Financial advisor vs financial planner: what’s the difference?
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Getting your finances in order is an essential step in taking important steps in life, such as starting a family, building wealth or saving enough for retirement. One proven method is to invest in a knowledgeable financial advisor who can help you navigate the journey and make the best decisions.
A common question is: what is the difference between a certified financial planner and a financial advisor? Here is how they compare.
Are Financial Advisors and Financial Planners the Same?
A CFP is a financial advisor with specialized training that enables them to help clients create a financial plan to achieve a specific goal.
âYou could be a financial advisor without being a certified financial planner, but not a certified financial planner (CFP) without being a financial advisor,â said Cary Carbonaro, CFP Board Ambassador, author and personal finance expert.
Thus, not all financial advisers are financial planners. The Financial Advisors category is a large umbrella that includes planners, insurance agents, brokers, investment advisers, and other roles. Certified financial planners are a specific niche within this broad category.
Read on to better understand what financial advisors and planners do and if you could benefit from it.
What is a financial advisor?
Financial advisers guide clients on matters relating to personal finance, investing and money management. They offer advice on insurance, estate planning, taxes, retirement or education savings, corporate cash management, stocks and bonds.
Typically, financial advisers are paid on commission or paid. Financial advisers are licensed and pass several tests to begin practicing. In some states, there are also regulatory bodies to ensure that they act ethically.
What is a Certified Financial Planner?
âCertified financial planners take care of planning for your future and achieving your goals to get there,â Carbonaro said. âWe look at cash flow, risk management, tax planning, retirement planning, college planning, investing and estate planning. Investments are just one of many areas [we deal with], and we are not fund managers, but rather asset distributors. “
Certified financial planners are trained for a specific job: helping their clients develop a plan to achieve particular financial goals. A CFP will complete all of the basic training and certification of a financial advisor, and then go through a more rigorous curriculum to earn their CFP designation from the Certified Financial Planner Board of Standards.
In contrast, financial advisers are more appropriate if your needs are more comprehensive. Maybe in addition to a financial plan, you need an investment strategy or want advice on choosing the best insurance products. If you fall into this category, you might want to choose a financial advisor who has experience in all of these matters. Alternatively, you can select different professionals for each goal.
Financial Advisor vs Certified Financial Planner: What’s the Difference?
â’Financial advisor’ is a broad term used to describe financial professionals who sell financial products or provide financial advice,â said Charlotte Cowan Geletka, CFP, CRPC and Managing Partner at Silver Penny Financial Planning. âA Certified Financial Planner or CFP is a professional designation that requires rigorous coursework, examination and a fiduciary commitment to best serve the client’s interests. “
In fact, all CFPs must undergo training and obtain a Series 65 Securities License to become a financial advisor. To become a CFP, you must take courses in a program registered with the CFP Board and have a bachelor’s degree from an accredited university. Upon completion of the CFP program, there is an exam which includes multiple choice and scenario-based questions. A CFP is required to complete either 6,000 hours of work experience or 4,000 hours of apprenticeship experience. Finally, there is an ethical commitment to act as a fiduciary with high ethical standards.
A higher and mandatory ethical standard is one of the main differences between financial advisers and financial planners. CFPs must act in the best interests of the client. Some financial advisers, but not all, adhere to the fiduciary standard, while all CFPs are bound by the fiduciary standard.
How to choose a financial advisor or a CFP
The decision of the financial advisor versus the financial planner depends on your particular situation. Proper due diligence is necessary when searching for CFP and financial advisers. You should check their credentials, training, qualifications, fee structure, and services. Here’s an overview of what you should consider when deciding if a financial advisor or CFP is right for you.
If you are looking to improve your finances in general, then a financial advisor is the best option. Working with a financial advisor can also help you identify the next steps to take.
âWhen looking for a financial advisor, the most important things to consider are: what is the scope of the job, how is the advisor paid and will it best help me develop my financial knowledge. and achieve my goals with confidence? ? “says Geletka.” There is a big difference between hiring an investment advisor and getting good financial advice. “
Before hiring an advisor, whether certified or not, you should research the individual and their business through the Financial Industry Regulatory Authority’s BrokerCheck tool. Use it to learn more about qualifications, work history, and most importantly, disclosure events, such as complaints, regulatory actions, and bankruptcy filings.
A financial planner may not be necessary if you have a deep interest in personal finances and are disciplined with your money. It’s similar to renovating a house or repairing a car. Some people can take care of these repairs, but for most people it is best to go to a professional with expertise and successful experience.
If your needs are specific to achieving a financial goal, then a CFP is your best option. CFPs are more focused on optimizing your personal income statement and cash flow in a sustainable way to help you achieve your financial goals over a secure period of time. They can also make sure you stay on track with your goals and make any necessary adjustments. Ultimately, it’s about doing your research to find the best qualified person to meet your needs.
How costs are structured
The costs of financial advisers are structured either as a percentage of total assets, based on a commission, flat rate or hourly rate. Each structure has its own advantages and disadvantages. In contrast, CFPs generally bill on the basis of an hourly rate.
Is it worth paying for a financial advisor?
Yes, paying for a financial advisor is worth it. A good advisor will lead to better results and increase your chances of achieving your financial goals. Look for financial advisors who meet a fiduciary standard, as they are obligated to provide advice in the best interests of the client. Beware of financial advisers who do not charge a fee and are not trustees. Often times they are remunerated by commissions by placing their customers in products that have high fees.
In terms of financial advisers versus financial planners, financial planners are all trustees, so you don’t have to worry about this conflict of interest. Some people consult a CFP to build up savings and then add a financial advisor as their situation grows more complex.
Cynthia Measom contributed to the writing of this article.
This article has been updated with additional reports since its original publication.
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