Financial Advisor vs Planner: What You Need to Know
You make the decision that you'd like to seek professional financial and investment help.
So, you begin to research financial advisors on the internet and quickly arrive at the same conclusion that most individuals do...
What type of professional do you actually need? A financial advisor? An accountant? A financial planner? An investment advisor? A wealth manager?
Beyond identifying what TYPE of professional you need lies the ultimate question of: How do you know who to trust?
To help you answer many of those questions, here at Peak Financial Planning we have written guides about:
1. How to find and qualify a financial advisor
2. How are financial advisors paid
3. What do fee only, fee based, and flat fee mean
4. The difference between financial advisors and accountants
This guide will help explain the key characteristics and key differences between financial advisors and financial planners.
Table of Contents
The “Too Long Didn’t Read” - What you need to know about the difference between a financial advisor vs planner
What is a Financial Advisor?
Scope of Work
Educational Requirements
Regulatory Oversight
What is a Financial Planner?
Scope of Work
Educational Requirements
Regulatory Oversight
What you need to know about the difference between a financial advisor vs planner
For years the financial advice industry has been primarily the “investment management” or “wealth management” industry.
The word “advice” in the professionals title was mostly incidental, as truth be told, most financial advisors do not provide high quality financial advice.
Rather, most financial advisors were “asset gatherers” more focused on convincing clients to move investment and retirement portfolio’s over to their broker dealer (employing “bank”) when they could/should have been giving high quality financial plans and advice to their clients.
It was easier to continue to grow their business if they could move the investment money over, charge a 1% fee into perpetuity, without providing the real grunt work of financial models, recommending behavior change, evaluating the consequences of future financial decisions.
This is where the Financial Planner (or better yet the Certified Financial Planner) comes into play.
A growing subset of financial advisors were dissatisfied with the transactional nature of the “asset gathering” strategy and wanted to provide comprehensive financial planning to their clients so that they could better advise the client with regards to their retirement portfolios and investments.
Most financial advisors would never discuss nor provide qualified advice about things like the clients required savings rate to meet goals, the clients optimal social security claiming age, the clients glide path to medicare (to avoid IRMAA surcharges), or produce financial models to help evaluate the impact of a home purchase (first time, vacation, or investment) on the clients retirement outcomes.
Certified Financial Planners and financial planners in general do exactly those things.
They build financial models, interview their clients to understand their level of financial education, how they make money decisions, what they feel good about and what they fear.
The financial planner then uses that data to inform the financial advice and ultimately investment recommendations they give to clients.
This brings a natural synergy that should be the industry standard (but sadly is not) to the work of giving FINANCIAL ADVICE while also MANAGING RETIREMENT INVESTMENTS.
Working with a certified financial advisor vs planner who does not provide financial planning before making investment decisions would be just the same as going to the doctor with an ailment and the doctor then prescribing medication without doing ANY DIAGNOSTIC EVALUATION WHATSOEVER.
That would never fly in the medical profession - so why should it be appropriate in the financial services world?
The moral of the story - financial advisors that also operate as financial planners and provide comprehensive financial planning services to supplement their investment advice is the gold standard and should be the only method considered by a consumer looking to achieve the best outcomes with their retirement assets.
What is a Financial Advisor?
Scope of Work
Financial advisor is a title that refers to the broad range of professionals that help individual investors manage their money.
In exchange for a fee, the advisor will help you with a range of money related decisions and tasks.
It's extremely important to note however, that a very WIDE range of professionals fall under the category of financial advisor. On top of that, not all financial advisors will be proficient in all areas of "financial advice".
The catch all title of financial advisor could include:
1. Insurance agents
2. Some accountants
3. Annuity professionals
4. Investment managers
5. Financial Planners
6. Wealth Advisor
Financial advisors will also provide services and advice on a wide range of topics such as investment planning, insurance needs, tax planning, and retirement planning, and estate planning (among others).
Because the title "financial advisor" is so broad, it can at times be difficult to figure out what type of financial advisor you actually need.
To cut through the clutter, we've created a guide that will help walk you through qualifying and finding the right fiduciary financial advisor for your needs.
Watch the video here to learn more.
Educational Requirements
To become a financial advisor, individuals must pass the FINRA series 65 license examination. Most financial advisors will also hold a FINRA series 7 license, and many will have a state insurance license.
While these three are the most common (and the minimum required), many financial advisors may also have one or several of 100+ other licenses and credentials available to financial professionals.
Regulatory Oversight
Financial advisors are regulated by two or three governing bodies depending on the size of their business and how they are employed.
FINRA, or the financial industry regulatory authority, is a "government-authorized not for profit organization that oversees U.S. broker dealers." They regulate licenses, credentials, and provide online verification of financial advisors.
FINRA provides an online database, FINRA BROKERCHECK, where any registered financial advisor can be found. Information about their credentials, time in business, client complaints, and disciplinary action can be found with 1 click via that database.
All consumers should cross reference financial advisors they currently work with or are interviewing in the FINRA BROKERCHECK database to verify that the advisor represents themselves accurately and honestly.
In addition, depending on the size of the financial advisor's business, they will also be registered either with the state within which they reside OR the Securities and Exchange Commission (SEC).
Any search done via BROKERCHECK will alert consumers as to where their financial professional is registered.
What is a Financial Planner?
Scope of Work
Financial planners are a TYPE of financial advisor in the same way that a basketball player is an athlete, but not all athletes are basketball players.
