The Difference Between a Financial Advisor and a Financial Planner

You'll be able to choose between them based on your financial objectives. Financial planners and advisors can assist you in saving for retirement, investing, paying taxes, planning for your estate, and paying for college. The terms can be used interchangeably to some extent because a financial planner is a type of financial advisor. On the contrary, a financial planner is a more comprehensive and involved role, and many people reserve the term for those who have earned special certifications, such as the CFP (Certified Financial Planner) designation. Find out more about the distinctions between these two roles and how to determine which is the best fit for your current situation in this article.

What Do Financial Advisors and Financial Planners Have in Common?

Financial Advisors Financial Planners Scope of Work Broad and general Comprehensive and detailed Certification No specific standard Typically a CFP

Areas of Responsibility

A financial advisor is someone who helps clients on financial matters. It's a broad term that could refer to a variety of people who may be able to assist you financially. Without much in common, two professionals could accurately call themselves financial advisors. Brokers, for example, are financial advisors. Still, their responsibilities are vastly different from those of an insurance agent or an accountant, even though they are both considered financial advisors. The following are some of the responsibilities of a financial advisor:

Advising on how much money to set aside
Providing investment advice
Providing tax assistance
Purchasing and sale investments on behalf of a client

On the other hand, a financial planner is someone who takes a more holistic approach to a client's finances. The work is usually more in-depth, and it may include fully managing investment portfolios and assisting a client in achieving financial goals from college graduation to retirement. A financial planner is more likely to assess a client's portfolio for opportunities rather than waiting for a client to ask for help with a problem. Important: While a financial planner is a type of financial advisor, a financial advisor is not always a financial planner, at least not in the way most in the industry use the term. It's a grey area, and some people may use the terms differently, but the distinctions are widely recognized.

Certification

While anyone who offers financial planning services can technically call themselves a "financial planner," the financial industry recognizes that "financial planners" are those who have earned the Certified Financial Planner (CFP) designation. Obtaining a CFP designation is a difficult task. A person seeking one must have a bachelor's degree, work in financial planning for three years, complete rigorous coursework (or hold certain degrees or licenses, such as accounting or law), and pass tests administered by the Certified Financial Planner Board of Standards. Important: There is a code of conduct, ethics rules, and disciplinary procedures in place at the CFP Board. On the board's website, you can check if someone is a CFP. This guarantees a level of quality and professionalism that a broad term like "financial advisors" is unlikely to provide. However, many financial advisors do have certifications because the term "financial advisor" refers to such a diverse group of professionals. If a financial advisor wants to buy and sell securities on behalf of clients directly, they must pass FINRA exams and register with the organization and state regulators. These financial advisors commonly referred to as brokers, work for broker-dealers that are required to be registered with the Securities and Exchange Commission (SEC), the federal agency in charge of enforcing securities laws. There are also investment advisors who are compensated to provide financial advice. This group of advisors must register with the Securities and Exchange Commission (SEC) or state securities regulators in the case of smaller businesses.

Which Is The Best Option For You?

In some cases, both financial advisors and planners can be beneficial. Irrespective of who you choose to help you with your finances, make sure to follow these simple guidelines to protect yourself and get the most bang for your buck: Ask friends and family for recommendations, but also conduct your own independent research by interviewing people and asking a lot of questions. Check anyone's background and qualifications, as well as any complaints against them, before hiring them. Request that they spell out their compensation in detail, including how you will pay them and whether they will be compensated for their work by anyone else. If you're going to use them to make investments, make sure they're licensed to sell you the investment first, and then double-check their claims.

When a Financial Advisor Is the Most Beneficial

A financial advisor can assist you in achieving your objectives when you have a fairly specific question or issue. It's critical to find the right professional for your situation. The Financial Industry Regulatory Authority, or FINRA, maintains a comprehensive list of professional designations that can be used to decode most acronyms found at the end of a financial advisor's name. The list explains what education and certification are required, who regulates people with that designation, and how to file a complaint or check disciplinary actions. If you're looking for a broker, use FINRA's BrokerCheck website to look up a firm or a specific broker. This tool will tell you if someone is licenced to sell securities or give investment advice, as well as details about their academic background and any prior complaints. You can also use the SEC's Action Lookup tool or your state's securities regulator to look up information.

When is it best to hire a financial planner?

If you require more detailed financial advice, you may want to hire a financial planner. You may have significant wealth that you don't know how to manage, you may own a small business, or you may have significant debt that you don't know how to manage; whenever you have a larger project to complete, a financial advisor can assist you in assessing the situation and devising strategies for dealing with it.

Final Thoughts

Financial advisors and financial planners both assist clients with financial matters, but the term "financial planner" is most commonly used to refer to a Certified Financial Planner. CFPs are held to a high standard, whereas "financial advisors" refers to a wide range of professionals who might or might not be held to the same standards. Finding the right financial advisor will be exactly what you need when you need assistance with a specific financial issue. A CFP will be a better option if you have a more serious problem or want a more hands-on professional to manage your finances.