What is a Financial Planner?
When it comes to managing your finances and securing a stable financial future, it may be helpful to seek out professional advice. Financial professionals go by many titles; there are financial planners, financial advisors, financial consultants, financial coaches, asset managers, and wealth advisors, just to name a few. The services offered to clients and how they charge clients can differ greatly. These titles can actually be pretty broad and generic, and that means finding a financial professional is a bit more nuanced than just picking someone who is a financial advisor, financial planner, or financial fill-in-the-blank. A common question I see being asked is "What is the difference between a financial planner and a financial advisor?", I don't think that is a very meaningful question; keep reading to find out why. Read on to discover the differences between those calling themselves financial planners. Hopefully, you'll also pick up some helpful ideas on what to consider if you are looking for a financial planner.
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What is the Difference Between a Financial Planner and a Financial Advisor?
The terms "financial planner" and "financial advisor" (or "financial adviser"; there are two spellings) are often used interchangeably. Some say that financial planners are different because they create comprehensive financial plans tailored to an individual's goals and objectives. Some say that financial advisors are different because they focus on managing investments and providing advice on buying and selling securities. I know professionals with the title financial planner who offer all of these services, and I know financial advisors who offer all of these services. In my opinion, the answer to this question is that they are one and the same, and the terms can be used interchangeably. Focusing on financial planners, which will also represent financial advisors from here forward, let's dig into the ways in which they differ.
What Differentiates Financial Planners?
Financial planners differentiate themselves based on many factors. Some of the more important factors to consider and compare when looking for a financial planning professional include:
Credentials
Financial planners can obtain a variety of professional credentials to enhance their qualifications and demonstrate their expertise in the field. Here are a few of the more common credentials for financial planners:
The CERTIFIED FINANCIAL PLANNER™ or CFP® certification is widely recognized and considered the gold standard in the industry. It covers comprehensive financial planning topics and requires candidates to meet education, experience, ethics, and examination requirements.
The Chartered Financial Analyst® or CFA® certification is primarily focused on investment analysis and portfolio management; the CFA® charter also covers broader financial planning topics. It requires passing three levels of exams and meeting professional experience requirements.
The Chartered Financial Consultant® or ChFC® designation emphasizes comprehensive financial planning and is offered by The American College of Financial Services. It covers areas like insurance, investments, tax planning, retirement planning, and estate planning.
The Personal Financial Specialist or PFS™ credential is granted by the American Institute of Certified Public Accountants (AICPA) and is tailored for Certified Public Accountants (CPAs) who specialize in personal financial planning. It requires passing an exam, meeting experience requirements, and holding a valid CPA license.
The Accredited Financial Counselor® or AFC® designation focuses on providing financial counseling and education to individuals and families. The Association for Financial Counseling and Planning Education® offers it, and you must pass an exam and meet experience requirements.
Services
The qualifications, experience, background, and certifications of a financial planner have an impact on the services they provide. Financial planners may offer only one type of service, and some may offer a more comprehensive approach by offering multiple services. Many financial planners are able to offer both types of engagements: advice on a limited scope and comprehensive financial planning, depending on the needs of the client. Common services a financial planner may offer include:
Investment Management is a service that involves an analysis of a client's financial situation, risk tolerance, and investment objectives to create a personalized investment strategy. This may include conducting research, assessing market conditions, and selecting appropriate investment options such as stocks, bonds, mutual funds, or real estate, among others. A financial planner may regularly monitor and rebalance clients' investment portfolios, ensuring alignment with their objectives and adjusting as needed to optimize performance and manage risk.
Budgeting is a service that can include an assessment of an individual's income, expenses, and financial goals to create a comprehensive budgeting plan. A financial planner may work with a client to identify areas of potential savings, prioritize spending, and establish realistic financial targets. They may provide guidance on various budgeting techniques, such as allocating funds to different categories, tracking expenses, and developing strategies to reduce debt or increase savings.
Debt Management services from a financial planner may consist of analyzing a client's debts and formulating a comprehensive plan to address their debt obligations. A financial planner may offer strategies to prioritize and pay off debts systematically.
Cash Flow Management from a financial planner may encompass an assessment of income, expenses, and financial goals to develop a comprehensive cash flow plan. A financial planner may identify areas for potential improvement and provide strategic recommendations to optimize cash flow.
Retirement Planning may involve evaluating a client's current financial status, estimating retirement expense goals, and determining the amount of savings required to meet those goals. A financial planner may evaluate retirement income sources such as pensions, Social Security, and investments and develop a customized plan to optimize those resources. They may advise on retirement account contributions, investment strategies, tax implications, and risk management to help clients build a retirement portfolio that aligns with their goals. A financial planner can monitor progress over time, accounting for any changes in a client's financial life or goals.
