CPA vs. Financial Advisor: Which Do You Need?

A certified public accountant (CPA) can help you minimize taxes, while a financial advisor can help you invest and grow your wealth. A CPA is one type of finance professional who focuses on tax issues and proper accounting procedures. There are other professional designations for financial advisors depending on their specialty. Some advisors are generalists while others have special expertise in a particular area of financial management. Deciding to work with a CPA or financial advisor ultimately comes down to the type services you require.

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What Is a Certified Public Accountant (CPA)?

CPAs have earned the professional designation of certified public accountant through a combination of expanded education, experience and state licensing. A CPA is particularly important to individuals because they provide advanced taxation services along with advanced accounting and some financial planning.

CPAs have attestation powers and can perform auditing functions. They can represent you in front of the Internal Revenue Service (IRS) if you are audited. For businesses, CPAs also provide expanded taxation and auditing services. In addition, they help companies manage their money, taxes and investments in a manner specified by laws and regulations.

CPAs help drive the financial reporting and advisory services in business and industry to foster growth and success.

Qualifications for the CPA Designation

The Association of International Certified Public Accountants (AICPA) sets the standards and qualifications for the CPA professional designation. Each state has a Board of Accountancy that sets the specific standards for the state.

In general, you must have 150 extra hours of either undergraduate or graduate education. You have to have from six months to two years of experience working in public accounting depending on the state you live in. After that you sit for a four-part exam, each part requiring four hours to complete. You must pass all four parts within an 18-month period.

The four parts of the CPA exam are attestation and auditing, financial accounting and reporting, regulation and business environment and concepts. CPAs also have to complete 40 hours of continuing education requirements each year and conform to strict ethics requirements as stated by the AICPA.

What Is a Financial Advisor?

Financial advisors assist individuals with investment planning and management. Many of them can also assist with financial planning and wealth management.

Financial advisors can have a number of different specialties, or they can be generalists, and each has professional credentials. Some financial advisors have apprenticed at investment firms and have gained their education and experience in that way. Usually, a financial advisor will have a degree in finance or a related subject from a four-year college or university. In addition, they may have one of the professional certifications for financial advisors. They range from a more general certification, like the professional certification of Certified Financial Planner™ (CFP®), to more specific certifications focusing on a particular area of financial planning.

An alternative type of financial advisor is the wealth manager. Wealth managers, usually affiliated with investment firms that only manage money for high-net-worth clients, are charged with making decisions and developing financial plans that will increase their clients’ wealth. Wealth managers usually require the client to have a minimum dollar amount of assets to invest before they take them on as a client. The minimum amount can range from the low five figures to several million.

Licensing for Financial Advisors

Financial advisors can only give investment advice or trade financial assets on your behalf if they are licensed and have passed the Series 7 and Series 63 exams.

The Financial Industry Regulatory Authority (FINRA) oversees the Series 7 and Series 63 exams. FINRA is a non-governmental organization that protects investors by writing and enforcing rules for stockbrokers, dealers and the exchange market. They make sure that investors are not subject to fraud or poor investment choices by investment professionals. FINRA works with the Securities and Exchange Commission (SEC) to ensure financial markets are as fair and safe as possible and that financial advisors put your needs above their own.

FINRA administers the Series 7 exam which is required to trade securities in the financial markets except real estate, commodities futures and life insurance. It is the entry-level securities license and most crucial. The Series 63 exam is the exam administered by the North American Securities Administration Association. It is the individual state exam for the state in which you work. The Series 66 exam, connected to the Series 7 exam, grants a financial advisor the right to work in the U.S.

Responsibilities of Financial Advisors

The responsibilities of a general financial advisor like a CFP include, but go beyond, investment management. Financial needs change as life circumstances change. The CFP is responsible for developing financial plans that are fluid and change as the circumstances of their clients change.

Financial plans include everything from a plan to pay off student debt to saving and investing to retirement and estate planning. If someone needs more help in investment management, a CFA may be more appropriate. If a client needs help with specific areas of financial planning, then a financial advisor with one of the more specific designations might be best.

Financial advisors should be fiduciaries. Fiduciaries are representatives of your needs as a client. They are charged with ensuring that your needs come first over the needs of the financial advisor even if they get commission from the products they sell. In addition to their fiduciary responsibilities, financial advisors holding one of the professional designations have a code of ethics they must follow similar to that for the CFP. They also must include ethics as a part of their continuing education.

CPA vs. Financial Advisor: Which Do You Need?

The choice between a CPA and a financial advisor depends largely on the type of financial assistance you require. If your primary concerns involve taxes, such as preparing tax returns, handling audits, or addressing complex tax situations, a CPA is the right professional to consult. CPAs are experts in accounting and tax law, and they can also provide guidance for businesses or individuals managing intricate financial records.

On the other hand, if your focus is on long-term financial planning, investment strategies, or retirement savings, a financial advisor may be a better fit. Financial advisors specialize in wealth management, helping clients allocate assets, plan for future goals, and navigate financial markets. In some cases, both professionals can complement each other’s services.

For example, a CPA can address tax implications while a financial advisor ensures your investments align with your goals. Evaluating your financial situation and goals is the key to deciding which professional is best suited to meet your needs.

Bottom Line

Ensuring the health and proper management of your financial life is one of the most important steps you can take to secure your future. Financial advisors and CPAs are often necessary for both businesses and individuals, as the two financial professionals are used for different services. It’s up to you to decide which one makes the most sense for your given financial situation.

Tips For Handling Your Money

Financial planning isn’t easy on your own, and a financial advisor may be able to help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with 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.
Investing is a key part of properly handling your money, and SmartAsset wants to make sure you have the right resources at your disposal to answer your questions. Are you worried about capital gains taxes on your stocks if you need to sell? Try using SmartAsset’s capital gains calculator to see what impact taxation in your area will have.