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The terms financial advisor and financial planner are often used interchangeably. However, they actually refer to two different types of professionals who offer distinct services. While both offer guidance on investments, taxes and other financial matters, financial advisors generally focus on managing an individual’s investment portfolios, while financial planners take a look at the entire financial picture and an individual’s long-term goals.
Understanding the differences between these two roles can help individuals choose the right professional to meet their unique financial needs.
Let’s explore both types with the goal of determining which one is best for you.
What is a financial advisor?
A financial advisor is a professional who provides guidance and advice to individuals or organizations on various financial matters, including investments, tax laws and insurance. They evaluate the financial needs of their clients and help them make informed decisions to build wealth and achieve their financial goals.
It’s important to note that financial advisors who work with securities are typically required to be licensed or registered with the state. It’s to ensure that they meet qualifications and comply with regulatory requirements designed to protect investors.
What is a financial planner?
Financial planners, on the other hand, specialize in creating comprehensive financial plans for their clients, taking into account various aspects like savings, investments, insurance, retirement and estate planning. The range of services offered by financial planners can differ significantly.
Many financial planners hold credentials such as Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) and meet stringent educational, ethical and experiential requirements and must continually recertify. Financial planners who give investment advice to their clients must register with the Securities and Exchange Commission (SEC) or the appropriate state securities regulator.
What are the differences between the two?
Financial planners and financial advisors are both professionals who provide financial advice and assistance, but there are some key differences.
- Tasks and responsibilities: A financial planner assists with creating and coordinating comprehensive financial plans, while a financial advisor can offer advice on investing money wisely within those plans.
- Fiduciary vs. suitability standard: One important factor to consider is whether the individual is a fiduciary. A fiduciary must prioritize the client’s interest over their own. Financial advisors may work under the “suitability standard,” which requires that the decision be suitable – not necessarily the best – for meeting the client’s goals, risk tolerance and other considerations.
- Compensation: A final consideration is how these professions are compensated. Financial planners may sell commission-based products like life insurance and require a license from their state regulatory agency. Financial planners may typically receive payment with a flat fee, commission or bonus, while financial advisors may receive an hourly rate, commission, a quarterly or annual retainer, percentage of assets under management or a combination of commissions and other fees. Costs for both professionals can vary greatly.
When to get a financial advisor?
If you require help in managing your finances and investments, seeking the guidance of a financial advisor can be a great decision. It’s especially true if you lack the confidence in managing your own finances, have a complex financial situation or if you are planning for a significant event like retirement, homeownership or anything else.
A financial advisor can help plan for the future by monitoring your portfolio and investing in suitable investments that align with your goals. They can also recommend and make adjustments based on your specific circ*mstances. Keep in mind that when selecting an advisor, it’s important to do your research and choose one who prioritizes your best interest.
When to get a financial planner?
It makes sense to get a financial planner when you require help in analyzing your income, expenses, assets and liabilities. Financial planners will collaborate with you to help establish financial goals and recommend a course of action. Additionally, a financial planner can provide guidance on investment choices, tax planning and retirement, among others. It’s important to seek out a trustworthy financial planner who has the necessary qualifications to provide expert and sound financial advice.
How to find a financial planner or advisor?
Finding a financial planner or advisor can sometimes be tricky, but here are some steps to make the process easier:
- Determine your needs: Identifying your specific needs and financial goals will help you narrow your search on finding the right person with the right expertise.
- Ask for referrals: Asking your friends, family or colleagues for recommendations is a good way to find someone with a good track record.
- Research online: Use online resources to search for advisors in your area. If you’re looking for a financial advisor, use Bankrate’s tool for finding a financial advisor in your area.
- Be sure to check credentials: Be sure to check any credentials such as education, certificates and licenses.
Having a plan in place and working toward measurable goals with trusted professionals can be the key to a successful future.
FAQs
If you have considerable wealth and require a long-term estate plan with multiple moving parts, such as preservation of capital, income generation, taxes, insurance and legal issues, a financial planner is likely the better choice.