Tax Planning from a financial planner can include the identification of potential tax deductions, credits, and strategies that can help minimize tax burdens. A financial planner would stay updated on tax laws and regulations to ensure compliance and provide expert advice on structuring transactions, timing income, and managing investments in a tax-efficient manner. Additionally, the financial planner may collaborate with other professionals, such as accountants or tax attorneys, to develop tailored tax planning strategies that align with the client's overall financial objectives. Some financial planners are qualified to offer tax preparation as part of their service offerings.
Estate Planning with a financial planner may help individuals effectively manage and distribute their assets upon their death or incapacitation. A financial planner may support your attorney in drafting legal documents such as wills, trusts, and powers of attorney, ensuring that they align with the client's financial goals. A financial planner can provide guidance on minimizing estate taxes, protecting assets, and facilitating a smooth transition of wealth to beneficiaries. Some financial planners are also attorneys, qualifying them to prepare estate and other legal documents for clients.
Charitable Planning with a financial planner entails an evaluation of a client's charitable goals and the creation of a strategic plan to optimize their charitable giving. A financial planner can advise on charitable giving strategies, such as establishing donor-advised funds, charitable trusts, or foundations. They can help clients navigate tax implications related to charitable contributions, maximize tax benefits, and ensure compliance with relevant regulations. Additionally, a financial planner may offer guidance on identifying suitable charitable causes or organizations aligned with the client's values, facilitating impactful giving, and creating a legacy of philanthropy.
College and Education Planning with a financial planner may incorporate an assessment of educational goals, estimating future costs, and developing a comprehensive plan to save and invest for educational needs. A financial planner may evaluate various funding options, such as 529 plans, education savings accounts, and scholarships, and provide strategic recommendations tailored to a client's unique circumstances.
Risk Management and Insurance can involve a financial planner assessing a client's unique risk profile, analyzing their current insurance coverage, and identifying any gaps or vulnerabilities. The financial planner may then provide recommendations on suitable insurance policies and coverage levels to adequately address those risks. They can help clients understand the various types of insurance available, such as life insurance, health insurance, property and casualty insurance, and liability insurance, and guide them in selecting the appropriate options based on their specific needs and goals.
Long-Term Care Planning is a service some financial planners offer clients seeking to prepare for potential future healthcare and elder care needs. This involves assessing a client's financial situation, understanding their health and lifestyle preferences, and developing a comprehensive plan to address long-term care costs. The financial planner helps clients explore various options such as long-term care insurance, annuities, health savings accounts, or other investment strategies that can provide financial security in the event of extended medical care or assistance. They consider factors like inflation, projected healthcare costs, and the client's desired level of care to create a tailored plan that addresses affordability and coverage.
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Fiduciary Duty
A fiduciary, simply put, is someone who puts a client's interests ahead of their own. Having a financial planner who is a fiduciary is extremely important because there are times when the interests of a financial professional may conflict with those of the client. A fiduciary must disclose any conflicts and put the client's interests ahead of their own. Unfortunately, not all financial professionals have accepted a fiduciary duty, and clients should find out if their financial planner is a fiduciary. When comparing financial planners, ask them if they will serve as your fiduciary. And if they say they are, make sure it is documented in any contract you sign with them.
Are they a CERTIFIED FINANCIAL PLANNER™ professional? All CFP® professionals have committed to the CFP Board to act as fiduciaries at all times. Failure to act as a fiduciary can lead to censure, suspension, or revocation of the CFP® certification.
Are they registered with the U.S. Securities and Exchange Commission (SEC) or a state regulator? Financial planners registered with these entities are required to act in a fiduciary capacity. To see if your financial planner is registered, search for them by name here: https://adviserinfo.sec.gov/ For more details on the Fiduciary Duty, visit https://www.nasaa.org/industry-resources/investment-advisers/investment-adviser-guide/
Fee Structure
Financial planners differ in how they charge for their services, and it is important to be absolutely clear on how it works. Here are some of the common ways that financial planners are paid:
Fee-Only: Financial planners charge a fee for their services and do not earn commissions or any other form of compensation from the sale of financial products. The fee can be based on an hourly rate, a monthly subscription, a fixed project fee, or a percentage of the assets they manage on behalf of the client.
Assets Under Management (AUM): Some financial planners charge a percentage fee based on the total value of the client's investment portfolio that they manage. This fee is typically calculated as a percentage of the assets under management, such as 1% per year. The planner's compensation increases as the client's portfolio grows.
