Here, you’ll learn more about what differentiates these two roles and how to decide which is the best fit for your current situation.
What’s the Difference Between Financial Advisors and Financial Planners?
Two professionals might accurately call themselves financial advisors without sharing much in common. Brokers are financial advisors, for example, but their responsibilities are much different than those of an insurance agent or accountant, even though they are both considered financial advisors, as well. A financial advisor’s duties may include:
Offering advice on how much money to saveMaking investment suggestionsOffering tax advice Buying and selling investments on behalf of a client
A financial planner, meanwhile, usually refers to someone who takes a more comprehensive approach to their client’s finances. The work is generally more in-depth, and it may involve fully managing investment portfolios and assisting a person in achieving financial goals from college graduation all the way up to and through retirement. Rather than waiting for a client to ask for advice about an issue, a financial planner is more likely to proactively assess a client’s portfolio for opportunities.
Certification
While anyone who provides any sort of planning service in the financial space can technically call themselves a “financial planner,” there is an understanding within the financial industry that “financial planners” are those who carry the Certified Financial Planner (CFP) designation. Getting a CFP designation isn’t easy. Someone seeking one must have a college degree, work for three years in financial planning, complete rigorous coursework (or hold select degrees or licenses for accounting or law, for example), and pass exams administered by the Certified Financial Planner Board of Standards. However, since the term “financial advisors” refers to such a wide range of professionals, many do have certifications. If a financial advisor is going to buy and sell securities directly on behalf of clients, they must pass exams administered by FINRA and register with FINRA and state regulators. Often called brokers, these financial advisors work for broker-dealers that must be registered with the Securities and Exchange Commission (SEC), the main federal agency charged with enforcing securities laws. There are also investment advisors—people who are paid to advise on securities. These advisors must register with the SEC or, in the case of smaller operations, state securities regulators.
Which Is Right For You?
Financial advisors and planners can both be useful in certain circumstances. Regardless of whom you hire to help with your finances, make sure to take these basic steps to protect yourself and get the most for your money:
Ask for recommendations from friends and family, but also do your own independent review by interviewing people and asking lots of questions.Don’t hire anyone without verifying their background and credentials and checking if any complaints have been registered against them.Ask them to spell out their compensation clearly, including how you will pay them and whether they’ll be getting paid by anyone else for their work for you.If you’re using them to make investments, ask them if they are licensed to sell you the investment and then verify their claims.
When a Financial Advisor Is Best
When you have a fairly specific question or issue, a financial advisor can help you achieve your goals. The key is finding the right professional for your situation. The Financial Industry Regulatory Authority, known as FINRA, provides a comprehensive list of professional designations that will help you decode most acronyms you may see at the end of a financial advisor’s name. The list explains the required education and certification, who regulates someone with that designation, and how to make a complaint or check disciplinary actions. If you’re looking for a broker, check out a firm or specific broker by using FINRA’s BrokerCheck website. This resource tells you whether someone is registered to sell securities or give investment advice, as well as information about their educational background and any previous complaints. You can also check with the SEC’s Action Lookup tool or your state’s securities regulator.
When a Financial Planner Is Best
If you need more involved financial guidance, you may be best off hiring a financial planner. You could have significant wealth that you’re unsure how to manage, you could operate a small business, or you could have significant debt that you don’t know how to tackle; whenever there is a bigger project to tackle, a financial advisor can help assess the situation and come up with strategies for handling it.
The Bottom Line
Both financial advisors and financial planners help clients with money issues, but the term “financial planner” typically refers to a Certified Financial Planner. CFPs are held to a high standard, while the term “financial advisors” can refer to a broad array of professionals who may or may not be held to similar standards. When you want help with a specific financial issue, finding the right type of financial advisor will be just what you need. If you have a more significant issue, or you want a more hands-on professional to take control of your finances, a CFP will be a better option.
