The world of finance can be a complicated and confusing place. Myriad types of financial professionals offer services to help you with the various aspects of finance that affect your life. If you have wondered whether a financial advisor or an accountant is best for your financial planning needs, this will steer you in the right direction. Although their functions overlap in some areas, they play quite different roles. Financial advisors offer investment advice and create financial plans, while accountants focus on tax advice. Here we explore all that each offers, and which is best for you. SmartAsset also has a tool to help you find a financial advisor.
Financial Advisor vs. Accountant: What Do They Offer
When you hear the term “financial advisor,” it generally refers to an individual, licensed by state regulatory authorities or the Securities and Exchange Commission (SEC), who gives investment advice. Most financial advisors that you hire will help you with retirement planning, estate planning, succession planning, investing, budgeting your money, debt management and much more. They help you put together a comprehensive financial plan and give you investment advice to increase your wealth while keeping your financial goals in mind. In addition to those financial analysts who are generalists and work in all the areas of financial planning, some do specialize in specific areas.
Financial advisors must pass rigorous testing and be certified to work in the field. Two of the most common financial advisors to work with you are the Certified Financial Planner (CFP) and the Chartered Financial Analyst (CFA). Both certifications require passing an exam, working in the field and other advanced requirements that make them experts in their field.
There is crossover in what a CFP and CFA can offer you. A CFP is usually used if you want to develop a comprehensive financial plan including your retirement and estate planning. They are more the generalist between the two certifications. They also offer investment counseling. A CFA has more specialized knowledge in investment management, wealth management, asset allocation, estate planning and insurance. Many of them work as portfolio managers and traders for investment banks.
An accountant primarily assists individual clients with tax-related matters as well as bookkeeping and accounting functions for businesses and individuals. They do not only prepare tax returns for businesses and individuals, but they advise their clients on tax-minimizing strategies. A Certified Public Accountant (CPA) is a step above an accountant. They pass a rigorous professional exam and have extra training, education and work in the field. They are considered subject matter experts. A CPA can do several things that an accountant cannot. They can prepare audited financial statements and they can represent the taxpayer in case of an audit in front of the Internal Revenue Service (IRS). CPAs are often used in tandem with financial advisors on the tax portion of a comprehensive financial plan.
All three of the professional certifications for CFPs, CFAs and CPAs designate the individuals who earn the certifications as subject matter experts. They also are held to a high ethical standard. They have the fiduciary responsibility to make financial decisions for their clients to safeguard their wealth.
Services Provided by a Financial Advisor
Here are five of the major services that a financial advisor can provide:
- Investment Management: A financial advisor can help you develop a comprehensive investment portfolio based on your preference for risk and your time horizon by picking and monitoring the securities you invest in. The advisor will rebalance your portfolio as needed and choose your financial assets wisely.
- Education Management: An advisor can help you plan for the future education of your children through the use of 529 college savings plans or other vehicles suitable for the same purpose.
- Retirement Planning: A financial advisor can help you create a tax-advantaged retirement plan using 401(k)s, IRAs and the securities you should place in them. They can also help you plan your withdrawal strategy from your retirement accounts to make your money go as far as possible.
- Estate Planning: Estate planning includes a wide range of services such as creating a will, a power of attorney, medical power of attorney and trusts. Among other things, they can help you minimize any taxes, estate taxes and possibly keep you out of probate when the time comes.
- Business Management: If you are a business owner, a financial advisor can help you manage your cash flows, prepare your budget, create your financial statements and do a financial analysis of your company. They can also help you invest for your company.
There is an entire range of services that a financial advisor can help you with that will improve your financial life along with these five services. This list is not exhaustive.
Financial Advisor vs. Accountant: Which Do You Need?
If you need your income tax return prepared, particularly if it is complex, you need an accountant. If you need pure tax questions answered, it also may be best to seek out an accountant. You may want to go to a CPA due to their advanced training and ability to represent you in front of the IRS if you are audited.
Taxes are only one part of the equation if you need more comprehensive financial planning. Every financial decision you make is likely to affect every other one. CFPs are well-schooled in advising you on investing, retirement, estate planning and more. CFAs are for those needing advanced investment advice and risk management. The CFP designation is more common for these needing comprehensive financial plans. They offer the broadest range of services. A CPA can be added to the team if tax planning or preparation demands it.
The Bottom Line
Check the credentials of anyone you are thinking about hiring as a financial advisor. Chances are, you will be most satisfied with a CFP with a CPA as a backup for any tax questions. Even if you are an experienced investor, you may not be experienced in other areas of your financial life. A financial advisor such as a CFP and an accountant or CPA are not interchangeable. They both have areas of expertise they will use to the best of their ability, due to their fiduciary responsibility, to maximize your wealth while minimizing your taxes, fees and other costs.
Money Management Tips
- Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to see the impact of your monthly savings on your retirement savings, use SmartAsset’s retirement calculator.
- Would you like to know what an investment will be worth on some future date? Use SmartAsset’s investment calculator to help you out.
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