Financial Advisor vs. Financial Planner

Though only 35% of Americans have a financial advisor, the demand for financial advice is growing especially among millennials.

However, confusion often arises about the exact type of professional people seeking financial advice should hire, especially with different finance professionals brandishing different certifications.

For example, do they need a financial advisor or a financial planner? Is there even a meaningful difference between the two or are they just synonyms for the same finance professionals?

Amidst this confusion, it is possible for many to be discouraged and just continue to watch their finances spiral out of control.

To avoid this confusion, we will seek to bring some clarity by considering the differences and similarities between a financial advisor and a planner and the factors those seeking financial guidance must consider in choosing one or the other.

A financial advisor is a finance professional that helps people manage their money.

The term is a broad one that applies to a wide range of professionals that include stockbrokers (who help clients buy and sell securities), insurance agents (who help clients select and register for insurance plans), investment advisors (who create and execute investment strategies on behalf of their clients), estate planners (who create estate plans for their clients), wealth managers (who help high-net-worth individuals manage their money) and bankers (who also provide banking and investment advice).

Depending on the nature of the services they offer, financial advisors can charge an hourly rate (e.g., insurance agent), a flat fee (e.g., estate planners), and an annual fee based on assets under management (e.g., wealth managers and investment advisers). They can also earn commissions when clients purchase a financial product they suggest.

Most financial advisors have a Series 7 License, which is offered by the Financial Regulatory Authority (FINRA). Individuals who offer investment advisory services will also have a Series 65 License in addition to the Series 7 License.

Furthermore, most financial advisors will have certain professional certifications, depending on their area of expertise and the services they offer.

A financial planner is a finance professional that creates financial plans that will help clients achieve their long-term financial goals (including retirement, college education, down payment for a property, asset transfer, among others).

Financial planners often work with clients in a more comprehensive fashion, down to key (and basic) personal finance habits like budgeting, saving, creating an emergency fund, debt management etc. Consequently, they create personalized financial plans that are more holistic and focused on the long term.

They also charge hourly or flat fees. Some financial planners can also provide investment advisory or wealth management services, thereby also charging annual fees that vary with assets under management.

In some rare cases, they also earn commissions from the products they propose to their clients.

Many financial planners (especially those who provide investment management) will also have a Series 7 as well as a Series 65 License.

The Certified Financial Planner™ certification is the most common among financial planners. However, many financial planners often have additional certifications.

The financial planner is primarily involved in helping clients put their finances in order so they can achieve their long-term financial goals.

Now that we have given an overview of both terms, let’s consider their similarities and differences.

Now that we have considered the differences and similarities between a financial advisor and a planner, let’s conclude by considering the factors to consider before choosing one or the other.

If your finances are not yet in order — no budget, no emergency fund, plenty of bad debt, no financial plan — you are better off with a financial planner.

On the other hand, if you already have your finances in order and have a solid financial plan, you might not need a financial planner.

If your needs are very specific, requiring no long-term relationship or continuous advice, a financial advisor might be a better option.

However, if you need someone to guide you on more generic personal financial management issues, a financial planner might be a more appropriate fit.

If you want someone that you can always reach out to at different stages in your financial journey (that is, someone that will grow with you as your financial life progresses), consider a financial planner.

If, on the other hand, you want someone who will work with you on specific issues and be done with it, a financial advisor will be a better fit.

Even after choosing between a financial advisor and a planner, you will still need to decide on which of the thousands of planners or advisors to work with.

One easy way to go about choosing an advisor or planner is to ask for recommendations from your family and friends. This will help you narrow the pool and you can then focus on those who have offered quality service to the people you know and trust.