Financial Advisor Vs. Financial Planner: What’s The Difference?

By Dock David Treece
Forbes

Although the terms financial advisor and financial planner are often used interchangeably, there are distinct differences between these two types of professionals.

If you’re deciding between a financial advisor vs. a financial planner, here’s what you should know.

What Is a Financial Advisor?

A financial advisor has passed licensure and certification exams needed to provide guidance on investments and financial matters. Financial advisors can help clients with a variety of monetary decisions, including saving for retirement, buying a home or investing in a business. They can also arrange insurance coverage for clients and help strategize on estate planning—though you’ll still want an attorney to draft any wills or trusts.

There are many different types of advisors, each offering their own set of strategies and services—as well as their own specialty. Most have passed certain licensing exams. This is typically the Financial Industry Regulatory Authority (FINRA) Series 7 Exam or potentially the Series 65 Exam (required for registered investment advisors). Some financial advisors are also financial planners, though not all achieve this designation.

Financial advisors typically charge an annual fee for their services. Some also charge commissions on the products they sell, such as mutual funds and annuities. These fees can vary greatly, though annual fees often range from 0.5% to 1% of assets under management (AUM) with commissions as high as 6% of transaction amounts.

What Is a Financial Planner?

A financial planner is a special type of financial professional who leverages advanced knowledge and tools to create personalized financial plans for clients. These encompass everything from saving for retirement to arranging for late-life planning to strategizing on asset transfers.

Many financial advisory firms have one or more certified financial planners (CFPs) on staff to work with clients or advisors to prepare comprehensive plans for clients. These can then be used in conjunction with other tools and strategies to execute transactions and manage client finances.

Like financial advisors, financial planners often charge fees for their services. Depending on the specific services being provided, these fees may be monthly, quarterly, annual or project-based.

Some planners also earn commissions on the products they sell. Commissions are usually the same as for financial advisors, and hourly fees can range from $50 to $150 per hour (or at least $1,000 on a project basis).

Differences between Financial Advisor vs Financial Planner

While both financial advisors and financial planners work with clients and provide helpful advice, there are some key differences between the two. For example, while many financial advisors assist clients over a long period of time, some only help clients with specific transactions or investments.

Financial planners, on the other hand, tend to take a more holistic approach to client finances and develop long-term plans that address all aspects of a client’s financial life. These are usually revisited every few years, with client investments or strategies adjusted as plans are updated.

Another key difference is that financial advisors may earn commissions on some of the products they sell, while financial planners more commonly charge hourly or flat fees for their services.

Lastly, while financial advisors and planners often have many of the same licenses, they typically have different certifications—including the CFP designation.

When to Get a Financial Planner vs. an Advisor?

If you’re looking for help with your finances, both a financial advisor and a planner may be able to help you. The better option depends largely on your circumstances.

For example, if you have short-term issues or need assistance with specific questions or investments, a financial advisor can usually be a big help. However, if you want support for developing a comprehensive long-term plan for your finances, you may be better off working with a financial planner.

A financial planner might be the best fit if you:

• Want help developing a long-term financial plan

• Want to gain a comprehensive understanding of how your finances are likely to evolve over the course of your life

• Are going through a major life change, such as getting married or having a baby

• Are nearing retirement and want to make sure you have enough saved

• Need help managing debt, saving for college or creating a budget

• Want to start strategizing about key asset transfers to heirs and other beneficiaries

Alternatively, a financial advisor may be more appropriate if you:

• Are looking for help with a specific investment strategy or decision

• Don’t feel confident making financial decisions on your own

• Have a comfortable financial situation and are simply looking for someone to provide occasional guidance

• Already have a comprehensive financial planner and need someone else to help you use investments and other tools to execute your plan

How to Find a Financial Planner or Financial Advisor

If you’re interested in working with a financial planner or advisor, there are a few things to keep in mind. Follow these tips when choosing a financial advisor or planner to assist with your finances:

• Pick someone who is licensed. Before you decide who to work with, check them out using FINRA’s BrokerCheck tool or the Investment Advisor Public Disclosure database on the Security and Exchange Commission (SEC) website.

• Check the professional’s certifications. You can search for CFPs on the Certified Financial Planner Board of Standards website.

• Make sure they’re a good fit for your specific needs. Ask about their experience, investment philosophy and fees. Be sure to check references and read reviews before hiring someone.

• Understand the relationship. Make sure you are clear on what services the financial planner or advisor will provide and how they will be compensated.

• Know their limitations. Ask questions to ensure you understand the advisor or planner’s approach to managing money. Are there any strategies they can’t help with or products they aren’t able to offer?