You may assume financial advisors and financial planners are one and the same, but that’s far from the truth. So, what’s the difference between financial advisors and financial planners and how do you know which one is right for you?
What is a financial advisor?
A financial advisor is a financial professional that manages your money. Financial advisor is a general term that describes many different types of financial experts. These sublets may include brokers, insurance agents, investment advisors, bankers, and more. From wealth management to estate planning, different financial advisors can specialize in various money-related tasks.
There are many different credentials and licenses financial advisors can hold. For example, if a financial advisor wants to recommend investments to the public, they must carry a Series 65 license. This designation tests the professional’s comprehension of ethics, regulations, and other financial topics such as portfolio management and fiduciary responsibilities.
Financial advisors come in all shapes and sizes with an array of experience and expertise.
What is a financial planner?
A financial planner is a type of financial advisor. Financial planners create comprehensive financial plans to help you achieve your short-term and long-term goals. They review your current situation and make suggestions for your future financial well-being.
Financial planners may also specialize in investments, tax planning, retirement, wealth management, and more. They may also have different designations or credentials that demonstrate their level of experience and knowledge.
Which one is right for you?
Selecting a financial advisor or financial planner can seem daunting and overwhelming. There are hundreds of designations, certifications, licenses, and specialties you can choose from. How do you determine what’s right for your financial needs? Which financial advisor will best serve you and your family?
Everyone has a unique financial situation. It’s important to select a financial advisor that can relate to you and guide you through your financial journey. You want a financial advisor who has experience working with clients similar to your situation. This experience gives them a strong foundation to provide the appropriate advice for your individual circumstances.
Designations and certifications may also hold value to you when making your decision. Certain designations require a lot of course work, experience, and application of knowledge in order to practice. These designations may increase your confidence in your financial advisor’s ability to provide advice and wealth management guidance.
Defining the cost difference
Cost may also be an important factor when selecting a financial advisor or financial planner. Understanding how your financial advisor is compensated will help you understand what you’re paying for. It can be complicated to decode a fair price for the advice and services you’re given.
Financial advisors are compensated in many ways such as fee-only, fee-based, or by commission. Fee-only advisors are compensated based on the services they provide their clients. Commission advisors make money on the products or services they sell. They are generally compensated through other financial institutions.
Lastly, fee-based advisors can charge an upfront fee on services provided and may earn a commission on additional products or services sold.
It’s common to see a lot of financial advisors charge a continuous flat fee based on the percentage of assets under management. They may also charge a fee for completing a financial plan. Keep in mind, fees and commissions may vary by financial advisor.
How to find the best financial advisor or financial planner to suit your financial needs
Now that you understand the difference between financial advisors and financial planners, what are the best steps to take to find the right one for you? Before you make a decision on a whim and fall head over heels over a specific advisor, here are a few tips for identifying a suitable financial professional for your needs.
Ask for recommendations from friends and family
Who do you trust more than your loved ones? Many of your friends and family may be in similar financial situations. They may be able to provide suitable recommendations to coincide with your financial circumstances. Asking your friends and family for recommendations is a great place to start when choosing the best financial professional for your needs. They can point you in the right direction and help you begin your search.
Review the fee structure
Before you partner with an advisor, you want to make sure you understand their fee structure. Their fee structure can also help you determine if they have your best interest in mind when making recommendations for your financial plan.
For example, you may feel more comfortable paying a flat fee instead of commissions on financial products sold.
Consider designations and certifications
As stated above, certifications can help you determine the experience and expertise of certain advisors. All designations and certifications have different requirements and standards to uphold. Make sure you understand what each designation means and how it applies to your financial situation.
Research advisor’s background
What would you do if you found out your financial advisor had been tiptoeing around the law for years? Would you feel betrayed and lose faith in the financial industry as a whole? Do your research and make sure you review your advisor’s background. You can review an advisor’s disciplinary history on the Financial Industry Regulatory Authority’s site.
Determine if they have experience working with clients in similar financial situations
How can a financial professional guide you if they have no experience working with other clients with similar situations? You want to work with someone who understands you and your financial needs. If you are 10 years away from retirement, you will want to work with someone who has experience working with pre-retirees.
Advisors with this experience will know the right questions to ask and how to properly plan a comfortable retirement. They will be able to see the bigger picture and help you develop a plan of action for you to achieve your retirement goals.
Work with someone you understand
Financial lingo can be confusing and leave you feeling insecure if you don’t understand the concepts being discussed. That’s why you want to work with someone who can speak your language. An ideal financial guide will be someone who can explain concepts in terms you understand.
The bottom line
Understanding the difference between financial advisors and financial planners can help you better select a professional to suit your needs. Don’t be afraid to ask questions and meet with several different candidates before selecting an advisor to help you reach your financial goals.
Choosing a financial advisor is a big financial decision. Take your time and do your research to ensure you find someone who can become more than your advisor, choose someone who can become your trusted friend.