Commission-Based: Some financial planners receive commissions by selling financial products such as insurance policies, mutual funds, or other investment products. They may offer their planning services for free or at a reduced cost, but they earn their income through these commissions when clients purchase recommended products.
Fee-Based: Financial planners combine a fee for their advice and services with potential commissions from product sales. They may charge an upfront fee for creating a financial plan and then earn additional compensation by selling products or managing assets on behalf of the client.
Retainer or Subscription Fee: Financial planners may charge a fixed retainer fee for ongoing financial advice and services. This fee is usually paid on a regular basis, such as monthly or annually.
Combination of Methods: Financial planners can also use a combination of the above methods based on the specific needs and preferences of their clients. For example, they might charge a fee for financial planning services, earn commissions from product sales, and manage assets under a fee-based or AUM structure.
Anyone who provides investment services to clients is required to file Form ADV with the Securities and Exchange Commission and state securities authorities. Form ADV details how planners charge for their services, and the information is public. Go to https://adviserinfo.sec.gov/ and search by planner or firm name to View Latest Form ADV Filed.
Client Type
Financial planners may serve everyone, or they may specialize in a particular type of client based on their own experiences and knowledge. They may have also identified an underserved segment of the market and chosen to assist those clients. Specializing in a specific client type allows planners to become experts on the unique challenges and opportunities a client may encounter.
The following is a non-exhaustive list of client-type specializations:
| Individuals | Young Professionals | Newlyweds/Couples |
| Families with Children | Child Free | Pre-Retirees |
| Retirees | Divorced Individuals | Widows/Widowers |
| Women | Female Breadwinners | LGBTQ+ |
| DIY Investors | Non-Profit Professionals | Educators |
| Government Employees | FIRE | Caregivers |
| High Earners | Tech Professionals | Veterans/Military |
| Business Owners | Authors/Writers | Socially Responsible/ESG |
| Real Estate Investors | Generation X | Millennials |
| Sandwich Generation | Baby Boomers | And more... |
There are great online services available to assist with finding a financial planner that matches a person’s interests and needs. Here are a few worth checking out:
The CFP Board's website helps identify CFP® Professionals based on planning services offered and planner location.
The National Association of Personal Financial Advisors helps find fee-only, fiduciary financial planners based on location.
The XY Planning Network is a group of CFP® Professionals who have committed to serving clients on a fee-only basis, offering services virtually as needed without an asset minimum requirement. Advisors can be found based on location, specialty, or keyword.
The Fee-Only Network is a platform for finding independent, fee-only, fiduciary planners. Planners can be found by location, name, keyword, etc.
The Advice-Only Network is a group of financial planners offering advice-only financial planning. They have committed to offering unbiased financial advice; they sell no products, receive no commissions, and do not charge fees based on assets under management (AUM). You can search by planner name or scroll through the list to see pricing and services.
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I hope this information is helpful in your search for a financial planner. It is no small task to find the right financial planner. But the hope is that you are able to identify the factors that are important to you and find a financial planner with whom you can establish a long-term relationship and who will be available to support you and your financial goals.
My name is Tim Melia, and I am a CERTIFIED FINANCIAL PLANNER™ Professional. I would be happy to answer any questions you may have or discuss how this topic impacts your life and financial goals. Feel free to email me at tim.melia@emboldenfp.com. If you would like to learn more about working with Embolden Financial Planning LLC, please schedule a free, virtual introductory meeting.
All written content on this website or any social media platform is for informational purposes only. None of the information provided is intended as investment, tax, accounting, or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. All information provided should be discussed with a registered advisor, accountant, or legal counsel prior to implementation. Opinions expressed herein are solely those of Embolden Financial Planning LLC (“EFP”), unless otherwise specifically cited. Presented material is believed to be from reliable sources and no representations are made by our firm as to another parties’ information accuracy or completeness.
References
“Fiduciary Vs Financial Advisor: What Is the Difference? | Trust and Will.” Trust & Will, trustandwill.com/learn/fiduciary-vs-financial-advisor.
“Types of Financial Advisors - NerdWallet.” NerdWallet, www.nerdwallet.com/article/investing/types-financial-advisors.
“Financial Planner Vs. Financial Advisor: What’s the Difference?” Investopedia, 11 June 2023, www.investopedia.com/articles/personal-finance/040215/financial-advisor-vs-financial-planner.asp.
“10 Questions to Ask Your Financial Advisor.” 10 Questions to Ask Your Financial Advisor | CFP - Let’s Make a Plan, www.letsmakeaplan.org/how-to-choose-a-planner/10-questions-to-ask-your-financial-advisor.
