alvaro gonzalez/Getty Images
The terms financial advisor and financial planner are often used interchangeably. However, they actually refer to two different types of professionals who offer distinct services. While both offer guidance on investments, taxes and other financial matters, financial advisors generally focus on managing an individual’s investment portfolios, while financial planners take a look at the entire financial picture and an individual’s long-term goals.
Understanding the differences between these two roles can help individuals choose the right professional to meet their unique financial needs.
Let’s explore both types with the goal of determining which one is best for you.
What is a financial advisor?
A financial advisor is a professional who provides guidance and advice to individuals or organizations on various financial matters, including investments, tax laws and insurance. They evaluate the financial needs of their clients and help them make informed decisions to build wealth and achieve their financial goals.
It’s important to note that financial advisors who work with securities are typically required to be licensed or registered with the state. It’s to ensure that they meet qualifications and comply with regulatory requirements designed to protect investors.
What is a financial planner?
Financial planners, on the other hand, specialize in creating comprehensive financial plans for their clients, taking into account various aspects like savings, investments, insurance, retirement and estate planning. The range of services offered by financial planners can differ significantly.
Many financial planners hold credentials such as Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) and meet stringent educational, ethical and experiential requirements and must continually recertify. Financial planners who give investment advice to their clients must register with the Securities and Exchange Commission (SEC) or the appropriate state securities regulator.
What are the differences between the two?
Financial planners and financial advisors are both professionals who provide financial advice and assistance, but there are some key differences.
- Tasks and responsibilities: A financial planner assists with creating and coordinating comprehensive financial plans, while a financial advisor can offer advice on investing money wisely within those plans.
- Fiduciary vs. suitability standard: One important factor to consider is whether the individual is a fiduciary. A fiduciary must prioritize the client’s interest over their own. Financial advisors may work under the “suitability standard,” which requires that the decision be suitable – not necessarily the best – for meeting the client’s goals, risk tolerance and other considerations.
- Compensation: A final consideration is how these professions are compensated. Financial planners may sell commission-based products like life insurance and require a license from their state regulatory agency. Financial planners may typically receive payment with a flat fee, commission or bonus, while financial advisors may receive an hourly rate, commission, a quarterly or annual retainer, percentage of assets under management or a combination of commissions and other fees. Costs for both professionals can vary greatly.
When to get a financial advisor?
If you require help in managing your finances and investments, seeking the guidance of a financial advisor can be a great decision. It’s especially true if you lack the confidence in managing your own finances, have a complex financial situation or if you are planning for a significant event like retirement, homeownership or anything else.
A financial advisor can help plan for the future by monitoring your portfolio and investing in suitable investments that align with your goals. They can also recommend and make adjustments based on your specific circ*mstances. Keep in mind that when selecting an advisor, it’s important to do your research and choose one who prioritizes your best interest.
When to get a financial planner?
It makes sense to get a financial planner when you require help in analyzing your income, expenses, assets and liabilities. Financial planners will collaborate with you to help establish financial goals and recommend a course of action. Additionally, a financial planner can provide guidance on investment choices, tax planning and retirement, among others. It’s important to seek out a trustworthy financial planner who has the necessary qualifications to provide expert and sound financial advice.
How to find a financial planner or advisor?
Finding a financial planner or advisor can sometimes be tricky, but here are some steps to make the process easier:
- Determine your needs: Identifying your specific needs and financial goals will help you narrow your search on finding the right person with the right expertise.
- Ask for referrals: Asking your friends, family or colleagues for recommendations is a good way to find someone with a good track record.
- Research online: Use online resources to search for advisors in your area. If you’re looking for a financial advisor, use Bankrate’s tool for finding a financial advisor in your area.
- Be sure to check credentials: Be sure to check any credentials such as education, certificates and licenses.
Having a plan in place and working toward measurable goals with trusted professionals can be the key to a successful future.
