Financial Advisor vs. Planner

What is the Difference?

When trying to reach your long-term financial goals, it can be helpful to receive guidance and advice from a professional in the financial industry. However, choosing the right person to entrust with your money is no small decision. So how do you decide? You may have heard the terms “financial advisor” and “financial planner” used before, but what is the difference between the two? We will cover the answer to this and other common questions below.

Advisor vs. Planner – What’s the Difference?

Financial advisor and financial planner are both popular titles used to describe professionals who help consumers manage their money. They cover different areas such as investments, tax planning, insurance, retirement, and more. Often these terms are used interchangeably. While there is some overlap between the two terms, it is possible to distinguish them.

Meeting a Financial Advisor

Financial advisor is a generic term and may describe many different types of individuals. These professionals can provide many services across the financial spectrum such as managing investments, or brokering sales and purchases of bonds, mutual funds, and stocks. Generally speaking, they focus on investments.

Financial planner on the other hand means that they offer specific guidance and generally will have credentials in their areas of expertise. Financial planners are more specialized advisors that take your entire financial situation into account and make decisions based on all the details. They help build a comprehensive long-term plan and give specific recommendations so you can reach your financial goals.

Basically, a financial advisor is a broader term for anyone who helps you manage your finances. A financial planner is a type of advisor, usually with a specialty, who comes up with a long-term plan. Thus, every financial planner is also a financial advisor, although not every financial advisor is necessarily a financial planner.

No matter who you hire in the financial services industry, it’s important to make sure they are providing guidance and advice. A financial advisor should work on behalf of their clients rather than maximizing their own sales or commissions.

Also keep in mind that there are no rules preventing someone from calling themselves a financial planner. It’s essential to know what field a professional has expertise in, and what certifications they have, before hiring them.

Do I Need A Financial Planner or Advisor?

Not everyone needs to hire a financial advisor. For some people, the first step should be just getting situated with a steady income and building their savings. It may not be worth it to pay for the services of an advisor, and the advisor (who makes their career from paying clients) may not be interested at this point until you reach their minimum requirement for assets.

As your financial situation becomes more complicated, and your goals shift from short-term to long-term, you may benefit from the professional guidance of a financial advisor or planner.

Major life changes are another consideration. If you’re planning on getting married, buying a house, or starting a business, it may be a good time to look into finding a qualified financial advisor.

Finally, even for those starting out, financial advisors can help answer your questions about the often-overwhelming financial world. At this point you may want to consider robo-advisors or online help platforms for the introductory experience. As your savings grow and your financial goals evolve, then you can investigate hiring a hands-on financial advisor.

What Should I Ask A Financial Planner?

It’s a good idea to come up with a list of questions when you’re interviewing potential financial planners. The overall goal is that your personalities and investment philosophies will align, and that you trust them to explain and simplify the process. Here are a few examples:

  • Are you a fiduciary?

Simply speaking, making sure the financial advisor has a fiduciary duty to you means they must act on your behalf, and put your interests first (typically, they cannot recommend investments that would benefit themselves). It is a legal and ethically binding agreement that ensures the best outcome for you. You should always look for a fiduciary advisor because, as financial advisor John Savadjian says, you want someone who is obligated to "put their clients' interest ahead of their own."

  • What are your qualifications?

Make sure you vet the advisor and that their expertise is well-suited for what you’re looking for. Check their education, professional designations, and accreditations. The type of individual you hire should be directly related to your long-term goals. (retirement planning, estate planning, insurance, etc.)

  • What kind of access will I have to you?

You should always have scheduled appointments with the financial advisor, but it may be prudent to have access to them via phone or email more frequently. You can also gauge what kind of relationship you'll have with the advisor. It’s important to feel comfortable around them and trust them with your financial details.

Financial Planning Services

Are Financial Planners Worth the Money?

There is no one-size-fits-all answer to this question, since everyone has different financial needs and advisors will have variable costs. Figuring out what financial goals you have is an important first step before looking to hire a financial planner. It’s also worth looking at multiple advisors, and asking plainly about their compensation structure, before settling on one.

While some individuals may be able to manage their money themselves, treating it as a part-time job can be a mistake. A financial advisor brings an objective, outside perspective that prevents you from making poor decisions based on emotion. While you might hesitate at spending money on an advisor to save money, an experienced financial planner can pay for themselves many times over in the long run.

What Is A Certified Financial Planner (CFP)?

This title means that the individual has passed the CFP exam and continues to meet the ongoing requirements of the CFP Board. They should be considered a skilled and trustworthy advisor. It also means that the CFP Board continues to monitor planners with this designation and may remove them if they violate the CFP Board of Ethics. Here are just some of the significant requirements:

  • Must have accredited college or university education and complete CFP board coursework on a variety of financial topics.

  • Must pass an intensive 6+ hour, 170 question exam.
  • Must complete either 6,000 hours of public financial planning services, or 4,000 hours of apprenticeship at a professional firm.
  • Must act as a fiduciary, meaning they are ethically bound to put your needs ahead of their own.
  • Must continue to meet annual requirements to keep their certification.

The CFP designation is significant, taking from nine months to 2 years of study. Choose a CFP certified advisor for someone who is proven to be qualified, ethical, and trustworthy,