What is the difference between advisor and planner? ›
Remember, financial advisers are more likely to oversee investment portfolios, whereas financial planners are more often engaged in the long-term planning aspects of one's finances. Think of advisers as looking at your finances through a more nuanced microscope, where planners focus on the big picture and endgame.
What are the disadvantages of a financial planner? ›
Limited availability: Financial advisors may not be available at all times, which can be a problem if you need urgent advice or assistance. Risk of scams: unfortunately, there is a risk of financial scams in the industry, and it's important to be aware of this risk when working with a financial advisor.
What is the difference between a financial advisor and a financial adviser? ›
There's a difference between a financial adviser and a financial advisor: "Advisers" are regulated and have a legal responsibility to act in your best interest. "Advisors" are … not the same. So, be careful: Banks may call them "advisors" so a salesperson sounds impressive, but you could be stuck without protection.
Is it worth paying for a financial planner? ›
A financial advisor is worth paying for if they provide help you need, whether because you don't have the time or financial acumen or you simply don't want to deal with your finances. An advisor may be especially valuable if you have complicated finances that would benefit from professional help.
Do financial planners really help? ›
A financial advisor can help you hone in on your goals and map out a way to achieve them. This can be anything from starting to invest, buying real estate, saving for an emergency or retirement, or something else.
Is a fiduciary better than a financial advisor? ›
Fiduciaries are obligated to act in your best interest, whereas the title “financial advisor” implies no legal obligation. When looking for a financial advisor to help you develop your custom financial plan, you should ensure that your financial advisor is a fiduciary.
Do financial planners help with budgeting? ›
A financial advisor can assist with almost any aspect of a person's financial life, including budgeting. Financial advisors provide an array of services, ranging from investment management to estate planning.
What can a financial planner do for me? ›
A financial planner works with clients to help them manage their money and reach their long-term financial goals. They advise and assist clients on a variety of matters, from investing and saving for retirement to funding a college education or a new business while preserving wealth.
Why people avoid financial planning? ›
Many consumers share the perception that they simply don't need a financial planner. They may receive financial advice from a family member or friend; in some cases, they feel they've already achieved their goals and thus don't require advice.
Financial Advice Is Changing But the Need Isn't Going Away
And while technology may satisfy some of those needs, it's not a perfect solution or an adequate replacement for a human financial advisor.
What is better than a financial advisor? ›
Generally, financial advisors are typically better fits for those looking for help making financial decisions or making investments. Financial planners, on the other hand, are a better fit for someone looking to map out their financial goals and make a long-term plan.
Is it better to have an accountant or financial advisor? ›
"In practice, an accountant can assist you in preparing your financial statements and your tax returns while a financial advisor will guide you in various aspects of your financial life such as investments, estate planning, insurance planning, and tax planning," says Lauren Lippert, a wealth advisor and Director at MAI ...
Why would someone be a financial advisor? ›
Positive impact on others: You can make a positive impact on your client's lives and helping them to achieve their goals can be extremely gratifying. Career flexibility: Advisor careers can offer flexibility, especially if you're operating your own practice.
Do financial planners beat the market? ›
But even the best financial advisors are at the whim of the market. Most professional investors who try to beat the market actually underperform it over a given time period. And those who do manage to outperform the market over one time period can rarely outperform it again over the subsequent time period.
Should I get a financial planner yes or no? ›
Deciding to work with a financial advisor is a personal choice. There is no set litmus test for whether you need one. If you have investable assets, personal and financial goals, or questions about your finances, you may want to hire a financial advisor.
Which type of financial planner is best? ›
Fee-only fiduciary financial advisors
Working with a licensed, registered fiduciary — preferably one who is fee-only — ensures that the advisor is paid directly by you and not through commissions for selling certain investment or insurance products.
What's higher than a financial advisor? ›
Financial planners generally have more education, certification and experience requirements than financial advisers. Compared to financial advisers, financial planners usually form longer-term relationships with investors.
