What Differs a Financial Planner from a Financial Advisor?

Comparison of Financial Advisors and Financial Planners

When someone wants assistance with money management, they frequently see a professional. Financial planners and financial advisors are both professionals who assist clients in managing their finances.

Financial experts come in a vast variety, ranging from accountants and insurance agents to brokers, financial planners, and investment gurus. Though not all financial advisors are regarded as financial planners, all financial advisors are a form of financial planner. The number of credentials that a financial advisor can have exceeds 100.

Financial Planner

A financial planner is a professional who helps individuals and organizations create a strategy to meet their long-term financial goals. Typically, a financial planner will help map out a plan for budgeting, saving, investing, and retirement planning. Although many financial planners assist individual clients through their own practice, they might also work for a bank, wealth management firm, or non-profit organization.

When choosing a financial planner, it’s important to understand the financial planning landscape. According to the Financial Industry Regulatory Authority (FINRA), almost anyone can claim to be a financial planner and they might come from many different backgrounds.1

Financial planners might be brokers or investment advisors, insurance agents, practicing accountants, or individuals with no financial credentials. That is why consumers must perform their due diligence before turning their money over to any sort of financial advisor. Here are some differences between the two terms.

The planner might have a specialty in investments, taxes, retirement, and/or estate planning. There are also different licenses or designations, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), or Certified Investment Management Analyst (CIMA), among others.

To obtain each of these qualifications, the financial planner must complete a different set of educational, examination, and work history requirements.

Financial Advisor

This is a broad term for a professional who helps manage your money. You pay the advisor, and in exchange, they help with any number of money-related tasks. A financial advisor (sometimes spelled “adviser”) might help manage investments, buy or sell stocks, or create a comprehensive estate and tax plan.

If the advisor is working with the public, they must hold a FINRA Series 65 license. In addition to that license, there are many other financial advisor credentials that the advisor might hold, depending on the provided services.

“Financial advisor” as a general term includes many types of professionals, such as stockbrokers, insurance agents, money managers, estate planners, bankers, and more. An investment advisor is a type of financial advisor who specializes in securities.

Advisor vs. Adviser

There are two common spellings for this financial term. U.S. laws and regulations spell out the rules for financial advisers, while many investment firms and media default to the more familiar advisor. Regardless of the spelling, all agree that there is no meaningful distinction between the two terms.

Key Differences

While these two terms often overlap, a financial planner can be viewed as a type of financial advisor. In particular, a financial planner is a professional who helps individuals or organizations achieve their long-term financial goals. These can include planning for retirement, a child’s college education, the down payment for a home, and so on. A financial planner relies on strategic portfolio allocation for investments with relatively long-time horizons, ensuring that expected returns and risk tolerances are in balance.

A financial advisor, on the other hand, is a broader term for somebody who may be involved in not only this type of planning but also other facets of money management or financial products. They may, for instance, provide life insurance, real estate, or accounting services, help place short-term trades, or provide banking services.

Special Considerations

Most individuals who need money help will enlist a financial planner, which is a more specific type of financial advisor. But the decision regarding the "type" of financial planner requires some investigation.

Before hiring a planner to help with your finances, it's important to do your homework and research their credentials, such as whether their licensed and how many years they've been practicing. Be sure to question the planner about their specific training and qualifications, such as whether they specialize in tax or estate planning.

Clients should also understand how the financial planner is compensated and what they will receive in return. For example, is there a one-time fee for the financial review or are there multiple fees every time an investment change or plan update is made?

It's also important to ensure that the advice and investments from your planner match your risk tolerance and long-term financial goals.

Consider developing a list of questions when vetting a financial planner. Finally, check the disciplinary record and references for the planner to ensure that you're receiving the best quality financial guidance.

It's important to note that under the U.S. Department of Labor's new fiduciary rule, all professionals who give retirement planning advice or create retirement plans are held to a certain legal and ethical standard.

Are All Financial Planners Also Financial Advisors?

All financial planners are financial advisors, but not every financial advisor is also a financial planner. Financial advisors may also work for brokers, bankers, or in other areas of the financial industry.

How Can I Find a Trustworthy Financial Planner or Advisor?

You can start by asking around to close friends, family members, or colleagues for recommendations. If your company has a company that manages a retirement plan, they may also be somebody to ask. You can also search the database offered by The National Association of Personal Financial Advisors (NAPFA).

Who Can I Become a Financial Advisor or Planner?

No specific background is necessary to become a planner, although you must pass Financial Industry Regulatory Authority (FINRA) licensing exams if you will be handling customer money. In addition, several professional certifications, such as the Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) designations, will provide extensive knowledge in relevant fields.

The Bottom Line

Financial advisors are a broad category of professionals with different specialties and qualifications. Financial planners are specialists who help their clients with a specific financial need, whether that be estate planning, saving for retirement wealth management, or tax accounting.

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