While the services of financial advisors and financial planners often overlap, they each have distinctive areas that they tend to focus on. Many financial advisors offer financial planning, but financial planners only work within that area. On the other hand, financial planners are often less investment-centric, whereas financial advisors can offer a balance between investing and financial planning.
If you are looking for financial advice, SmartAsset’s free matching tool can help you find a financial advisor who serves your area.
What Is a Financial Advisor?
A financial advisor refers to anyone who helps clients manage their money. Advisors may specialize in investment management, estate planning, retirement planning, insurance, debt repayment, tax planning or any other aspect of the financial industry. They might even help you with each of these things.
Advisors may also cater to certain income levels. Ultra-high-net-worth individuals may want to consider working with a private wealth manager, while someone struggling to get out of debt may prefer the help of a financial counselor.
Financial advisors and financial planners may hold different certifications and licenses. Financial advisors who help manage investments or buy and sell stocks typically must hold a Series 65 securities license. Advisors that provide financial planning are often either a certified financial planners (CFP) or chartered financial consultants (ChFC). These financial certifications can help prove that the advisor has the requisite education and experience in financial planning.
Is a Fiduciary Better Than a Financial Advisor?
Financial advisors are typically registered with either the Securities and Exchange Commission (SEC) or a state authority. This is because they are closely monitored on their recommendations through something called a fiduciary duty. In other words, the terms financial advisor and fiduciary are essentially interchangeable.
So a fiduciary isn’t better than a financial advisor because typically all financial advisors adhere to this fiduciary duty. If they violate that duty then you’ll typically see this show up on their Form ADV under disclosures with details of what happened.
What Is a Financial Planner?
Like a financial counselor and a private wealth manager, a financial planner is one type of financial advisor, though they don’t have to be. A financial planner specializes in creating a comprehensive plan to help you achieve your long-term goals. In many cases, they also help manage your investments, but that doesn’t have to be the case.
Like a financial advisor, a financial planner will assess your current situation and make recommendations on what you can do to improve it. A financial planner may also have certain areas of expertise, such as retirement planning or education planning.
Costs of Financial Planners vs. Financial Advisors
Before hiring a financial planner or financial advisor, make sure you understand what you’re paying for. It can be challenging to figure out what advice you need, but it can be even tougher to know if you are getting it at a fair price.
Unfortunately, there’s no one-size-fits-all cost for financial advisors or financial planners. The cost will depend on a few factors, like how the individual advisor or planner is compensated and whether they will provide their advisory service on an ongoing basis. Because of that, we can’t generalize that one will be more expensive than the other.
Advisors are generally compensated in one of three ways: fee-only, fee-based or by commission. Fee-only advisors only make money based on the services they provide to clients.
Advisors paid by commission earn money based on the specific financial services or products they sell, usually through another company. Fee-based advisors charge an upfront fee for their services and also earn a commission for any financial products they sell. If you want to avoid the constant sales pitches and the potential for conflicts of interest, you should choose a fee-only professional.
Many planners and advisors that provide ongoing service charge a percentage of the assets under their management. Some advisors may also charge a flat rate or hourly fee. According to a 2021 study by Advisory HQ, financial advisors and planners charge, on average, between $7,500 and $55,000 for a full financial plan, $120 to $300 by the hour or 0.59% to 1.18% of assets for ongoing investment management.
Financial Advisor vs. Financial Planner: What’s the Difference?
Everyone has a unique financial situation and thus different needs. You should determine your needs before you decide what kind of financial professional to work with. That way, you can figure out if they’re a good fit for you before you even meet them.
Generally, financial advisors are typically better fits for those looking for help making financial decisions or making investments. Financial planners, on the other hand, are a better fit for someone looking to map out their financial goals and make a long-term plan. Advisors can help with all of your financial needs, though.
Ideally, you’d find someone who has experience working with clients in situations similar to your own. Ask family, friends and coworkers for referrals and search online. While you’re on the lookout, remember that “financial advisor” and “financial planner” are broad categories.
It’s the certifications that you’ll want to pay attention to. If you want to work with a financial planner, you should look for a CFP. Certified Financial Planners must complete relevant coursework in financial planning and pass a rigorous examination. The exam ensures that they can apply their education to financial situations. They also must have at least three years of full-time financial planning experience.
Most importantly, certified financial planners have a fiduciary duty to work in their client’s best interests. They must follow the CFP Board’s code of ethics and conduct, meaning they must always provide advice based on their best interests instead of their own. You can go directly to the CFP website to find a CFP near you or to verify an advisor’s certification.
What Is Better Than a Financial Advisor?
When looking for financial help, it’s difficult to find someone that is going to be more helpful than a financial advisor or planner because the terms are so broad. You can usually find a financial advisor to cover almost any type of financial advice or expertise that you need for nearly any situation. There are some wealth management advisors that focus exclusively on very high-net-worth individuals, but even they are often classified as financial advisors.
Instead of focusing on the title or role a particular advisor possesses, it’s important to focus on the services they offer, the certifications they have obtained, and what their experience level is for what you need. This will help you find the right firm or individual that can help you with your unique situation.
Bottom Line
Once you’ve made the financial planner vs. financial advisor decision, you’re ready to start searching. Narrow down your options to a few good candidates, develop a list of questions to ask them and then schedule meetings. Ask about their training, qualifications, typical clients, fee structure, investing approach and the services they can provide. Check their disciplinary record and references to make sure they’re in good standing. An advisor should be capable, affordable, transparent and compatible.
Tips for Choosing a Financial Advisor
- Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Look carefully at the fees that the financial advisor you’re looking at charges. Each advisor has a different fee schedule for their services. For instance, fee-only financial advisors only earn money from the fees they charge clients for their advisory services. Fee-based advisors, on the other hand, can also earn commissions from selling products, like insurance policies.
- Financial advisors often have advisory certifications, which can give you an idea of the subject matter they’re most proficient in. As mentioned above, financial planners often hold certified financial planners (CFP) or chartered financial consultant (ChFC) designations. Advisors can also specialize in areas like divorce planning, estate planning or retirement planning, while others have expertise in investment management or tax planning.
Next Steps
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