- A financial planner holds the Certified Financial Planner (CFP) designation and can help clients develop plans to reach 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.
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Financial planners and financial advisors both provide invaluable services if you’re looking for guidance when it comes to your money. But the terms are not interchangeable. Though financial planners and advisors may offer similar and even some overlapping services, it’s important to know the differences between these roles and what they can do for you before choosing to work with one.
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.
Financial planner vs. financial advisor: At a glance
Both financial planners and advisors aim to provide advice to help better manage your money. However, one focuses more on the bigger picture, while the other looks mostly at investments.
- A financial planner takes into consideration the whole of your financial life, then develops plans and strategies to help you reach long-term and short-term goals, such as paying off debt, saving for the future, or purchasing insurance.
- A financial adviser looks mostly at investment goals, portfolios, and building wealth. They provide services such as making transactions and monitoring performance.
What is a financial planner?
Financial planners take a 360-degree view of their clients’ lives to gain an understanding of their complete financial picture, then work with the client to develop customized plans that aim to reach specific goals.
“A financial planner will often assist a person or household with a personal financial plan, including helping to plan and consult on financial matters such as budgeting and spending, debt management, savings and retirement planning, estate planning, insurance planning, etc.,” says Sean M. Ciemiewicz, Senior Vice President at OneDigital Retirement and Wealth Management.
Ciemiewicz adds that financial planners aren’t required to be licensed to implement financial plans. If they aren’t, they can work with consultants, advisors, and those who are licensed to make specific transactions to service their clients. In these cases, financial planners take on a coordination role, ensuring plans are executed correctly.
Just about anyone can call themselves a financial planner since there is no real regulation or licensing required within the industry. They can have any kind of education or work experience, which may or may not include anything to do with finance. However, there are some trade organizations, such as the Certified Financial Planner Board of Standards, that offer credentialing opportunities that can provide clients some assurance they’re working with a knowledgeable finance professional that’s also a
To earn the right to be called a Certified Financial Planner (CFP), you need to complete a rigorous course of education, ethical, and experiential requirements — and then maintain a certain level of continual adherence to keep those credentials. Areas of study include professional conduct and regulation, general principles and psychology of financial planning, risk management, insurance planning, investment planning, tax planning, retirement savings and income planning, and estate planning.
Earning such a designation is highly sought after within the industry because it gives clients reassurance 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 clients’ best interests
“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, have passed a notoriously challenging six-hour, 170-question exam that has 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.”
When you’re looking for guidance in a more general aspect of your financial life, working with a financial planner is a better option than choosing a financial advisor. They can provide a more comprehensive scope of services that encompass just about everything you hope to accomplish. Some financial planners offer more services than others, which is why it’s important to research and shop around before hiring anyone.
But many financial planners offer more than budgeting, insurance, cash flow, tax planning, and retirement plans. They can also provide investment guidance (if qualified and credentialed), which is what financial advisors specialize in. Working with a financial planner can bring all of these services under one roof. Here are some other pros and cons of working with a financial planner:
What is a financial adviser?
Financial advisors are mostly concerned with investments, evaluating what you currently have, strategies already in place, risk tolerance, and timeframes. The goal is usually to build wealth through investment and plan for the future. They can provide advice and/or make specific investments on your behalf.
“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, 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.”
Like with financial planners, financial advisors don’t have to have a specific license or credential. However, since they do focus mostly on investment products and advice, they are subject to state and federal regulations regarding working with securities. They can also seek out 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 well beyond minimal standards, work as a fiduciary for clients, never work on a commission basis, continue their education, and provide a holistic approach to advising clients.
If you can find a financial advisor who also does financial planning, you’ll get the best of both worlds. Very often, the two services go hand-in-hand, but you’ll still find many who specialize simply in planning or investment advice. If you’re only looking to grow your portfolio or save for retirement, seeking out a financial advisor may be your best bet. It all depends on your individual needs. However, your search may lead you to a variety of resources all in one place.
“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.”
The financial takeaway
Financial planners and advisors perform similar services, but are most definitely not terms to be used interchangeably. There are specific reasons working with a planner might be best for your situation, and others why an advisor is most appropriate. It’s important to know the difference between the two so you can accurately judge which is the better choice.
Always ask questions and research anyone you’re considering taking financial advice from. 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.
Look for planners and advisors who have nationally recognized credentials that require them to 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.