Financial Advisor vs. Financial Planner

If you want to up your financial literacy game and increase your net worth, turning to a financial advisor or financial planner could be a good move. How are these two types of financial professionals different, and which is best for you? 

Financial advisors (also called investment advisors) and financial planners are financial professionals you can hire to help you manage your money and your financial life. Financial advisors generally focus on the actual dollars you invest with them, and planners aim for a comprehensive approach to all aspects of money management, including cash flow, education planning, insurance, taxes, investing, retirement plans, 401(k) plan advice, estate concerns, debt and financial behavior. Both are useful; learn more about them here.

What is a Financial Advisor?

A financial advisor manages client investments. They may also offer some forms of general financial planning, but their primary aim is to invest the assets under management (AUM) of their clients. Some financial advisors (broker-dealers) earn commissions on the products they sell, while others charge a flat fee or a percentage of the assets they manage (Registered Investment Advisors (RIAs)). To become a financial advisor, individuals typically need a bachelor's degree in finance, economics or a related field and pass one or more exams offered by the Financial Industry Regulatory Authority (FINRA).

What is a Financial Planner?

A financial planner helps clients create and implement comprehensive financial plans to achieve their short-term and long-term financial goals. They take many aspects of their clients' financial lives, such as income, expenses, debt, investments, insurance, taxes and estate planning into account. They may provide guidance on budgeting, saving, investing, risk management and retirement planning. Financial planners use their broad knowledge base and collaborations with other professionals, such as accountants, attorneys or insurance agents, to ensure their clients receive comprehensive and coordinated financial advice. 

Financial Advisor vs. Financial Planner: Key Differences

While the terms financial advisor and financial planner are often used interchangeably, the two roles carry differences.

Scope of Services 

Financial advisors typically focus on providing investment advice and managing clients' portfolios, while financial planners take a more comprehensive approach, addressing various aspects of clients' financial lives.

Primary Focus 

Financial advisors prioritize helping clients choose and manage investments, while financial planners emphasize creating and implementing holistic financial plans tailored to clients' specific goals and circumstances.

Products and Services

Financial advisors may be more likely to recommend specific financial products, such as mutual funds or insurance policies, whereas financial planners may provide more general guidance and strategies.

Compensation

Financial advisors often earn commissions on the products they sell or charge a percentage of the assets they manage. Financial planners may charge a flat fee or an hourly rate or, if they operate in conjunction with a financial advisor, as part of the AUM fee.

Regulatory Oversight and Certifications

Financial advisors are subject to regulations. Financial planners may not be, especially if they are not certified by agencies like the Certified Financial Planner (CFP) entity.

When to Get a Financial Advisor

If you feel as if you have your arms around most aspects of your financial life but have money you want to invest, a financial advisor can help with things like:

• Investment products
• Risk management support
• Asset allocation
• Retirement accounts and bank accounts
• Making the most of a life change such as marriage, divorce, a baby, a new job or an inheritance

Some financial advisors offer financial planning services as part of their fees or as a separate paid service.

When to Get a Financial Planner

Hiring a financial planner can be a smart move when you need comprehensive guidance on managing your finances and working towards your long-term financial goals. Some situations where it may be particularly beneficial to hire a financial planner include times when you're establishing or refining your financial goals, facing complex financial challenges or experiencing a major life event.

How to Find a Financial Planner or Advisor

Once you’ve narrowed down the type of financial professional you need, how do you find them? Here are some things to consider.

Steps to find a financial planner or financial advisor include :

1. Identify your financial needs and goals: Before you start your search, determine your financial objectives and challenges and the type of guidance you seek. 
2. Understand the different types of financial professionals: Familiarize yourself with various financial professionals, such as CFPs, Chartered Financial Analysts (CFAs) and RIAs.
3. Ask for referrals: Reach out to friends, family members or colleagues who have previously worked with financial planners or advisors. 
4. Research potential financial advisors online to verify credentials and check for disciplinary actions: Once you have a list of potential financial advisors, research their backgrounds, qualifications and experience. Look for information on their websites and social media profiles and through professional organizations such as the CFP Board or FINRA. Before making a final decision, verify the advisor's credentials and check for disciplinary actions or complaints against them. You can do this through the CFP Board, FINRA's BrokerCheck, or the U.S. Securities and Exchange Commission's (SEC) Investment Adviser Public Disclosure database.
5. Schedule an initial consultation: Most financial planners and advisors offer complimentary initial consultations. Schedule an in-person or virtual meeting to see if you and the professional are a good fit. If you don’t like the person, move on.
6. Ask about fees and compensation: Understand how the financial advisor is compensated, through commissions, a percentage of assets under management or a flat fee. They should directly answer the question “How much do you make from managing my money?” For example, if you invest $200,000 of AUM with a financial advisor and charge a 1% annual fee, they should tell you their fees will be about $2,000 yearly. If the financial planner charges by the hour, get an estimate of how many hours they think it will take and set a not-to-exceed limit; if the planner charges $100 per hour and thinks your plan will take 4 hours, set a $600 limit to make avoid high fees for an initial underestimate.
7. Choose the advisor or planner who best fits your needs: Based on your research, consultations and overall impression, make a choice based on who you believe is best suited to help you achieve your financial goals and with whom you feel most comfortable working.
8. Sign a contract: The financial professional should create a detailed contract outlining their services and costs. Read it and make sure you understand what you are signing. To verify fees, you can go into the FINRA IARD advisor search and look up the financial advisor's Form ADV Part 2 Brochure.

The Unique Value That Financial Advisors and Financial Planners Can Offer

Hiring the right financial professional to help you reach your financial goals boils down to the kind of need you’ve identified. Generally, if you’ve got money you’re trying to grow, using a financial advisor to guide your investments is just the ticket. If your needs are more comprehensive or you want to get answers to many aspects of financial safety, you’ll probably want to contact a financial planner. Both professionals are trained to help you do the best you can with your money.

Frequently Asked Questions