Specifically, in exchange for an agreed upon fee, a financial planner will help individuals or businesses craft a strategy to achieve client's financial goals.
The written detailed strategy is called a financial plan, and will ideally be a thorough roadmap that helps clients successfully navigate financial matters and their financial life.
Some financial planners will craft the plan and then delegate future financial decisions to the consumer, while other financial planners will do more of the heavy lifting by assisting in the implementation of that plan.
Some financial planners will perform investment management, sell insurance, or procure annuities, while other financial planners may only do one or none of those activities beyond the crafting of the long-term strategy...
Financial advisors who perform financial planning activities are still a minority in the industry.
Much more common are financial planners who also perform the investment management function that financial advisors perform.
If you are looking for both a longer-term strategy AND the investment management functions to pair with that, a financial planner will more likely perform both functions under one roof.
We encourage you to watch our video guide to learn more about the financial planner vs financial advisor landscape and how to make the most informed decision for you.
Educational Requirements
According to FINRA, nearly anyone can claim to be a financial planner. They may have many financial credentials or none at all depending upon where they work and in what capacity they serve.
If they do provide investment advice, they will need to hold the Series 7 and Series 65 licenses.
If they provide insurance or annuity procurement, they will need to hold insurance licenses.
The gold standard credential for financial planners is the Certified Financial Planner (CFP) designation.
Certified financial planners must pass rigorous coursework, testing, and work history standards before earning the right to use the designation.
In addition, the coursework that Certified Financial Planners complete provides them a wider range of expertise that can be applied to a broader range of consumer needs.
Regulatory Oversight
Similar to the function that FINRA performs for US Broker Dealers, the Certified Financial Planner board provides oversight and verification for financial planners.
When researching the authenticity and credentials of a financial planner, it is wise to run the planner and their business through both FINRA BROKERCHECK and the CFP database.
As with all things, the higher educational and licensing required in order to obtain the CFP designation is a good but not flawless indicator that the financial planner in question will be capable and trustworthy.
Just because a financial planner is not found via the CFP database does not mean they will not be a good financial planner for you.
You should combine your online screening with personal interviews in order to select the right financial planner or financial advisor for you.
Financial Advisor Vs Planner: FAQs
Is there a difference between a financial ADVISOR, financial ADVISER, and personal financial advisors?
The short answer is no. These are just different versions of the same name: Financial advisor.
They will perform the same functions, be regulated by the same organizations, and generally charge consumers in the same manner.
Where do Financial Planners and Financial advisors work?
Financial advisors and financial planners work at:
~ US Registered Broker Dealers such as Fidelity, or Charles Schwab
~ Large bank investing arms such as Wells Fargo or JP Morgan Chase
~ Insurance companies such as Ameriprise Financial, Northwestern Mutual, or Prudential
~ A closely held wealth management firm
~ Closely held investment firms
~ A registered investment advisor such as Peak Financial Planning
Is a financial planner considered a financial advisor?
In most cases a financial planner is considered a financial advisor, but the other way around is not necessarily true.
Please reference the FINRA brokercheck database if you unsure if your financial planner is a financial advisor or vice versa.
Do I need a financial advisor or a financial planner?
This is a difficult question to answer.
Every investor will have their own unique needs, personality traits, levels of comfort with risk among other things.
A good financial advisor or financial planner will help you identify your needs in advance of requiring a working agreement.
If the professional in question is not helpful in that regard, that could be an early indicator not to work with that individual.
At Peak Financial Planning, we are fee-only fiduciary financial advisors and Certified Financial Planner professionals.
We generally recommend limiting your search of both financial advisors and planners to those that have a fiduciary duty, are fee-only, and work independently or with smaller closely held firms.
This combination of factors will help limit the conflicts of interest that are rampant in the industry.
How much does a financial planner cost?
This is a complex question that requires a thorough answer. The short answer is that the cost can range anywhere from $1,000 - $10,000 depending on the scope of work, whether the financial planner is advising clients on complex matters, whether the finance professional is managing investments, insurance planning, among other things.
You can read our more comprehensive guide explaining how much financial planners cost here.
How much does a financial advisor cost?
Unsatisfactory, I know, but the answer is the same as the above. Most financial advisors charge AUM fees, also known as Assets Under Management fees that are determined by the quantity of managed assets.
AUM fees range from 0.50% to as high as 2% depending on the advisor or company they work for.
We recommend reading our more comprehensive guide to financial advisor compensation here.
How do I find a qualified and trustworthy financial advisor or financial planner?
You can begin by watching this short video guide here.
Asking for referrals will always be a good starting point.
Several financial advisor trade organizations provide screening services such as:
~ National Association of Personal Financial advisors
~ Financial Planning Association
~ Certified Financial Planner Lets Build a Plan Directory
Even with all those tools, we always recommend screening people through the FINRA BROKERCHECK database as well.
Summary: Suggestions for qualifying and selecting a financial advisor or financial planner
Watch this video guide that we have put together to help with this process.
Plan to do comprehensive research. Make use of the myriad of online tools that can help you verify the information that different professionals put in front of you.
Know what questions to ask advisors or planners when interviewing them. You can find our suggested list of 10 questions to ask all advisors here.
Ask pointedly and look carefully at how the advisors you are recommended charge.
Talk to advisors personally and make sure you have a "personality" and values based fit.
If you found the information above helpful, click here to watch my free Masterclass training that explains how you can increase your income in retirement by up to 30% and avoid running out of money in retirement.
