Financial Planner vs. Financial Advisor: An Overview
When someone needs help managing their money, they usually turn to a professional. “Financial advisor” and “financial planner” are both specialists who help consumers manage their money.
There is a wide range of financial professionals, from insurance agents and accountants to investment advisors, brokers, and financial planners. Every financial planner is a type of financial advisor, but not every financial advisor is considered a financial planner. There are more than 100 certifications that a financial advisor might attain.
- A financial planner is a professional who helps individuals and organizations create a strategy to meet long-term financial goals.
- "Financial advisor" is a broader category that can also include brokers, money managers, insurance agents, or bankers.
- There is no single body in charge of regulating financial planners. Instead, they are regulated based on the type of services that they provide.
- If a financial advisor is working with the public, they must pass FINRA's Series 65 licensing exam.
- Given the proliferation of the financial industry, many planners and advisors may actually do the same thing—therefore, do your homework before hiring somebody to guide you.
A financial planner is a professional who helps individuals and organizations create a strategy to meet their long-term financial goals. Typically, a financial planner will help map out a plan for budgeting, saving, investing, and retirement planning. Although many financial planners assist individual clients through their own practice, they might also work for a bank, wealth management firm, or non-profit organization.
When choosing a financial planner, it’s important to understand the financial planning landscape. According to the Financial Industry Regulatory Authority (FINRA), almost anyone can claim to be a financial planner and they might come from many different backgrounds.
Financial planners might be brokers or investment advisors, insurance agents, practicing accountants, or individuals with no financial credentials. That is why consumers must perform their due diligence before turning their money over to any sort of financial advisor. Here are some differences between the two terms.
The planner might have a specialty in investments, taxes, retirement, and/or estate planning. There are also different licenses or designations, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), or Certified Investment Management Analyst (CIMA), among others.
To obtain each of these qualifications, the financial planner must complete a different set of educational, examination, and work history requirements.
According to FINRA, almost anyone can call themself a financial planner, and they will often come from many different types of backgrounds.
This is a broad term for a professional who helps manage your money. You pay the advisor, and in exchange, they help with any number of money-related tasks. A financial advisor (sometimes spelled “adviser”) might help manage investments, buy or sell stocks, or create a comprehensive estate and tax plan.
If the advisor is working with the public, they must hold a FINRA Series 65 license. In addition to that license, there are many other financial advisor credentials that the advisor might hold, depending on the provided services.
“Financial advisor” as a general term includes many types of professionals, such as stockbrokers, insurance agents, money managers, estate planners, bankers, and more. An investment advisor is a type of financial advisor who specializes in securities.
Advisor vs. Adviser
There are two common spellings for this financial term. U.S. laws and regulations spell out the rules for financial advisers, while many investment firms and media default to the more familiar advisor. Regardless of the spelling, all agree that there is no meaningful distinction between the two terms.
While these two terms often overlap, a financial planner can be viewed as a type of financial advisor. In particular, a financial planner is a professional who helps individuals or organizations achieve their long-term financial goals. These can include planning for retirement, a child’s college education, the down payment for a home, and so on. A financial planner relies on strategic portfolio allocation for investments with relatively long time horizons, ensuring that expected returns and risk tolerances are in balance.
A financial advisor, on the other hand, is a broader term for somebody who may be involved in not only this type of planning but also other facets of money management or financial products. They may, for instance, provide life insurance, real estate, or accounting services, help place short-term trades, or provide banking services.
Most individuals who need money help will enlist a financial planner, which is a more specific type of financial advisor. But the decision regarding the "type" of financial planner requires some investigation.
Before hiring a planner to help with your finances, it's important to do your homework and research their credentials, such as whether their licensed and how many years they've been practicing. Be sure to question the planner about their specific training and qualifications, such as whether they specialize in tax or estate planning.
Clients should also understand how the financial planner is compensated and what they will receive in return. For example, is there a one-time fee for the financial review or are there multiple fees every time an investment change or plan update is made?
It's also important to ensure that the advice and investments from your planner match your risk tolerance and long-term financial goals.
Consider developing a list of questions when vetting a financial planner. Finally, check the disciplinary record and references for the planner to ensure that you're receiving the best quality financial guidance.
It's important to note that under the U.S. Department of Labor's new fiduciary rule, all professionals who give retirement planning advice or create retirement plans are held to a certain legal and ethical standard.
Are All Financial Planners Also Financial Advisors?
All financial planners are financial advisors, but not every financial advisor is also a financial planner. Financial advisors may also work for brokers, bankers, or in other areas of the financial industry.
How Can I Find a Trustworthy Financial Planner or Advisor?
You can start by asking around to close friends, family members, or colleagues for recommendations. If your company has a company that manages a retirement plan, they may also be somebody to ask. You can also search the database offered by The National Association of Personal Financial Advisors (NAPFA).
Once you have the names of people, check their reputation on BrokerCheck and meet or talk with them first before hiring them.
Who Can I Become a Financial Advisor or Planner?
No specific background is necessary to become a planner, although you must pass Financial Industry Regulatory Authority (FINRA) licensing exams if you will be handling customer money. In addition, several professional certifications, such as the Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) designations, will provide extensive knowledge in relevant fields.
The Bottom Line
Financial advisors are a broad category of professionals with different specialties and qualifications. Financial planners are specialists who help their clients with a specific financial need, whether that be estate planning, saving for retirement wealth management, or tax accounting.