personal financial plan," says Sean Ciemiewicz, Senior Vice President at OneDigital. "This can include helping to plan and consult on financial matters such as budgeting and spending, debt management, savings and retirement planning, estate planning, insurance planning, etc."
Planners often specialize in certain fields, so you'll want to make sure you're working with a financial planner that is an expert in the subject matter you're seeking assistance in. For example, if you want help creating a trust you're best off finding a financial planner for estate planning rather then one that specializes in insurance.
Not all financial planners are CFPs. In fact, financial planners aren't required to be licensed to implement financial plans. If they aren't, financial planners act more like plan coordinators who work alongside financial consultants, advisors, and other licensed professionals to provide specific services to their clients.
Services offered by financial planners
Financial planners offer a wide range of money-managing services, including:
- Creating a custom budget plan
- Insurance planning
- Tax planning
- Investment guidance
- Retirement savings and income planning
- Estate planning
Financial planner pros and cons
Working with a financial planner can bring all these services under one roof. Here are some other pros and cons of working with a financial planner:
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Credentials and qualifications
Just about anyone can call themselves a financial planner, as there is no real regulation or licensing required within the industry. However, some trade organizations, such as the Certified Financial Planner Board of Standards, offer credentialing opportunities that can assure clients they're working with a knowledgeable finance professional who's also a fiduciary.
"The [CFP] designation is often recognized as the 'gold standard' when it comes to combining financial advisory and planning services by the industry," says Chris J. Held, CFP, CRPS, managing partner, and private wealth advisor at Element Wealth Management.
"This is because CFP professionals are required to have earned a bachelor's degree and have passed a notoriously challenging six-hour, 170-question exam with a pass rate of approximately 63%. [It takes about] 18 to 24 months after earning an undergraduate degree to complete. Arguably most important is the fact that CFP professionals are required to act as fiduciaries."
Earning such a designation is highly sought after within the industry because it reassures clients that they're working with someone who has a thorough amount of knowledge in the areas they're advising on, as well as significant experience and an ethical obligation to act in their client's best interests.
In addition, financial planners may offer products or services that do fall under-regulated industries. For example, if a financial planner sells insurance products to their clients, they must be licensed by their state regulatory agency. However, if a planner earns commission, then they aren't a fiduciary. Fee-only financial planners have the benefit of providing unbiased advice.
Example of working with a financial planner
At an initial meeting with a financial planner, you may discuss your current situation and develop short-term and long-term goals. This may include a harsh look at your finances, spending habits, assets, and dreams for the future. You may also be asked to provide in-depth information, including access to your bank statements, retirement accounts, etc., so they can analyze what is happening.
From there, the planner will develop an actionable strategy that points to specific changes/actions you can take to accomplish your stated goals. They may offer to implement this plan, often for a fee, but may also simply deliver it to you for you to put into action yourself.
What is a financial advisor?
Financial advisors offer comprehensive investment and portfolio guidance, usually to help clients build wealth. There are multiple types of financial advisors, including traditional wealth managers, automated online financial planning services, and robo-advisors.
Financial advisors can help you reach your goals faster by helping you implement trading strategies, execute trades, rebalance your portfolio, monitor your investments, and mitigate risk and volatility through by diversifying your asset allocation.
"A financial advisor is one who is continuously monitoring clients' investments and portfolios and looking out for the client in terms of their financial needs, retirement, etc," says Jay Srivatsa, CEO and founder of Future Wealth LLC. "The advisor may not provide specific plans for monthly cash spend and savings, but takes a more holistic and long term approach to clients' wealth by investing their savings in appropriate investment vehicles to ensure client's needs are met."
Similar to financial planners, financial advisors don't have to have a specific license or credential to service clients. However, since they focus mostly on investment products and advice, financial advisors for retirement assets are subject to state and federal regulations regarding working with securities.
Services offered by financial advisors
Financial advisors guide various personal finance subjects. But they don't always offer the same array of services. Some advisors only provide investment and portfolio-related services, while others may offer:
- Portfolio building
- Estate planning
- Tax planning
- Budgeting
- College planning
- Short and long-term financial planning
Financial advisor pros and cons
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Credentials and qualifications
Financial advisors can seek credentialing from the National Association of Personal Financial Advisors (NAPFA), a nationally recognized trade association for fee-only financial advisors.
NAPFA-Registered Financial Advisors have to go beyond minimal standards, work as fiduciaries for clients, never work on a commission basis, continue their education, and provide a holistic approach to advising clients.
Example of working with a financial advisor
Your experience working with a financial advisor will likely be very similar to that of a planner. You'll discuss your current investments, portfolio, and goals for both the long and short term. You may also talk about your income, assets, insurance policies, and other things related to your financial life. They may also ask you questions to determine your risk tolerance, which will give them an idea of what kinds of approaches to investing would be most appropriate.
After analyzing your situation, the advisor should come back to you with a custom plan for what to do with your current investments and how to invest in the future. This plan may also offer advice for budgeting, insurance coverage, and other actions that could help build your wealth.
Once a plan is agreed upon, you will likely give your advisor permission to complete transactions, investments, and trades on your behalf to implement the plan, creating a long-term relationship between you both.
Choosing between a financial advisor and a financial planner
There are specific reasons why working with a planner might be best for your situation and vice versa. It all depends on your individual needs. Here's what you should consider when choosing a fiduciary financial professional.
Working with a financial planner is often better when seeking guidance on a more general aspect of your financial life. Planners can provide a more comprehensive scope of services encompassing almost everything you hope to accomplish. Remember that some financial planners offer more services than others, so it's important to research and shop around before hiring anyone.
If you only want to grow your portfolio or save for retirement, seeking a financial advisor may be your best bet.
That said, plenty of financial advisors also offer financial planning services so you can get the best of both worlds.
"In many cases, financial advisors and financial planners either (a) work at a firm that offers both financial planning and advisory capabilities, or (b) they personally offer both planning and advisory services themselves," says Held. "This is an excellent combination that can offer a blend of strategic support and execution throughout your financial journey."
Look for planners and advisors with nationally recognized credentials that require they act as fiduciaries, do not work on commission, and have to retain a high level of education and experience. Though not licenses or regulations, certifications from trade organizations provide a higher standard for financial planners and advisors to live up to.
Always ask questions and research anyone you're considering taking financial advice from. Make sure to pay particular attention to their fee structure, especially with planning and advisory services. Not everyone who claims to be a finance professional has the training and experience to give sound advice, nor are they bound to act in your best interests.
Financial planner vs. financial advisor — Frequently asked questions (FAQs)
A financial planner may be able to offer financial advisory services if they have the necessary certifications and experience. Although financial advisors and planners represent different services and qualifications, there is often overlap.
Some financial advisors and planners receive compensation for commissions on products or services. This is called fee-based. But some financial professionals work fee-only, so you'll pay a flat or hourly fee. Financial advisors may charge assets under management (AUM) if they handle your investments.
Financial advisors and planners can both assist with retirement planning. The choice depends on your specific need. A financial advisor may be suitable if you're looking for investment management focused on retirement. A financial planner might be preferred for a broader strategy that includes savings, budgeting, and estate planning.
You're more likely to get comprehensive tax advice from a financial planner, as planners generally have extensive knowledge of tax strategies as part of their holistic approach to financial planning. That said, some financial advisors offer tax planning services.
Working with a fiduciary is the only way to ensure you receive ethical, unbiased financial advice and guidance. Fiduciaries are legally bound to put the interests of their clients first.
