People often confuse the role of a financial planner with other, similar jobs like financial advisors. While there may be similarities between these jobs, there are some key differences. A financial advisor is generally someone who helps people manage their money, while a financial planner develops personalized financial plans for their clients.

Both professionals may also differ when it comes to their educational backgrounds and designations. Financial planners may also have a special area of expertise. If you're thinking of becoming a financial planner, there are some key points you need to think about.

Do you have the right education and the skills necessary to be a success? Is this even the right career path for you? Read on to learn more about financial planning and take our quiz to help you make a more informed decision.

Key Takeaways

  • Financial planners help people manage their money while sorting through their financial matters.
  • Finding clients and building a customer base is crucial to experiencing success as a financial planner.
  • Becoming a financial planner requires a bachelor's degree, along with courses in investments, taxes, estate planning, and risk management.
  • If you're comfortable with sales, are great with people, have excellent analytical and communication skills, and can work independently, financial planning may be right for you.
  • There is often a difference between a financial planner and a financial advisor. Financial planners focus on long-term goals whereas financial advisors have a more narrow view, only helping individuals manage their money.

Financial Planners: The Basics

Financial planners help people manage their money while sorting through their financial matters. Like financial advisors, they help their clients develop financial goals for the long term. These professionals assess their clients' stage of life, risk tolerance, along with potential investments.

Financial planners also earn a living by helping people sort through and choose investments, insurance, and other financial products. Because many financial planners also specialize in specific areas, they may provide tailored services for their clients. Some of these services include—but aren't limited to—retirement planning, general investment analysis, estate planning, tax planning, and education planning.

Obtaining New Business

Finding clients who need those services and building a customer base is crucial to experiencing success as a financial planner because referrals from satisfied clients are an important source of new business. Whether you find new clients by giving seminars or lectures, through social or business contacts, or simply by cold calling, find them you must.

Your success as a financial planner depends on your ability to find and retain a roster of clients.

Having a broad social network is one reason many successful financial planners enter the field after working in a related occupation such as accountant, auditor, insurance sales agent, lawyer or securities, commodities, and financial services sales agent.

Education Requirements

Financial planning employers look for candidates with a bachelor's degree in accounting, finance, economics, business, mathematics, or law. Courses in investments, taxes, estate planning, and risk management are also helpful. Programs in financial planning are becoming more widely available in colleges and universities.

Financial analysts may also seek special designations like the Certified Financial Planner (CFP), the Chartered Financial Analyst (CFA), and the Chartered Financial Consultant (ChFC) designations.

Generally, a license is not required to work as a personal financial advisor, but advisors who sell stocks, bonds, mutual funds, or insurance may need licenses such as Series 6, 7, or 63. These exams are administered by the Financial Industry Regulatory Authority (FINRA) and in order to take most of these exams, sponsorship by a member firm or self-regulatory organization is required.

Where Do Advisors Work?

More than half of all financial advisors work for finance and insurance companies, including securities and commodity brokers, banks, insurance carriers, and financial investment firms. However, many personal financial advisors are self-employed, operating small investment advisory firms, usually in urban areas.

Financial planners and advisors make money by either charging commissions on the investment products they sell or an annual, hourly, or flat fee for their services.

According to the Bureau of Labor Statistics, the overall employment of financial advisors is expected to increase by 5% between 2020 and 2030, which is slower than the average for all occupations.

This is a result of the increased investment by businesses and individuals, the rising number of self-directed retirement plans, and the growing number of seniors.

Personal financial advisors will benefit even more than financial analysts as baby boomers save for retirement and as a better-educated and wealthier population requires investment advice. In addition, people are living longer and must plan to finance more years of retirement.

Is Financial Planning the Right Career for You?

Take this quiz to help you find out:

Quiz: Is Financial Planning Right For You?

1. How comfortable are you with making sales?
A. I could sell my grandmother a ticket to a SuperNova concert with no guarantee that she'll enjoy the performance.
B. I could sell my grandmother that SuperNova ticket, but I would feel guilty if she didn't like the show.
C. Only a bad person would sell their grandmother a SuperNova ticket.

2. At what stage of life are you?
A. I just graduated from college.
B. I've been out of school for a few years.
C. I've been in my line of work for several years, but I'm ready for a change.

3. How much of an extrovert are you?
A. I have been the president of nearly every club I have ever joined.
B. I have enough friends to make me happy.
C. A good book, a room to myself, and no interruptions is my idea of heaven.

4. You could be described as:
A. Both analytical and a good communicator.
B. Analytical but not a good communicator, or a good communicator but not analytical.
C. Neither analytical nor a good communicator.

5. At work, I prefer to do my job:
A. Completely independently
B. Somewhat independently.
C. As part of a team.

6. What appeals most to me about becoming a planner is:
A. The challenge of building a client base.
B. The creation of my own business.
C. The analysis of investments.

7. According to the Bureau of Labor Statistics, the median annual income for financial advisors was $89,330 in 2020. How do you feel about that?
A. I've never been average and I'll earn more than the median.
B. That would work for me.
C. Working for commissions only makes me nervous.

Results

If you answered mostly As then financial planning could be the right career for you. You're energized, not terrified, by the idea of earning a substantial amount of your compensation through commissions. If you have the right connections and the energy level to work that network, you could succeed in this tough career.

If you answered mostly Bs, then you need a backup plan. Financial planning might work, but you're likely to end up among the 80% of planners who, according to William F. Cole's The Complete Financial Advisor, are in the business for less than five years. When sales don't work out, what will you do next and how will you sell yourself to your next employer?

If you answered mostly Cs, don't even think about financial planning. If you love the portfolio analysis side, consider working as a financial analyst. If math is your strong subject, go into financial engineering or quantitative analysis. You'll make more money without having to sell all day long.

Demographics of the Financial Advisor Profession

There are approximately 380,000 financial advisors with an average age of 44.9. The average salary of a financial advisor is $143,617; for a male financial advisor, the average salary is $165,768 while the average female salary is $95,388.

The profession has an estimated 10-year growth rate of 4.41%. The main locations that employ financial advisors are Murray Hill, New York City, Gramercy and Stuyvesant Town, New York City, Back Bay, Boston, Beacon Hill, Boston, and Charleston. The locations with the highest paying wages are Washington D.C., Hempstead Town, New York, and North Hempstead Town, New York.

The industries with the highest employment of financial advisors are securities, commodities, funds, trusts, and other financial investments (60.6%), banking and related activities (11.1%), and insurance carriers (6.09%).

The workforce is composed of 260,000 men and 119,000 women. Approximately 80% of the profession is made up of white individuals, then approximately 7% is Asians.

How Do You Become a Certified Financial Planner?

To become a certified financial planner you need to complete the CFP certification process and ultimately obtain the CFP certification. Coursework on financial planning through a CFP Board Registered Program needs to be completed, having a bachelor's degree, and then taking the CFP exam are all requirements to becoming a certified financial planner.

Is There a Difference Between a Certified Financial Advisor and a Certified Financial Planner?

Yes, in general, there is a difference between a financial advisor and a financial planner; however, there is no financial advisor certification, only one for a financial planner. That is because every financial planner is a financial advisor but not every financial advisor is a financial planner. Financial planners help individuals and companies achieve their long-term goals. This involves managing money, creating savings plans, help to buy a home, and help planning retirement. A financial advisor on the other hand has a much more narrow view, which is simply helping you manage your money.

What Should I Major in to Become a Financial Advisor?

Anyone can become a financial advisor regardless of their major. However, there are certain majors that help in becoming a financial advisor. These include economics, business management, finance, accounting, statistics, and other majors that are similar.