In the financial services industry, it can be a little confusing figuring out the difference between a financial advisor vs. financial planner. Thereâ€™s a fair amount of overlap between the two roles, and some people use the terms interchangeably â€” but there is a difference.
A financial advisor is more likely to focus on your investments, while a financial planner is a type of financial advisor who takes a broader view of your financial situation. Fees can be another important difference between financial advisors and financial planners. This article compares the two to better help you find the right professional to manage your money.
|Financial Advisor vs. Financial Planner|
|Financial Advisor||Financial Planner|
|Scope of duties||Focuses on investments||Takes a holistic view of your financial life|
|Certifications||FINRA licenses; certifications such as CFA and ChFC||CFP certification|
|Fees||Typically charges based on a percentage of assets under management||Typically charges for their time, such as a flat or hourly fee|
Letâ€™s look at the different types of advisors and planners in a bit more detail, along with what services they each offer.
When someone chooses between working as a financial advisor vs. financial planner, their title shows potential clients what work they specialize in. Someone who describes themselves as a financial advisor tends to focus more on investments.
What a financial advisor does: A financial advisorâ€™s typical duties include designing your portfolio, managing your investments and calculating how much youâ€™d need to invest per year to reach your financial goals. As part of this service, an investment advisor could answer some basic questions for other parts of your financial plan, like taxes and insurance, but itâ€™s not their primary service. Instead, they are more focused on working with clients looking for investment and portfolio management, while leaving additional parts of the financial plan to other professionals.
Financial advisor credentials: To process investments for their clients, a financial advisor will need to have at least their FINRA licenses. There are different types of advisors depending on what license they have. An advisor with a Series 6 license could only sell mutual funds for a commission, while one with a Series 7 license could also sell individual securities like stocks and bonds. If they charge for giving investment advice, they need a Series 65 license.
Advisors could also train for additional investment credentials, such as a chartered financial analyst (CFA) or chartered financial consultant (ChFC) designation. To earn these designations, a financial advisor must go through additional training and pass an exam, above and beyond the minimum license requirements.
A financial planner is a type of financial advisor â€” in fact, all financial planners are advisors, but not all advisors are necessarily financial planners. So how are the services provided different for a financial planner vs. financial advisor? A financial planner typically looks at your entire situation, not just your investments.
What a financial planner does: On top of investment management, a planner could also help with budgeting, debt management, insurance, retirement planning, taxes and estate planning. After reviewing your entire situation, this professional would create a financial plan with steps for you to follow. For example, they could design your monthly budget, tell you what insurance to buy and set up a portfolio recommendation as part of your plan. You could then hire the planner to keep you on-track with the goals or go off and follow the plan by yourself.
Financial planner credentials: You may have also heard of a CFP, which stands for certified financial planner. But what does a certified financial planner do differently? They operate mostly the same as a regular financial planner and give the same sort of advice â€” the difference is they have more training. Before someone can earn this certification, they must have at least a bachelorâ€™s degree and three years of full-time financial planning experience. They must also complete an intensive course on different types of financial planning (if they do not already hold another designation, such as Certified Public Accountant (CPA), CFA or ChFC) and pass an exam to qualify.
In terms of the CFP vs. financial advisor comparison, another difference is that a CFP must adhere to the fiduciary standard, meaning they must put a clientâ€™s interests ahead of their own when recommending investments. Financial advisors and non-CFP financial planners do not need to meet this standard, and can recommend products that are suitable, but not necessarily the very best for a client: For example, they can recommend a slightly worse product that pays them a higher commission.
Fees are another key difference between financial planning and investment management. A financial planner is more likely to charge for their time than a financial advisor. They could charge you by the hour for financial planning advice, or charge you a flat fee to put together a plan.
On the other hand, a financial advisor is more likely to charge an asset-based fee, which is based on a percentage of the amount of assets you have under their management. This fee is then deducted from your portfolio each year. If an advisor charges a 1% fee and you invested $100,000, they will deduct $1,000 a year from your portfolio. Additionally, an advisor might make commissions when you purchase investments.
However, these rules are not set in stone, as you could see planners charging asset-based fees for ongoing services and advisors charging for their time. Some firms also charge a single fee for a program that includes both investment management and financial planning.
Before working with a financial advisor or financial planner, itâ€™s important to ask questions and make sure you clearly understand their fee model as well as what services are included under that fee.
Whether you should work with a financial planner or a financial advisor depends on your goals. The major function of financial planning is to create a list of your major long-term goals, while figuring out the steps you can follow to meet them. In other words, financial planning provides a more holistic view of your entire situation.
So how can a financial advisor help differently? A financial advisor is likely going to be more focused on your investments and will only touch on other parts of your financial plan. If youâ€™re primarily looking for investment advice, an advisor could be a better choice. Since this is their specialty, they could do a better job in this one area, versus a generalist financial planner.
When it comes to titles, though, keep in mind that these arenâ€™t always two distinct professionals. Financial planners are a type of financial advisor, whereas some financial advisors can also offer financial planning. You will also see some advisory firms offer programs that combine investment/portfolio management and financial planning. Still, if youâ€™re looking for a specific service, the job titles can give you an idea what someone specializes in.
Whether you want to work with a financial planner or a financial advisor, there are a few tips you can follow to find the right match.
Know where to start your search. The organizations in charge of issuing credentials like the CFP or CFA have member databases where you can search for professionals near you. You could also search for local planners and advisors through Google, or by using a review website like MagnifyMoney or asking friends for recommendations.
Do your research. If an advisor looks promising, you can do a quick check on their background. With FINRAâ€™s BrokerCheck system, you can see whether an organization has run into any trouble with past clients by pulling up their Form ADV; this paperwork will also provide more details on the services offered and the firmâ€™s fee schedule. For individual advisors and planners, you can use the SECâ€™s Action Lookup tool to find more information.
Donâ€™t hesitate to ask questions. When you schedule a meeting with an advisor, ask plenty of questions. How long have they been in business? What are their specialties? What type of clients do they typically work with? Check out this list for more questions you could ask.
Make sure you understand the costs involved. Advisor and planner fee schedules can be complicated. Ask them for a clear breakdown, so you understand exactly how they would be compensated. You should also ask them about any potential conflicts of interest, like whether they earn commissions from recommending certain products over others.
Request client referrals. If youâ€™re impressed with your first meeting, see whether they can give you testimonials from other clients. If an advisor or planner is doing a good job, they should have other clients willing to say so.
Compare your options. Finding a good financial advisor or financial planner is a bit like dating. Ideally, you connect with someone for a long-term financial relationship. Donâ€™t rush the process and sign on with the first person you meet. Take the time for a few meetings so you can make an informed comparison and find the best fit for the management of your money and your investments.