FAQs
A financial planner generally takes a more comprehensive, long-term approach to money management. While they often hold the same licenses and carry out the same functions as financial advisors, financial planners tend to focus on creating personalized and holistic plans for clients.
Who makes more money, a financial planner or a financial advisor? ›
The average pay for a financial planner is about $58,000 per year. The average salary for a financial advisor is around $80,000 per year. While it's easy to see how similar a financial advisor vs. financial planner is, they are actually quite different.
Is 2% fee high for a financial advisor? ›
Most of my research has shown people saying about 1% is normal. Answer: From a regulatory perspective, it's usually prohibited to ever charge more than 2%, so it's common to see fees range from as low as 0.25% all the way up to 2%, says certified financial planner Taylor Jessee at Impact Financial.
What is a disadvantage of hiring a financial planner? ›
Potential negatives of working with a Financial Advisor include costs/fees, quality, and potential abandonment.
Do you really need a financial planner? ›
Bottom line. While not everyone needs an ongoing relationship with a certified financial planner, pretty much everyone can benefit from having a consultation — and some initial input — with a CFP. Especially since there are a variety of concerns that a financial professional can assist with.
Is it wise to have a financial planner? ›
Not everyone needs a financial advisor, especially since it's an additional cost. But having the extra help and advice can be paramount in reaching financial goals, especially if you're feeling stuck or unsure of how to get there.
Do millionaires use financial advisors? ›
Of high-net-worth individuals, 70 percent work with a financial advisor. You can compare that to just 37 percent in the general population.
Do financial advisors make 6 figures? ›
The prospect of earning a six-figure income is a significant draw for many professionals considering a career as a financial advisor. It's important to recognize that while some financial advisors do achieve this income level, it is by no means a guaranteed salary.
What is the success rate of financial planners? ›
What Percentage of Financial Advisors are Successful? 80-90% of financial advisors fail and close their firm within the first three years of business. This means only 10-20% of financial advisors are ultimately successful.
Is 1% too high for a financial advisor? ›
Many financial advisers charge based on how much money they manage on your behalf, and 1% of your total assets under management is a pretty standard fee. But psst: If you have over $1 million, a flat fee might make a lot more financial sense for you, pros say.
Schwab and CSIM are subsidiaries of The Charles Schwab Corporation. There is no advisory fee or commissions charged for Schwab Intelligent Portfolios.
At what net worth should I get a financial advisor? ›
Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.
Should I use a financial advisor or do it myself? ›
Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning. Self-investors, on the other hand, save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions.
What are the negatives of having a financial advisor? ›
Costs: Financial advisors cost money, and not all charge you in the same way. Some charge a percentage of your total portfolio per year. Others charge you an ongoing annual fee, some charge a one-off service fee, while the investment broker pays others via commissions.
Is hiring a fiduciary worth it? ›
“Working with a financial advisor can save you time and allow you to focus on creating a plan and monitoring progress of the plan as you spend valuable time on other endeavors,” says Brad Cast, RFC, wealth manager, Merit Financial Advisors in Alpharetta, Georgia. Fiduciaries tasked to work in your best interest.
Is it better to have a financial advisor or do it myself? ›
Bottom Line. While most investors don't use financial advisors and practice self-investing, going to professionals for investment advice is becoming more common. Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning.
What are the pros and cons of having a financial advisor? ›
- Pro: time. Hiring an advisor can save you a significant amount of time spent on research and studying different investment strategies. ...
- Pro: strategy. ...
- Pro: peace of mind. ...
- Con: peace of mind. ...
- Con: conflict of interest. ...
- Con: costs and fees.
Fee-only fiduciary financial advisors
Working with a licensed, registered fiduciary — preferably one who is fee-only — ensures that the advisor is paid directly by you and not through commissions for selling certain investment or insurance products.
What does a financial planner help with? ›
A financial planner works with clients to help them manage their money and reach their long-term financial goals. They advise and assist clients on a variety of matters, from investing and saving for retirement to funding a college education or a new business while preserving wealth.
