Even if you understand every tax law and investment strategy out there, it’s always helpful to get support from an expert. Luckily, there are plenty of financial professionals eager to offer their counsel. In fact, the Financial Industry Regulatory Authority (FINRA) defines 183 professional designations on its website. Some titles are more generic while others require specific experience and educational qualifications. Financial advisors and financial planners are two of the most popular titles.
These titles are often used interchangeably, but they actually refer to different capabilities and offerings. Make sure you know what services you need before you find someone to help — and that the person you hire can meet your needs. SmartAsset can helps you find a financial advisor who is right for you with our free financial advisor matching service.
Financial Planner vs. Financial Advisor
Put simply, a financial advisor refers to anyone who helps clients manage their money. Think of it as an umbrella that other terms fall under. 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.
Like a financial counselor and a private wealth manager, a financial planner is one type of financial advisor. A financial planner specializes in creating a comprehensive plan to help you achieve your long-term goals. 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 funding planning.
Financial advisors and a 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 planner (CFP) or chartered financial consultant (ChFC). These financial certifications prove that the advisor has the requisite education and experience in financial planning.
Should I Get a Financial Advisor or a Financial Planner?
Everyone has a unique financial situation and thus different needs. You should determine your needs before you decide what kind of financial advisor to work with. That way, you can figure out if they’re a good fit for you before you even meet them. 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 clients’ best interests. They must follow the Board’s code of ethics and conduct, meaning they must always provide advice based on your best interests instead of their own. You can go directly to the CFP website to find an CFP near you or to verify an advisor’s certification.
Financial Planner vs. Financial Advisor: Cost Difference
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. Most financial advisors and planners will charge between $1,500 and $2,500 for a full financial plan, $300 to $500 by the hour or 0.60% to 1% of managed assets for ongoing work. However, these are just estimates and costs will vary.
The 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.
Remember that advisors are hired to give advice and make recommendations. You make the final decision on who you hire, and you’re free to keep asking questions until you’ve come to a decision you’re comfortable with. If your first choice isn’t the right fit, you can always hire a different advisor.
Tips for Finding a Financial Advisor
- Ask for recommendations. Ask friends and family members in similar financial situations and life stages for recommendations. Our financial advisor matching tool can match you with as many as three financial advisors in your area in just a few minutes. All you have to do is answer about 20 questions about your financial situation. Then you can check out their profiles, interview them on the phone or in person and choose who to work with in the future.
- Look carefully at the fees. Advisors have different fee structures and charge different amounts 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 can also earn commissions from selling products, like insurance polices.
- Consider an advisor’s certifications. As mentioned above, many financial planners hold certified financial planner (CFP) or chartered financial consultant (ChFC) designations. Advisors can also specializes in areas like divorce, estate planning or retirement planning, while others have expertise in tax planning or insurance planning. Be sure to choose a financial advisor who excels in the area you need help in.
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