What Is a Financial Planner?
A financial planner helps clients meet their current money needs and long-term financial goals. They use a structured process to guide clients toward prudent financial decisions to maximize their potential for meeting life goals.
Using their knowledge of personal finance, taxes, budgeting, and investments—combined with analytical tools and data that can illustrate potential outcomes—financial planners make recommendations, which help clients make informed decisions. Financial planners may offer broad advice or specialize in tax planning, asset allocation, risk management, retirement, estate planning, and the like.
Financial planners advise and assist clients on a variety of tasks—from investing and saving for retirement to funding college or a new business and preserving wealth. Clients range from individuals and families to businesses, which may need help designing and managing financial programs (e.g., retirement plans) for their employees’ benefit.
- All financial planners are financial advisors, but all financial advisors are not necessarily financial planners.
- Financial planners work with individuals, families, and corporations to help them achieve their current money needs and long-term financial goals.
- Some financial planners may hold the “CFP®” professional designation to establish their qualifications and knowledge base.
- Financial planning includes help with budgeting, investing, saving for retirement, tax planning, insurance coverage, and more.
Should You Be A Financial Planner?
Understanding the Role of a Financial Planner
The Certified Financial Planner Board of Standards (CFP Board) describes financial planning as “a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.”
While financial planners may specialize in one area—such as retirement savings—many offer a holistic approach that takes the client’s overall well-being into consideration. For example, instead of focusing solely on retirement savings, the financial planner may help clients make decisions about family, careers, education, and physical health.
Financial planners are considered fiduciaries. This means that they are legally bound to act in a client’s best interests and can’t personally benefit from the management of client assets. Fiduciary specifics can vary. Registered investment advisors (RIAs), for example, are fiduciaries under the Investment Advisers Act of 1940 who advise high-net-worth individuals on investments. They are regulated by the U.S. Securities and Exchange Commission (SEC) or state securities regulators.
Like all financial advisors, financial planners must have sufficient education, training, and experience for clients to place trust in their recommendations. As evidence of these qualifications, a practitioner may earn and carry one or more professional designations, such as the certified financial planner title.
The CFP® Designation
The most commonly held professional designation is certified financial planner (CFP®), which is issued by the above-mentioned CFP Board, a nonprofit certifying and standards-setting organization that administers the CFP exam. “Certified financial planner” is a formal credential of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement. The designation is awarded to individuals who successfully complete the CFP® Board’s initial exams, then engage in ongoing annual education programs to maintain their skills and certification.
A CFP® may do much more than simply advise clients on available investments. Whether providing help on budgeting, retirement planning, education savings, insurance coverage, or even tax optimization strategy, “finances” doesn’t mean just one thing for most people—and “financial planning” refers to much more than just investing.
Fee-Based vs. Commission-Based Financial Planners
Financial advisors (including financial planners) generally fall into one of two categories: fee-based and commission-based.
Fee-based financial advisors charge a flat rate, either by the hour, by the project, or by assets under management (AUM). Their income comes primarily from the fees that their clients pay. However, fee-based advisors may also earn income through commissions for selling certain financial products. Fee-only advisors, on the other hand, earn income only through fees—and not through commissions.
By contrast, commission-based financial advisors earn income from selling financial products and opening accounts on their clients’ behalf. The commissions are generally payments made by companies whose products and services are recommended by the advisor. Commission-based advisors can also earn money by opening accounts for clients.
Commission-based financial planners could have the incentive to direct clients to investment products from which they receive payment regardless of the product’s suitability to the client. Fee-only planners have no such temptation.
Choosing the Right Financial Planner
It’s a good idea to interview at least three financial planners so you can choose the one who is best for you. Be sure to get answers to the following questions:
- What are your credentials?
- Can you provide references?
- What (and how) do you charge?
- What is your area of expertise?
- Will you act as my fiduciary?
- What services can I expect?
- How will we settle disputes?
To check the status of a CFP® and for a guide on choosing the right advisor with whom to work, visit the CFP Board website.
What do financial planners do?
A financial planner is a type of financial advisor who helps clients manage their current money needs and reach their long-term financial goals. The services offered by a financial planner vary by provider.
Some create plans to help clients with numerous aspects of their financial lives, including savings, investments, insurance, retirement savings, college savings, taxes, and estate planning. Other financial planners have a narrow focus, such as insurance or securities.
Also, while some financial planners only prepare plans, others sell investments, insurance, and other financial products.
How much does a financial planner charge?
Financial planners charge fees for helping clients create short-term and long-term financial plans. Commission-based financial planners earn money when their clients buy financial products that the advisor recommends. Fee-only financial planners don’t receive commissions for products sold. Instead, they charge by the hour, by the project, or by assets under management (AUM).
A 2021 AdvisoryHQ study found that hourly rates for financial advisors typically range from $120 to $300. The per-project cost ranges from $275 to $4,500 or more, depending on the complexity of the job. For example, college planning “package deals” average from $275 to $1,500; comprehensive financial planning costs $2,000 to $4,500.
What is the difference between a financial planner and a financial advisor?
Every financial planner is a financial advisor, but not every financial advisor is a financial planner. A financial planner helps clients (individuals, families, and businesses) create programs to reach their long-term financial goals. They may offer broad financial advice or specialize in an area such as investments, taxes, retirement, or estate planning.
On the other hand, “financial advisor” is a broad term that refers to nearly any professional who advises people on their finances, including certified financial planners. They may help manage their clients’ money, manage investments, buy and sell stocks and funds on the client’s behalf, and help with estate and tax planning.