What Is a Financial Planner?

A financial planner is a qualified investment professional who helps individuals and corporations meet their long-term financial objectives. Financial planners do their work by consulting with clients to analyze their goals, risk tolerance, and life or corporate stages, then identify a suitable class of investments for them. From there they may set up a program to help the client meet those goals by distributing their available savings into a diversified collection of investments designed to grow or provide income, as desired.

Financial planners may also specialize in tax planning, asset allocation, risk management, and retirement and/or estate planning.

Key Takeaways

  • Financial planners work closely with individuals and corporations to help them achieve their financial goals.
  • Some financial planners may hold a “CFP®” credential as a 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.
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Should You Be A Financial Planner?

Understanding the Role of a Financial Planner

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.

Financial planners who explicitly provide financial advice and manage money for clients are considered fiduciaries. This means they are legally obligated to act in a client’s best interests, and they can’t personally benefit from the management of client assets. Instead, they are expected to manage these assets for the client’s benefit rather than their own. Fiduciary specifics can vary. Registered investment advisors (RIA), for example, are fiduciaries under the Investment Advisers Act of 1940 who advise high-net-worth individuals on investments. They are regulated by the Securities and Exchange Commission (SEC) or state securities regulators.

Many RIAs are fee-only advisors, meaning they can’t work off commission or sell a client any investment products that aren’t in the client's best interests. Financial planners don’t have to be RIAs to work under this business model. Fee-only financial planners generally make money via an hourly rate, an annual fixed retainer, or as a percentage of the investment assets they manage on behalf of their clients. They also have a fiduciary duty to their clients over any broker or dealer.

Financial planners who work off commission generally earn money as payments from companies whose investment products they recommend. They can also earn money by opening accounts for clients.

Financial planners who work on commission have the possible incentive to direct clients to investment products from which they receive payment regardless of the products’ suitability to the client, while fee-only planners have no such temptation.

The CFP® Designation

The most commonly held professional designation is the certified financial planner (CFP®), which is owned and issued by the Certified Financial Planner Board of Standards, Inc., 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” means much more than just investing.

Choosing the Right Financial Planner

You should interview at least three financial planners before choosing the one you decide is right for you. Be sure to get answers to the following questions:

  • What are your credentials?
  • Can you provide references?
  • What 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 adviser to work with, visit the CFP Board of Standards website.