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When it comes to financial matters, the terms financial advisor and financial planner are often used interchangeably. However, these two professionals provide distinct services. While both offer guidance on investments, taxes, and other financial aspects, financial advisors typically focus on managing investment portfolios, whereas financial planners take a holistic view of an individual’s financial situation and long-term goals.
Understanding the differences between a financial advisor and a financial planner can help individuals choose the right professional to meet their specific financial needs.
Let’s delve into the disparities between a financial advisor and a financial planner so you can determine which one aligns best with your requirements.
What is a financial advisor?
A financial advisor is a professional who provides advice and guidance to individuals or organizations on various financial matters, including investments, tax regulations, and insurance. They assess their clients’ financial requirements and assist them in making informed decisions to build wealth and achieve their financial goals.
It is crucial to note that financial advisors who deal with securities typically need to be licensed or registered with the state to ensure that they meet qualifications and adhere to regulatory requirements that safeguard investors.
What is a financial planner?
On the other hand, financial planners specialize in creating comprehensive financial plans for their clients, considering various aspects such as savings, investments, insurance, retirement, and estate planning. The range of services offered by financial planners can vary 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 they must undergo recertification periodically. Financial planners providing investment advice to clients must register with the Securities and Exchange Commission (SEC) or the appropriate state securities regulator.
Financial advisor vs. financial planner: What’s the difference?
While both financial advisors and financial planners offer financial advice and guidance, there are key distinctions between the two.
- Tasks and responsibilities: A financial planner assists in creating and coordinating comprehensive financial plans, whereas a financial advisor can provide advice on investing money wisely within those plans.
- Fiduciary vs. suitability standard: An essential consideration is whether the individual is a fiduciary. A fiduciary is obligated to prioritize the client’s interests over their own. Financial advisors may operate under the “suitability standard,” which mandates that the decision be suitable – not necessarily the best – for achieving the client’s goals, risk tolerance, and other considerations.
- Compensation: Another factor to consider is how these professionals are compensated. Financial planners may sell commission-based products like life insurance and require a license from their state regulatory agency. Financial planners typically receive payment through a flat fee, commission, or bonus, while financial advisors may be compensated through an hourly rate, commission, a quarterly or annual retainer, a percentage of assets under management, or a combination of commissions and other fees. The costs for both professionals can vary significantly.
When to get a financial advisor
If you need assistance in managing your finances and investments, seeking the guidance of a financial advisor can be a wise decision. This is especially true if you feel uncertain about managing your finances, have a complex financial situation, or are planning for significant events such as retirement, homeownership, or others.
A financial advisor can help you plan for the future by monitoring your portfolio and recommending the best investments that align with your goals. They can also suggest and make adjustments based on your specific circumstances. When selecting an advisor, it is crucial to conduct thorough research and choose one who prioritizes your best interests.
When to get a financial planner
Engaging a financial planner is beneficial when you require assistance in analyzing your income, expenses, assets, and liabilities. Financial planners will collaborate with you to establish financial goals and propose a course of action.
Additionally, a financial planner can offer guidance on investment choices, tax planning, retirement plans, and more. It is essential to seek out a reliable financial planner who possesses the necessary qualifications to provide expert and reliable financial advice.
How to find a financial planner or advisor
Finding a financial planner or advisor may sometimes be challenging, but here are some steps to simplify the process:
- Determine your needs: Identifying your specific needs and financial goals will help narrow down your search for the right person with the appropriate expertise.
- Ask for referrals: Seeking recommendations from friends, family, or colleagues is a reliable way to find someone with a proven track record.
- Research online: Utilize online resources to search for advisors in your locality. If you are looking for a financial advisor, you can use Bankrate’s tool to find a financial advisor in your area.
- Check credentials: Ensure to verify credentials such as education, certificates, and licenses.
Having a well-defined plan in place and working towards measurable goals with trustworthy professionals can pave the way for a successful financial future.
Bottom line
While a financial advisor focuses on managing investments, a financial planner considers all aspects of your financial situation and long-term goals. Whether you require assistance with investments or developing a comprehensive financial plan, it is essential to conduct thorough research and select a reliable professional who has your best interests at heart. By seeking guidance from these professionals, you can set the stage for a prosperous financial future.
— This article was updated with contributions from Bankrate’s Rachel Christian.